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Yelp’s Screaming: It’s Time To Listen

Yelp Yelp‘s (YELP) second-quarter earnings blew past Wall Street estimates, led by strength in active business accounts. For all those who thought Facebook Facebook (FB) would derail the company’s chances of succeeding, you’re sorely mistaken.

The San Francisco-based local business reviewer said it lost 1 cent per share on $55 million in revenue for the second-quarter, well above what analysts were thinking. Analysts polled by Thomson Reuters Thomson Reuters were looking for a loss of 4 cents per share on $53.29 million in sales.

Not only did the company show that its business did well, Yelp has confidence in its future, something analysts are noting. Oppenheimer analyst Jason Helfstein, who boosted his price target to $49 from $30, feels the company may be conservative about the future potential of the business, despite putting third-quarter and full-year estimates above what Wall Street is thinking. “Second-half revenue guidance conservatively assumes slower growth, but mgmt is raising EBITDA guidance by 25%,” Helfstein wrote in his note.

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For the third-quarter, Yelp expects sales to be between $58 million and $59 million, with adjusted EBITDA between $7.5 million and $8 million. Analysts surveyed were looking for $57 million. For fiscal 2013, Yelp anticipates revenue will be between $222 million and $224 million, with adjusted EBIDTA between $27 million and $28 million.

Yelp, led by CEO Jeremy Stoppelman, is showing that any threat from Facebook’s Graph Search, which is just starting to roll out to all of Facebook’s 1.15 billion users, is vastly premature. The company’s local ad growth continues to show exceptional strength, with average monthly visitors rising 38% to 108 million, and active local business accounts soaring 62% to 51,400.

Cantor Fitzgerland analyst Youssef Squali, who rates shares “buy” with a $47 price target, said “The quarter saw a record number of new business paying accounts and growth from older cohorts continuing unabated.” Following the quarter, Squali raised his revenue, EBITDA and earnings estimates for fiscal 2013. He now expects the company to generate $223.8 million in revenue, EBITDA of $28.2 million, while losing 12 cents per share.

The company is still not profitable on a non-GAAP basis, but it doesn’t matter, as local ad growth continues to soar and the company is taking market share away from other providers, as well as the Yellow Pages, which has seemingly been in a decline for forever.

Not only is the company seeing tremendous demand on mobile, with 40% of ads viewed on a mobile device and 59% of searches coming from mobile, Yelp is expanding into new markets. The company recently rolled out its delivery service, known as Yelp Platform, and the company continues to move further into e-commerce initiatives, something that Jefferies analyst Brian Pitz says “validate[s] the power of the Yelp brand and business model.”

Right now, Yelp is going through an incredible, transformative time in its business history, as active local businesses flock to the service, not only because they see a value in having reviews from its customers on its page, but because there is a return on investment from being associated with Yelp.

Yelp is dominant on mobile and is only getting stronger as time goes on. That is part of the reason I suggested Yahoo Yahoo! (YHOO) acquire the company several months ago. It’s also largely the reason Wall Street has taken notice, sending shares soaring.


Written by Chris Ciaccia at TheStreet


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Mystic Maggie

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