What happened

Shares of local business-connection platform Yelp (NYSE:YELP) went up on Friday after the company reported results for the third quarter of 2020. The stock dropped immediately after it reported yesterday -- an indication that investors didn't like the initial numbers. However, as of 3:45 p.m. EST, Yelp stock is up 9.5%, suggesting the company's forward guidance is the real reason shares are rising.

So what

For Q3, Yelp's revenue was down 16% year over year to $220.8 million. And through the first three quarters of 2020, revenue is down 14% from the comparable period of fiscal 2019. That's because with restaurants and small businesses disproportionately impacted by the COVID-19 pandemic, there's been less need for Yelp's platform.

A dollar bill folded into the shape of an upward arrow.

Image source: Getty Images.

Still, things are improving for Yelp. Q3 revenue was down from last year, but it was up 35% quarter over quarter, reflecting an easing to stay-at-home guidelines.

Turning to the bottom line, it's been a tough year for Yelp. Through three quarters, the company has recorded a net loss of $40.5 million. However, this too is rapidly improving. Its Q3 net loss was just $1 million.

Now what

For the upcoming fourth quarter, Yelp's management is guiding for $220 million to $230 million in revenue. That could all change of course if physical-distancing guidelines get more strict in coming months, but it's the best guidance management can give based on the current reality. For perspective, the company reported revenue of $236 million in the fourth quarter of 2019.

While 2020 has challenged Yelp, this small-cap stock remains well capitalized with $591 million in cash and cash equivalents on the balance sheet, and minimal long-term liabilities. Perhaps it's this strong balance sheet that gives management confidence to resume its share-buyback program despite the ongoing uncertainty. The company has $269 million of authorization outstanding on its current plan. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.