Yelp Inc. (YELP) is set to report first-quarter 2014 results on Apr 30. Last quarter, the company delivered 50.0% negative earnings surprise. Let’s see how things are shaping up for this announcement.
Factors to Consider This Quarter
Although Yelp’s fourth-quarter loss was wider than the Zacks Consensus Estimate, it was narrower on a year-over-year basis. Revenues for the quarter surged 71.7%, primarily due to increases in active local business accounts. Moreover, increase in consumer engagement through Yelp mobile acted as a positive catalyst.
We remain encouraged by the company’s international expansions which in turn will increase Yelp’s active business accounts and boost ad revenues. Moreover, Yelp’s strategic partnerships with Yahoo! (YHOO) and YP will further increase customer engagements.
However, Yelp is enduring alleged complaints by business owners for posting negative reviews on the website after they refused to pay for sponsorship.
Moreover, as Yelp continues to explore and expand into new markets, sales & marketing expenditures are expected to increase significantly, in turn affecting margins.
Earnings Whispers?
Our proven model does not conclusively show that Yelp is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. However, this is not the case here as elaborated below.
Negative Zacks ESP: Earnings ESP represent the difference between the Most Accurate estimate and the Zacks Consensus Estimate. The Most Accurate estimate stands at a loss of 7 cents per share while the Zacks Consensus Estimate is narrower at a loss of 6 cents per share resulting in an ESP of -16.67%.
Zacks Rank: Yelp’s Zacks Rank #2 (Buy) when combined with a negative ESP makes surprise prediction difficult.
We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Other Stocks to Consider
ON Semiconductor Corp. (ONNN) has an Earnings ESP of +6.67% and a Zacks Rank #1 (Strong Buy).
Level 3 Communications, Inc. (LVLT) has an Earnings ESP of +10.71% and a Zacks Rank #1 (Strong Buy).
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