Yelp, Inc. Posts a Surprise Profit, Strikes a Deal With Grubhub

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It's not every day you see shares of any company skyrocket nearly 30%. But Yelp Inc. (NYSE: YELP) did just that on Friday thanks to a stellar second-quarter report and a win-win deal with online food ordering specialist Grubhub (NYSE: GRUB).

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Let's take a closer look at how Yelp capped the first half of the year, as well as what investors can expect from the local business review company in the coming quarters.

Yelp results: The raw numbers

Metric

Q2 2017

Q2 2016

Year-Over-Year Growth

Revenue

$208.9 million

$173.4 million

20.5%

GAAP net income

$7.6 million

$0.4 million

1,800%

GAAP earnings per diluted share

$0.09

$0.01

800%

What happened with Yelp this quarter?

  • Revenue was above the high end of Yelp's guidance (provided last quarter) for a range of $202 million to $206 million.
  • On an adjusted (non-GAAP) basis, which excludes items like stock-based compensation, amortization of intangibles, and restructuring costs, Yelp generated net income of $21.6 million, or $0.25 per share, up from $12.5 million, or $0.16 per share in the same year-ago period. By comparison, consensus estimates predicted an adjusted loss of $0.03 per share.
  • Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) climbed 52.6% year over year to $42.9 million, also above Yelp's guidance of $32 million to $35 million.
  • Transactions revenue rose 19% year over year to $18.4 million, driven primarily by Eat24.
  • Advertising revenue climbed 19% year over year to $186.6 million, helped by an 18% increase in paying advertising accounts to 148,000.
  • Other services revenue more than tripled from the same year-ago period to $3.8 million.
  • Cumulative reviews increased 24% to roughly 135 million.
  • App unique devices increased 22% to 28 million on a monthly average basis.
  • The company approved a $200 million share repurchase program, representing roughly 7% of Yelp's total float at today's prices.
  • In a separate release today, Yelp announced a definitive agreement to sell Eat24 to Grubhub for $287.5 million -- a hefty premium over the $134 million Yelp paid for the service in early 2015. In addition, Yelp and Grubhub entered into a long-term partnership under which Yelp will integrate online ordering from all Grubhub restaurants onto its local goods and services platform.

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What management had to say

Yelp CFO Lanny Baker elaborated on their quarter:

Our second quarter financial performance reflects the overall health of our business. We are pleased to sell Eat24 at a price that we believe demonstrates the value we've created over the past two years. We are also announcing a share repurchase that reflects confidence in the business and commitment to efficient management of shareholder capital.

Regarding the Grubhub deal, Yelp CEO Jeremy Stoppelman stated:

Bringing Grubhub onto the Yelp Platform through this long-term partnership will be a win for everyone. Consumers get a high-quality end-to-end experience with a wider selection of restaurants and better delivery options. Restaurant partners receive increased online exposure and the opportunity for increased order volume, as well as expanded delivery support. Yelp and Grubhub benefit from greater scale and sharper operating focus.

Looking forward

For the third quarter, Yelp expects revenue of $217 million to $222 million (roughly in line with investors' expectations) and adjusted EBITDA of $32 million to $35 million.

For the full year, Yelp now expects revenue of $855 million to $865 million (compared to previous guidance for $850 million to $865 million), and adjusted EBITDA of $143 million to $153 million (up from $130 million to $145 million previously).

This was a straightforward beat-and-raise quarter from Yelp, made even more impressive by the company's new repurchase authorization, the sale of Eat24, and the favorable follow-up agreement with Grubhub. Considering shares still hadn't fully recovered from last quarter's drop, it's no surprise to see investors so aggressively bidding up Yelp stock today.

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Steve Symington has no position in any stocks mentioned. The Motley Fool recommends Yelp. The Motley Fool has a disclosure policy.