Shares of local recommendation site Yelp (YELP) surged last week, after the San Francisco-based company reported a second quarter loss of a penny per share, up from the loss of $0.03 per share it reported in the prior year quarter. Revenue rose 69% year-on-year to $55 million. Thomson Reuters analysts had expected Yelp to post a loss of $0.04 per share on $53.29 million in revenue. That significant beat on both the top and bottom lines caused shares to surge 23% on August 1.
Growth was solid throughout the company’s main businesses. Active local business accounts rose 62% to 51,400, and monthly visitors averaged 108 million for the quarter. 59% of total searches came from mobile devices, indicating strong potential for future mobile growth. 40% of local ads were shown on mobile devices. The site’s cumulative reviews came in at 42.5 million. CFO Rob Krolik highlighted Yelp’s international growth, which now accounts for 5% of the company’s top line and 16% of the site’s total unique visitors. Total international visits rose 75% year-on-year, with a large number of visits coming from Europe.
Over the past several months, Wall Street had grown increasingly bearish on Yelp, due to new location-based recommendation services from Facebook (FB) and Google (GOOG) that threaten to undermine the company’s core business model. Although those threats have not faded away yet, Yelp provided robust guidance for the rest of the year, expecting revenue between $58 to $59 million, higher than the consensus estimate of $57 million. For the full year, Yelp expects revenue to come in between $222 million to $224 million.
Yelp expressed strong confidence in its international growth potential despite the rise of Facebook and Google, and noted that it achieved significant growth by adding Qype content from France, and traffic data from Spain and Italy to increased its global appeal. The company also added two domestic markets and four international ones during the second quarter. A Nielsen survey also revealed that 82% of Yelp’s visitors use the site or app with the intention of making a purchase at recommended locations. 98% of Yelp users have made at least one purchase through a business found through Yelp, and 89% have done so within a week of using the service. According to the survey, 55% of Yelp users use the service to place calls or initiate transactions with recommended businesses. Those statistics are very encouraging for Yelp, which relies on fees from “premium” accounts for business users.
Yelp’s adjusted EBITDA of $7.8 million indicate that it is closing in on a quarterly profit, but the stock still remains a fairly speculative bet. The stock is still trading at a whopping 214.6 times forward earnings with a 5-year PEG ratio of -21.4, meaning that the company still has a lot to prove, despite its recent rally. The stock is now up 164% over the past twelve months, and has outperformed reservation site OpenTable OPEN, to which it is frequently compared.
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