Yelp (NYSE:YELP) released better-than-expected third-quarter 2019 results on Thursday after the market closed, demonstrating the fruits of its recent strategic initiatives to accelerate the growth of its core advertising revenue stream. Shares of the local business review site soared more than 15% on Friday -- and then followed with a nearly 4% gain on Monday -- as investors cheered the update.

Now that the dust has settled, let's dig deeper to better understand what's driving Yelp's momentum, starting with a bird's-eye view of its quarter relative to the same year-ago period:

Metric Q3 2019 Q3 2018 Change


$262.5 million

$241.1 million


GAAP net income attributable to common stockholders

$10.1 million

$15.0 million


GAAP earnings per diluted share




Data source: Yelp. GAAP = generally accepted accounting principles. 

Breaking it down

For perspective, Yelp's quarterly revenue growth accelerated from the 5% increase it achieved in Q2, arriving squarely within guidance provided in August for growth of 8% to 10%. Within that total, advertising revenue grew 8.9% to $253.1 million, and transactions revenue remained roughly steady at just under $3.1 million, given Yelp's sale of Eat24 to Grubhub last year. "Other services" revenue also rose 13.5% to $6.3 million, driven by Yelp Reservations and Yelp Waitlist.

On the bottom line, investors should note that Yelp's per-share earnings were bolstered by stock repurchases over the past year -- including 2.3 million shares bought back for $77 million this quarter alone -- which have reduced its total outstanding shares by 14% year to date.

Man in suit touching a digital chart indicating gains.


We should also keep in mind that Yelp's earnings were negatively affected by roughly $7 million (or $0.14 per share) in expenses related to "shareholder activism" this quarter -- a reference to its recent efforts to combat calls by certain activist investors for the company to drastically overhaul its operations, growth strategy, and board of directors.

Excluding those expenses, Yelp's bottom line would have absolutely smashed consensus estimates calling for earnings of $0.19 per share.

And Yelp's economies of scale are starting to yield fruit. Even as app-unique devices grew 11% year over year to 38 million and cumulative reviews rose 17% to 199 million, Yelp decreased its its marketing expenses by nearly half. This helped drive 16% growth in adjusted EBITDA to $58 million, also roughly in line with guidance.

Meanwhile, Yelp's paying advertising locations rose 7% to roughly 563,000. And the company simultaneously drove a 42% increase in ad clicks for those advertisers from the same year-ago period, while driving cost per click down 22%. 

"The resulting increase in value, along with better targeting, helped improve local advertiser retention by a mid-teens percentage compared to the third quarter of last year," wrote Yelp co-founder and CEO Jeremy Stoppelman in a letter to shareholders.

"We expect this momentum to continue..."

In a prepared statement, Stoppelman elaborated:

We are pleased to have reaccelerated revenue growth, while at the same time increasing adjusted EBITDA margin, in the third quarter. We expect this momentum to continue in the fourth quarter, with revenue growing double-digits compared to the prior year and margin expanding significantly once again. These strong business fundamentals reinforce our confidence in our ability to achieve our long-term financial targets."

Still, Yelp sees fourth-quarter revenue growing in the range of 11% to 13% year over year -- technically below consensus estimates for growth closer to 14% --  with adjusted EBITDA margin expanding by roughly two to three percentage points.

As such, Yelp tempered its full-year outlook for 2019 revenue to grow 8% -- down its 8% to 10% target range previously, while reiterating its outlook for full-year adjusted EBITDA margin to expand two to three percentage points.

With shares down nearly 30% from their 52-week high, however, and given Yelp's relative outperformance on the bottom line in Q3, the market was apparently more than willing to forgive Yelp for its seemingly conservative guidance revision. 

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