Yelp Inc YELP investors certainly liked what they saw from the company’s Q2 earnings report on Friday, sending shares higher by more than 27 percent.
Yelp announced the sale of its Eat24 business to GrubHub Inc GRUB 0.8% for $287.5 million and reported an otherwise strong performance in the second quarter. Yelp turned a surprise profit on the quarter, reported a revenue beat and raised its full-year guidance, all good signs of things to come.
However, the Q2 earnings report also revealed that Yelp still has issues to tackle. UBS analyst Eric Sheridan listed the positives and negatives from Yelp’s quarter and didn’t see anything that convinced him to change his bearish outlook.
Sheridan saw several positives from the quarter:
- Guidance raise.
- Eat24 sale and GrubHub partnership.
- Lower levels of account churn.
- A new $200 million share buyback program.
- Request-a-quote business up about 50 percent quarter-over-quarter.
At the same time, Sheridan also noted two negatives from the quarter:
- Management’s warning that continued investments will weigh on earnings.
- Lack of success in converting claimed local businesses into paying advertiser accounts.
Overall, Sheridan believes Yelp shareholders are still headed for a bumpy road ahead.
“We believe Yelp will enter a period of slowing revenue growth and heightened margin pressure, driven by increased competition in Yelp’s core business and share gains by larger digital ad companies,” he wrote.
Credit Suisse analyst Paul Bieber chose to focus on the long list of positives from the quarter.
“As for the stock, we like the signs of improved execution (lower churn, self-serve momentum, salesforce productivity, etc.), RaQ option value in 2H and 2018 and Yelp’s strategic asset value,” he wrote on Friday.
UBS maintains…
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