Yelp, Inc. Ends the Year Strong

Yelp Inc. (YELP -1.38%) announced strong fourth-quarter 2016 results Thursday after the market closed. And in contrast to last quarter's post-earnings pop after another big beat, shares are down more than 9% in after-hours trading as of this writing as investors mulled lighter-than-expected revenue guidance from the local business-review specialist.

Let's take a closer look, then, at what Yelp had to say, and what investors can expect going forward.

Image source: Yelp.

Yelp results: The raw numbers

Data source: Yelp.

What happened with Yelp this quarter?

• On an adjusted (non-GAAP) basis, which excludes items like stock-based compensation and restructuring expenses related to last quarter's decision to wind down sales activities outside the U.S. and Canada, net income climbed 151.1% year over year, to $22.6 million. Adjusted net income per share increased 145.5%, to $0.27.
• Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) increased 158.9% year over year, to $45.3 million.
• Yelp's most recent guidance was less optimistic, calling for fourth-quarter revenue in the range of $191 million to $195 million, and significantly lower adjusted EBITDA of $36 million to $40 million.
• Generated full-year 2016 cash flow from operations of $126.9 million.
• Local advertising accounts grew 24% year over year, to roughly 138,000, and rose sequentially from 135,000 last quarter.
• Local advertising revenue increased 36% year over year, to $171.1 million.
• Transactions revenue rose 19%, to $16.6 million, comprised primarily of revenue from Eat24.
• "Other" business revenue grew 4% year over year, to $7.1 million.
• Total transaction volume grew 40% year over year in 2016, to over 20 million, including completed transactions and bookings through Eat24, Yelp Reservations, and Yelp Platform.
• Integrated Nowait into the Yelp App in October, allowing consumers to add themselves remotely through the app to wait lists for approximately 3,600 restaurants.
• Cumulative reviews increased 27% year over year, to 121 million, up from 115 million last quarter.
• App unique devices grew 20% year over year, to 24 million, on a monthly average basis this quarter, down from 25 million last quarter.
• 73 million unique visitors visited Yelp via desktop computer, and 65 million unique visitors visited the Yelp mobile website on a monthly average basis this quarter.
• Around 70% of total paid views came from the Yelp app during the quarter, consistent with last quarter.
• Continued to wind down sales activities outside of the U.S. and Canada to free up financial resources on Yelp's core North American business.

What management had to say

Yelp co-founder and CEO Jeremy Stoppelman stated:

We had an outstanding year, growing local revenue by 39%. I am extremely proud of how Yelp has become deeply integrated into consumers' daily habits and increasingly essential to local business owners. In 2017, we look forward to increasing engagement on the app, expanding transactions and broadening our sales strategy.

Looking forward

For the first quarter of 2017, Yelp expects revenue of $195 million to $199 million, representing year-over-year growth of 25% at the midpoint. First-quarter adjusted EBITDA should be in the range of $25 million to $28 million. By contrast -- and while we don't usually pay close attention to Wall Street's short-term demands -- analysts' consensus estimates predicted Yelp would achieve higher first-quarter revenue of $204.4 million.

For the full year of 2017, Yelp expects revenue of $880 million to $900 million, or growth of 25% at the midpoint, with adjusted EBITDA of $150 million to $165 million, or growth of just over 30% at the midpoint. Wall Street was modeling full-year revenue near the high end of Yelp's expected range.

During the subsequent conference call, Yelp CFO Charles Baker elaborated that Yelp's primary objectives in 2017 will be to drive usage and engagement, increasing transaction mechanisms and broadening its sales strategy. Yelp is also planning to boost investments in marketing initiatives intended to drive self serve, elevate performance marketing, and promote the Yelp app, while at the same time modestly reducing investments in branding.

In the end, Yelp management insists they're pleased with their performance -- and rightly so -- and excited for the company's position as it invests to capture key growth opportunities in the year ahead. But with shares having more than doubled over the past year leading up to this report, it's clear the market was looking for even headier growth going forward.