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Why Yelp Stock Tanked Today

By Evan Niu, CFA - Aug 7, 2020 at 1:41PM

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The local business review site reported second-quarter results but uncertainties linger.

What happened

Shares of Yelp (YELP -3.37%) have tanked today, down by 14% as of 12:20 p.m. EDT, after the company reported second-quarter earnings. The results topped expectations, but the local business review site continues to feel the impact of the COVID-19 pandemic.

So what

Revenue in the second quarter fell by nearly a third to $169 million, which was still better than the $153 million in sales that analysts were expecting. That translated into a net loss of $24 million, or $0.33 per share, also better than the $0.51 per share in losses that Wall Street was modeling for. Adjusted EBITDA plunged 80% to $11 million. The tech company, which relies primarily on advertising revenue from small local businesses, finished the quarter with $526 million in cash.

Three smartphones displaying Yelp's app interface

Image source: Yelp.

"Our second quarter results demonstrate the resilience of our business, in spite of the significant headwinds faced by local economies following the emergence of COVID-19," CEO Jeremy Stoppelman said in a statement. "Due to our disciplined actions on expenses, coupled with solid revenue performance, we added $35 million of Cash and cash equivalents to our Balance sheet."

Now what

Due to ongoing uncertainty stemming from the pandemic, Yelp did not give much specific financial guidance for the third quarter beyond noting that operating expenses are expected to rise by $30 million. Instead, management provided some commentary about trends that the business is seeing. Consumer spending and advertising revenue started to recover near the end of the quarter in June. However, traffic started to plateau in July due to a resurgence in COVID-19 cases around the U.S.

"As we look ahead, in the absence of a vaccine or effective therapeutics, we expect to see continued fluctuations in business openings and closures as communities respond to local outbreaks, which may impact the pace at which our revenue recovers," Stoppelman and CFO David Schwarzbach wrote in a letter to shareholders.

Evan Niu, CFA has no position in any of the stocks mentioned. The Motley Fool recommends Yelp. The Motley Fool has a disclosure policy.

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