Image source: Yelp.
For the second quarter in a row, we find Yelp (YELP 1.91%) posting a quarterly profit when analysts were expecting a small deficit, and that once again led to shares of the venue reviews website operator moving nicely higher. Yelp stock rose 11.9% last week following the better-than-expected financials. The stock soared 19% for the week when it posted blowout financial results for the second quarter three months earlier.
The third quarter itself was another winner. Revenue soared 30% to $186.2 million, fueled mostly by a 41% in local revenue (representing 89% of Yelp's top line) and a 33% uptick in transaction revenue. Yelp continues to make inroads with local venue operators as restaurants, retailers, and service providers shell out money to stand out on the Yelp site and app. There are now 130,000 local advertising accounts, 30% ahead of where that count was a year earlier.
Local business operators flock to Yelp as a lead generator because it's where the people are going. The last time someone suggested going to a restaurant that was new to you, there's a fair chance you consulted Yelp to see what others were saying. You're not alone. There are now roughly 115 million reviews across Yelp's platform, a 29% spike over the past year.
Yelp isn't a hit everywhere, and it's staging a retreat outside of North America. It will be taking a $2 million to $4 million charge during the current quarter to wind down its sales and marketing activities outside the U.S. and Canada, laying off as many as 175 of its 4,350 employees.
Revenue rose 29.5% to $173.4 million. That would be impressive growth for most companies, but it's actually Yelp's weakest top-line growth as a public company. Year-over-year gains have been decelerating these days, with the company posting seven consecutive quarters of declines, according to S&P Global Market Intelligence data. The streak began with Yelp posting 67.5% growth.
Coming back for seconds
Wall Street naturally liked the report. RBC Capital analyst Mark Mahaney stuck to his bullish outperform rating, boosting his price target on the stock to $55 following the strong report. Analysts were starting to warm up to Yelp even before the financial results were announced.
MKM Partners' Rob Sanderson chimed in with a bullish note just days before Yelp's financials results. He was rightfully predicting a solid report, and he saw the stock's weakness ahead of the earnings call as a buying opportunity. He reiterated his buy rating and $48 price target. A month earlier, it was SunTrust and Maxim analysts pushing their price goals higher -- in Maxim's case, tethered in part to Yelp's prospects as a buyout candidate, something that was also echoed in a bullish note out by Cantor Fitzgerald's Youssef Squali.
Yelp's stock may be trading 25% higher so far in 2016, but it's had its share of ups and downs in its four-year tenure as a public company. The stock fell sharply in 2014 and 2015 on competitive fears that never truly materialized. Yelp stock has still gone on to more than double since going public at $15 in 2012.
Growth at Yelp is slowing. The $191 million to $195 million in revenue it's targeting for the holiday quarter represents growth of roughly 26% at the midpoint. If that's where it lands, it would be the weakest year-over-year growth at Yelp since it became a public company. However, with Yelp still taking steps in the right direction, and its relevance only continuing to grow, it's hard to fight against the recent bullish momentum.
