Should You Short Yelp Ahead of its Earnings Report?

Should You Short Yelp Ahead of its Earnings Report?
By User:ZyMOS [Public domain], via Wikimedia Commons

Should You Short Yelp Inc (NYSE:YELP) Ahead of its Earnings Report?

Yelp, Inc. (YELP) Information Technology – Internet, Software & Services | Reports August 9, After Market Closes

Key Takeaways

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  • The Estimize consensus is calling for an 7 cent loss per share on 169.61 million in revenue, right in line with Wall Street on the bottom and top line
  • Yelp has been on a tear lately after local revenue topped 40% growth last quarter, but that might be coming to an end after Citi downgraded the stock to neutral
  • Facebook’s emergence in the space poses a serious threat to Yelp’s immediate business
  • What are you expecting for YELP? Get your estimate in here!

Yelp is scheduled to report second quarter earnings this Tuesday, after the market closes. While it is the foremost trusted reviewing platform, this has yet to reflect earnings. The company continually turns a loss in its efforts to stimulate revenue and drive user growth. Its efforts have somewhat paid off this year. Last quarter Yelp reported better than expected revenue thanks to 40% growth in its local services. The stock is also starting to show some signs of new life. Shares are up 15% year to date and 10% in the past 12 months.

The Estimize consensus is still down on Yelp heading into its report this week. Analysts are looking for a 7 cent loss per share down 228% compared to the same period last year. That estimate has dropped 107% since Yelp’s last report in May. Revenue is anticipated 27% higher at $169.91 million, marking another quarter of decelerating growth. On average, the stock does poorly during earnings season, declining 1% immediately following a report. clostYelp’s surge the past few months is coming to a screeching halt. Citigroup recently downgraded the stock from buy to neutral citing over-exuberant stock movement, modest ad revenue guidance and pressured margins. It’s been reported that user mobile and transaction sales slowed in the first quarter. Yelp also took liberties when it assumed a significant increase in margins in the second half of 2016. If the company lives up to its lofty expectations, investors should be in for a treat.

Unfortunately, this isn’t Yelp’s only concern. Facebook has recently embarked on the local review space. Facebook’s review system eliminates internet anonymity typically associated with a Yelp rating. This poses a threat to web traffic and at the end of the day, ad revenue. Yelp generates a majority of its traffic from two main engines: its mobile app and Google. While the mobile app has performed remarkably well so far, its presence in Google and other search engines have declined. To remedy this issue, Yelp intends to increase marketing investments to $50 million in 2016, from $30 million last year which will hopefully help offset churn rates. clost
Do you think YELP can beat estimates? There is still time to get your estimate in here!

Photo Credit: Yelp Inc.

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