Yelp Pops 11% On Earnings Beat; RBC Upgrades To Buy

Shares in Yelp (YELP) are soaring 11% in Friday’s trading, after Q3 Revenue and EBITDA came in solidly above Street estimates, driven by improvement in Ad budgets through Q3.

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Specifically, Yelp’s Q3 GAAP EPS of -$0.01 beat consensus by $0.35, while revenue of $221M dropped 15.8% Y/Y, but still topped consensus estimates by $18.8M.

YELP also reported that Adjusted EBITDA increased by $42M, up from the second quarter 2020 to $53M (and well above the Street at $11M), while Cash and Cash Equivalents increased by $65M to $591M as of September 30, 2020.

“Yelp’s third quarter results demonstrate our business’s considerable resilience, highlighted by positive year-over-year revenue growth in two key areas of our long-term strategy: Home & Local Services and our Self-serve sales channel,” cheered Jeremy Stoppelman, Yelp’s co-founder and CEO.

“Together with our strong balance sheet and increased sales efficiency, we are confident in our ability to return to sustainable growth in the new year while still managing the impacts of the pandemic” he added.

Looking forward, Yelp expects fourth quarter net revenue to fall between $220M – $230M (down 16% Y/Y). That’s with fourth quarter adjusted EBITDA margin of approximately 16% to 20%.

Post-print, RBC Capital analyst Mark Mahaney upgraded Yelp from hold to buy while taking the price target to $29 (20% upside potential). He noted that Q3 Fundamental trends were positive as revenue growth improved to -16% Y/Y (vs. -32% in Q2) & EBITDA margins expanded 1.6-pts Y/Y.

“We are starting to see the impact of early signs of recovery and reopening of the economy on Yelp’s business. We continue to view Yelp as a “vaccine” stock—with the release of a COVID vaccine, Yelp should benefit substantially in terms of foot traffic for businesses on its platform as well as its app traffic” the analyst explained. (See YELP stock analysis on TipRanks).

Year-to-date the stock is trading down 31%, and analysts have a cautious Hold consensus on Yelp’s outlook. That’s with 3 buy ratings offset by 8 hold ratings and 3 sell ratings. The average analyst price target stands at $25 (4% upside potential).