Yelp Inc. (NYSE:YELP) announced better-than-expected second-quarter 2018 results on Wednesday after the market closed, detailing accelerated advertising revenue growth and record paying advertising account additions following the rollout of the company's more flexible non-term ad contracts.

With shares up nearly 15% in after-hours trading as the market reviews the news, let's take a closer look at how the local business review specialist ended the first half.

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Image source: Getty Images.

Yelp results: The raw numbers

Metric

Q2 2018

Q2 2017

Year-Over-Year Growth

Revenue

$234.9 million

$209.9 million

11.9%

GAAP net income attributable to common stockholders

$10.7 million

$7.9 million

35.4%

GAAP earnings per diluted share

$0.12

$0.09

33.3%

Data source: Yelp. 

What happened with Yelp this quarter?

  • Revenue was above Yelp's guidance provided in May, which called for a range of $230 million to $233 million.
  • Adjusted EBITDA increased 9% to $47 million, above guidance for a range of $39 million to $42 million.
  • Yelp's bottom line also handily exceeded consensus estimates for earnings of $0.01 per share.
  • By segment:
    • Advertising revenue grew 21% year over year to $226 million, led by growth in the size of Yelp's local salesforce and business owners' positive response to Yelp's new non-term advertising products.
    • Transactions revenue declined to $4 million from $18 million a year ago, driven again by last year's sale of Eat24 to GrubHub. Yelp is now paid a fee under a new partnership with GrubHub for food orders originating on its platform.
    • Other services revenue increased by $1 million to $5 million, driven by efficiencies from combining Yelp Reservations and Yelp Nowait sales teams, as well as growth from the Yelp WiFi marketing platform.
  • Cumulative reviews increased 21% year over year to 163 million.
  • App unique devices grew 15% to 32 million.
  • Paying advertising accounts soared 31% year over year to 194,000, marking a record sequential increase of 17,000 customers from last quarter. Again, growth here was driven by the completion of Yelp's transition to non-term contracts.

What management had to say

Yelp co-founder and CEO Jeremy Stoppelman stated: 

Second-quarter results were once again driven by strong revenue growth in our core Advertising business. We completed the transition to selling non-term local advertising in the quarter, which helped deliver record advertising account additions. Our growth initiatives elsewhere also produced encouraging results.

In his latest quarterly letter to shareholders, Stoppelman elaborated on the strategic contract changes that left the market worried over whether last quarter's strength was sustainable:

We are pleased with how the transition has gone. Clients have responded well to the increased flexibility, and our salesforce has closed more new deals than ever before. We added a record number of advertisers in the quarter, and trial conversion and client retention were consistent with our expectations.

Looking forward

For the third quarter, Yelp expects revenue ranging from $242 million to $246 million, with adjusted EBITDA of $49 million to $52 million. As such, Yelp increased its its full-year guidance to call for revenue of $952 million to $967 million, compared with $943 million to $967 million before, with adjusted EBITDA of $186 million to $192 million, up from $179 million to $188 million previously.

In short, this was a solid beat-and-raise performance from Yelp that should effectively silence skepticism over whether its transition to non-term advertising contracts was ill-advised. And the stock is rightly soaring as investors respond in kind.

Steve Symington has no position in any of the stocks mentioned. The Motley Fool recommends Yelp. The Motley Fool has a disclosure policy.