Yelp Up 5% On Q2 Beat; RBC Says Stock ‘Needs A Vaccine Too’

Review site Yelp (YELP) rose 4.53% in Thursday’s after-hours trading after the company posted a solid Q2 earnings beat driven by steady improvements in Ad budgets and $71M in OpEx reduction.

Specifically Q2 GAAP EPS of -$0.33 beat Street estimates by $0.20, while revenue of $169.03M also topped consensus expectations by $16.43M despite plunging 31.6% year-over-year. Ad Revenue came in at $162M (vs Street at $143M) with Transaction Revenue of $3.9M (vs Street at $2.5M).

Meanwhile Q2 Adjusted EBITDA of $11.0M was significantly higher than the Street forecast of ($8.2M). Encouragingly, management noted that Revenue troughed in April at -35% year-over-year, with steady improvement through the quarter- although July trends plateaued vs. June.

“Our second quarter results demonstrate the resilience of our business, in spite of the significant headwinds faced by local economies following the emergence of COVID-19,” said Jeremy Stoppelman, Yelp’s CEO.

“Due to our disciplined actions on expenses, coupled with solid revenue performance, we added $35 million of Cash and cash equivalents to our Balance sheet” he added. Management did not provide Q3 or full year guidance due to rising COVID- related uncertainties.

Following the earnings report, RBC Capital’s Shweta Khajuria reiterated her hold rating on the stock while boosting her price target from $21 to $29. “All in, Q2 Fundamental trends were negative, with declining revenue, -32% Y/Y, and contracting EBITDA margin (down 16-pts Y/Y)” she commented.

Khajuria views Yelp as a “vaccine” stock—with the release of COVID vaccine and the reopening of the economy, Yelp should benefit substantially in terms of foot traffic for businesses as well as app traffic.

But until then, there remains too much uncertainty. “While we are encouraged by Yelp’s Ad Revenue resiliency and the company’s ability to enhance its liquidity position, we believe there remains a considerable level of uncertainty in the near term given the current macro environment, and it could take several months before we see normalcy again” the analyst concludes. (See YELP stock analysis on TipRanks).

Indeed the stock shows a Hold analyst consensus with an average analyst price target that indicates shares could pull back from current levels. That’s despite shares already falling 20% year-to-date.