Earnings Review: Will Yelp Inc (YELP)’s Fortunes Turn Around?

New Entrants

With limited barriers to entry, the space can get more crowded down the road. Facebook Inc (NASDAQ:FB)’s recently launched “Graph Search” tool is still in its early stages, and will be a big threat for Yelp once it gains momentum. Mark Zuckerberg has stated that the company is now collecting data and will be launching on a much larger scale.

The graph search function will allow users to screen and search in a more social context, by getting users and their friends to post reviews on places they have visited, as well as the existing data of restaurant check-ins, pictures and other reviews. Facebook has a large number of small businesses with fan pages, which will aid significantly in building out such a platform.

Q4 Guidance and Consensus

The Management’s guidance range for revenues came in at $40-$40.5 million, which leads to a full year revenue of $136-$137 million. As a result, the revenue growth is expected to be in range of 62%-65%. Yelp is not expected to be profitable for Q4 or the year ending 2012, and thus the Adjusted EBITDA, which is a gimmicky accounting metric, is expected to be in the $3.5-$4.0 million range.

The sell-side has projected a net loss as well, and has an EPS consensus of ($0.04) on revenues of $40.29 million. According to public filings, Yelp has not earned a net profit since its inception. With the pretty rich valuation of Yelp, if the top line revenues don’t live up to investor expectations, the stock can go spiraling down.

The Takeaway

Yelp has been achieving strong growth all around with reviews, visitors and business accounts. However, the company’s losses haven’t stopped yet and might continue at least for a few more quarters. With strong external threats from existing rivals and new entrants, achieving market share alone might not be enough for Yelp. In order for the company’s fortunes to turnaround, Yelp needs to post solid bottom line numbers in the near-term.

The article Earnings Review: Will Yelp’s Fortunes Turn Around? originally appeared on Fool.com and is written by Ishfaque Faruk.

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