Local business platform Yelp (NYSE:YELP) met Wall Street’s revenue expectations in Q3 CY2024, with sales up 4.4% year on year to $360.3 million. Its GAAP profit of $0.56 per share was 33.1% above analysts’ consensus estimates.

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“Yelp delivered record net revenue in the third quarter, driven by continued momentum in our Services categories,” said Jeremy Stoppelman, Yelp’s co-founder and chief executive officer.

Company Overview

Founded by PayPal alumni Jeremy Stoppelman and Russel Simmons, Yelp (NYSE:YELP) is an online platform that helps people discover local businesses through crowd-sourced reviews.

Social Networking

Businesses must meet their customers where they are, which over the past decade has come to mean on social networks. In 2020, users spent over 2.5 hours a day on social networks, a figure that has increased every year since measurement began. As a result, businesses continue to shift their advertising and marketing dollars online.

Sales Growth

A company’s long-term performance can indicate its business quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last three years, Yelp grew its sales at a decent 12% compounded annual growth rate. This is a useful starting point for our analysis.

This quarter, Yelp grew its revenue by 4.4% year on year, and its $360.3 million of revenue was in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 6.6% over the next 12 months, a deceleration versus the last three years. This projection doesn't excite us and shows the market believes its products and services will see some demand headwinds. At least the company is tracking well in other measures of financial health.

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Cash Is King

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Yelp has shown robust cash profitability, driven by its attractive business model that enables it to reinvest or return capital to investors while maintaining a cash cushion. The company’s free cash flow margin averaged 18.6% over the last two years, quite impressive for a consumer internet business.

Taking a step back, we can see that Yelp maintained its margin over the last three years, showing it has a stable free cash flow profile.

Yelp’s free cash flow clocked in at $92.54 million in Q3, equivalent to a 25.7% margin. The company’s cash profitability regressed as it was 3.1 percentage points lower than in the same quarter last year, but it’s still above its two-year average. We wouldn’t read too much into this quarter’s decline because investment needs can be seasonal, causing short-term swings. Long-term trends carry greater meaning.

Key Takeaways from Yelp’s Q3 Results

We were impressed by how significantly Yelp blew past analysts’ EBITDA expectations this quarter. We were also glad its full-year EBITDA guidance exceeded Wall Street’s estimates. On the other hand, its revenue growth regrettably slowed. Overall, we think this was a decent quarter with some key metrics above expectations. The stock remained flat at $36.50 immediately after reporting.

Sure, Yelp had a solid quarter, but if we look at the bigger picture, is this stock a buy? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.