What To Expect From Yelp’s Q3 After Stock Up 50% This Year?

Yelp (NYSE: YELP), an online site for discovering local businesses ranging from bars, restaurants, and cafes, to hairdressers, spas, and gas stations, is scheduled to report its fiscal third-quarter results on Thursday, November 2. We expect the stock to trade higher post the fiscal Q3 release with revenues coming in line and earnings beating earnings. YELP stock has increased from around $27 to $41 YTD, compared to a 7% rise in the S&P index. The stock rise during this period can be attributed to better-than-expected fiscal first-half results in 2023. We continue to believe that the company stands to benefit from its shift from local businesses and restaurants to multi-location advertiser strength and an uptrend in cost-per-click rates. Yelp has guided 2023 full-year revenue to be in the range of $1.32 billion to $1.33 billion, reflecting a $20 million increase at the midpoint compared to its previous outlook. In addition, it also expects adjusted EBITDA in the range of $310 million to $320 million, an increase of $15 million at the midpoint compared to its previous outlook.

YELP stock has witnessed gains of 15% from levels of $35 in early January 2021 to around current levels, vs. an increase of about 10% for the S&P 500 over this roughly 3-year period. However, the increase in YELP stock has been far from consistent. Returns for the stock were 11% in 2021, -25% in 2022, and 50% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 7% in 2023 – indicating that YELP underperformed the S&P in 2021 and 2022. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Consumer Discretionary sector including AMZN, TSLA, and TM, and even for the megacap stars GOOG, MSFT, and AAPL. In contrast, the Trefis High Quality Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could YELP face a similar situation as it did in 2021 and 2022 and underperform the S&P over the next 12 months – or will it see a strong jump?