Yelp (NYSE:YELP) crashed in after-hours trading on Wednesday.
Shares of the local-reviews website were down more than 14% following its fiscal first-quarter earnings report. Although Yelp beat on the bottom line, its revenue came in short of analyst expectations, and its guidance was a bit weaker than anticipated.
Let's take a closer look at Yelp's results.
A beat on the bottom line; a miss on the top line
Under traditional accounting standards, Yelp remains unprofitable, but on an adjusted basis, it's making money -- more than analysts had anticipated. For the first quarter, Yelp earned an adjusted $0.10 per share, far better than the consensus analyst estimate of around $0.01.
But Yelp isn't a value stock. Investors interested in the company are primarily seeking growth. Although Yelp's revenue rose significantly from the first quarter of 2014, it fell short of expectations. Wall Street had been anticipating Yelp to generate around $120 million in revenue; instead, it brought in $118.5 million. That still represents 55% growth on an annual basis, but given its valuation, investors may have been looking for more.
Traffic and reviews
In line with its status as a speculative stock, other growth metrics remain vital to the Yelp story. When Yelp last reported earnings back in February, shares plunged on disappointing traffic metrics. In particular, Yelp's monthly unique visitors rose only 13% on an annual basis.
Once again, its traffic metrics came in light, both on an annual and sequential basis.
Yelp's average monthly mobile unique visitors -- those visiting Yelp through smartphones and tablets -- rose a solid 29% on an annual basis. But that's down from the 37% growth last quarter, and down significantly from the 52% growth last year. Yelp's totally monthly unique visitors -- those visiting from both mobile devices and traditional PCs -- rose only 8% on an annual basis, compared with 13% last quarter and 30% last year.
Growth of total advertising accounts, however, remains relatively strong. Those rose 43% on an annual basis, compared with 48% last quarter and 65% last year.
Yelp's guidance was also disappointing. Looking ahead, Yelp expects to generate net revenue of around $131 million to $134 million. Wall Street analysts had been looking for around $138 million. If Yelp meets its guidance, its second-quarter sales will grow around 49% compared with the same quarter last year. But analysts had been expecting growth of about 56%.
For all of 2015, Yelp's guidance is a bit more in line with estimates. Yelp expects its annual revenue to rise 53% on an annual basis, as it generates around $574 million to $579 million. Analysts had been modeling Yelp's 2015 revenue at the high end of that range, just over $579 million.
Still plenty of volatility
Given the numbers, Yelp's sell-off is far from surprising. Growth is obviously slowing, and since Yelp isn't consistently profitable, any signs of a slowdown are likely to be met with selling pressure, as some investors begin to fear that its business model is hitting its peak.
But in total, there was nothing this quarter to suggest that the Yelp story has fundamentally changed. It's still seeing more visitors and more advertising clients, and its total revenue continues to surge. Long-term investors who believe in the Yelp story should be accustomed to such volatility at this point and may consider using the sell-off to add to their holdings.