Yelp Inc. (YELP) incurred a loss of 3 cents per share in the fourth quarter of 2013, wider than the Zacks Consensus Estimate of a loss of 2 cents per share.
Quarter Details
Revenues for the quarter surged 71.7% from the year-ago quarter to $70.7 million. Reported revenues were ahead of management’s guided range of $66.0 million to $67.0 million as well as the Zacks Consensus Estimate of $67.0 million.
In the fourth quarter, Yelp recorded a 69.0% increase in active local business accounts from the year-ago quarter to reach a level of 67,000.
Brand revenues increased 85.0% year over year to reach $9.2 million. Other revenues increased 51.0% year over year to reach $3.4 million. International revenues contributed about 4% of total revenue in the quarter.
Yelp mobile continues to witness increased consumer engagement. In the reported quarter, Yelp had approximately 53 million mobile unique visitors (which includes both mobile web and mobile app users), and 30% of the new reviews were contributed through mobile devices.
Almost 59.0% of the searches were made on mobile, out of which about 46.0% were made through the app whereas mobile web contributed the remaining 13.0% of searches.
Approximately 47.0% of local ads featured on mobile devices. This apart, a number of mobile features were added by Yelp, including the revamped Nearby function and the ability to write and post reviews.
Yelp reported adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $10.4 million compared with $1.8 million in the year-ago quarter.
Sales and marketing expenses escalated 52.3% year over year to $38.8 million while product development costs surged 89.0% year over year to $11.8 million. General & administrative expenses increased 71.4% from the year-ago quarter to $13.5 million.
Higher level of expenses hurt profitability as Yelp reported an operating loss of $1.9 million in the quarter. However, the loss narrowed from the year-ago quarter loss of $5.1 million, primarily due to higher revenues. Net loss contracted from $5.3 million in the year ago quarter to $2.1 million in the reported quarter.
Yelp exited the quarter with $389.8 million in cash & cash equivalents versus $101.2 million in the previous quarter.
Guidance
Yelp expects revenues in the range of $73.5 million to $74.5 million for the first quarter of 2014. Adjusted EBITDA is expected in the range of $8.0 million to $9.0 million for the same period.
For full year 2014, net revenue is expected to be in the range of $353 million to $358 million, representing year-over-year growth of approximately 53.0%. The company also raised its adjusted EBITDA projection from $28 million-$29 million to $54 million-$58 million.
Recommendation
Yelp’s positive guidance reflects strong growth in user base (particularly mobile), its entry into new markets (both domestic & international) and also new partnerships. The company successfully completed the Qype integration in Germany, Qype’s largest market in the reported quarter.
Moreover, it also expanded its European sales efforts and is now available in France, Spain and Germany. We believe that these international initiatives will expand Yelp’s footprint, which will drive top-line going forward. Additionally, partnerships with Apple (AAPL) and Microsoft (MSFT) are positive for the company.
However, competition from Yahoo (YHOO) is expected to rationalize profitability in the near term. As Yelp continues to explore and expand into new markets, sales & marketing expenditure is expected to increase significantly, thereby hurting margins.
Currently, Yelp has a Zacks Rank #4 (Sell).
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