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Why Yelp Stock Soared 20% in August

By Timothy Green – Sep 8, 2016 at 10:11AM

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Better-than-expected revenue growth and boosted guidance got investors excited.

Image source: Yelp.

What happened

Shares of Yelp (YELP -0.38%) jumped 19.6% in August, according to data provided by S&P Global Market Intelligence. The company's second-quarter earnings report, which beat analyst estimates across the board and featured a guidance boost, drove the stock higher.

So what

Yelp reported second-quarter revenue of $173 million, up 30% year over year and about $3.6 million higher than analysts were expecting. The number of total reviews on the company's platform grew 30% to 108 million, while the number of local advertising accounts expanded by 32% to 128,000. Local revenue, which accounts for most of Yelp's revenue, grew 41% year over year to $152 million, while transactions revenue jumped 37% to $15.5 million.

Non-GAAP EPS came in at $0.16, up from $0.12 during the prior-year period and $0.01 higher than the average analyst estimate. On a GAAP basis, the company posted EPS of $0.01, up from a loss of $0.02 during the prior-year period. However, a tax benefit was the only reason GAAP EPS increased. GAAP operating income declined from essentially breakeven during the second quarter of 2015 to a loss of $1.2 million.

For the full year, Yelp expects to produce revenue of $700 million to $708 million, up from a previous range of $690 million to $702 million. According to CEO Jeremy Stoppelman, the company expects a solid second half:

Our mission is to connect people with great local businesses and we did that through more than 300 million connections in the second quarter -- which include mobile calls, clicks for map views and directions, food orders, restaurant reservations, and new reviews, among other actions. In the second half of the year, we look to execute against our three strategic priorities of growing the core local advertising business, boosting awareness of Yelp and driving transactions.

Now what

Strong revenue growth and improved guidance was enough for investors to push shares of Yelp higher. The stock is still down 60% since peaking in early 2014, but it has gained back some ground in 2016.

YELP Chart

YELP data by YCharts.

Unfortunately, Yelp's profitability didn't really improve during the second quarter, adjusting for the tax benefit. Costs are rising just as fast as revenue, and it's unclear when this dynamic will change. For now, though, investors appear content with continued revenue growth.

Timothy Green has no position in any stocks mentioned. The Motley Fool recommends Yelp. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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