For the recently ended quarter, Calix reported relatively flat year-over-year sales as net income improved 61% to $2.9 million from the previous year. Wall Street may be hung up on Calix’s revenue miss, but I’d point to the blatant sectorwide signals that an infrastructure boom is coming, as well as Calix’s $47 million in cash with no debt as all the more reason to trust this company over the long term.
Yelp Inc (NYSE:YELP)
Sometimes an earnings miss can be deceiving — for Yelp, an online review website, it was a true testament to a business model that lacks longevity.
Like Groupon Inc (NASDAQ:GRPN), the social deals site, Yelp relies on local advertising and small businesses to drive growth. But what both Groupon and Yelp lack are any significant barriers to entry and the ability to remove any of the cyclicality associated with the ebb and flow of the economy out of their figures. This means that while revenue is growing now, the introduction of a competitor with considerably more cash — say, Google Inc (NASDAQ:GOOG) — can undermine their business models with minimal start-up costs.
In Yelp’s latest quarter, which highlighted a big move overseas, the company reported a 65% increase in revenue and an 87% increase in local advertising revenue. However, the dangerous aspect of Yelp’s revenue stream is that 82% of total sales are reliant on local ad spending. We saw in the dot-com bubble that ad-heavy businesses rarely survive, and I doubt Yelp’s an exception to the rule. Even if it does survive, I don’t see how it gets past being only marginally profitable. Like Groupon, the health of the economy will dictate profitability, but there are far too few variables both companies can actually control. I’d suggest keeping the yellow caution tape around these two companies.
The article 3 Earnings Reports That Caught My Attention Last Week originally appeared on Fool.com and is written by Sean Williams.
Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool owns shares of Cisco Systems and Google. Motley Fool newsletter services have recommended buying shares of Cisco Systems and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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