Yelp Inc. (YELP), which operates a platform connecting consumers with local businesses, falls under the small-cap category having a market capitalization of $2.07 billion. The company’s platform covers various local business categories, providing free and paid advertising products to businesses of different sizes and categories.

Although it missed the consensus EPS estimate by 12.3%, its revenue was 0.5% above analyst estimates for the third quarter. YELP co-founder and CEO Jeremy Stoppelman said, “The third quarter brought a number of new highs as advertisers continued to turn to Yelp for our broad-based ad platform and high-intent audience.”

“We delivered record net revenue, driven by record revenue in our services categories and in our most efficient Self-serve and Multi-location sales channels. As our teams consistently execute against our strategic initiatives, I remain confident in our ability to drive profitable growth and shareholder value over the long term,” he added.

Despite the uncertain macroeconomic environment, the company bought 1.6 million shares at an aggregate cost of $50 million in the third quarter. Moreover, despite missing analyst revenue estimates, YELP’s net revenue increased to a quarterly high. Its services advertising revenue increased 15% from the prior-year quarter to $181 million.

YELP’s advertising revenue from Restaurants, Retail & Other (RR&O) businesses grew 13% year-over-year to $113 million. Also, paying advertising locations in the third quarter grew 7% year-over-year to 572,000.

YELP expects its fourth-quarter net revenue to be approximately $300 million to $310 million, while its net revenue for fiscal 2022 is expected to be between $1.185 billion and $1.195 billion. At the midpoint, the full-year revenue guidance is $20 million higher than the previously expected guidance in February and is in line with its increased range in August.

In addition, its adjusted EBITDA for the fourth quarter is expected to be in the range of approximately $75 million to $85 million. The company expects its fiscal 2022 adjusted EBITDA to come between $265 million to $275 million.

The stock has gained 16% over the past month to close the last trading session at $29.71. Wall Street analysts expect the stock to hit $30.50 in the near term, indicating a potential upside of 2.7%.

Here’s what could influence YELP’s performance in the upcoming months:

Robust Financials

YELP’s net revenue increased 14.8% year-over-year to $308.89 million for the third quarter ended September 30, 2022. Its adjusted EBITDA rose 4.8% from the prior-year period to $73.94 million. In addition, its net income attributable and EPS came in at $9.11 million and $0.13, respectively.

Mixed Analyst Estimates

Analysts expect YELP’s EPS for fiscal 2022 to decline 15.2% year-over-year to $2.14. Its EPS for fiscal 2023 is expected to increase 26.1% year-over-year to $2.70. Its revenue for fiscal 2022 and 2023 is expected to increase 15.5% and 8.2% year-over-year to $1.19 billion and $1.29 billion, respectively.

High Profitability

In terms of the trailing-12-month gross profit margin, YELP’s 91.25% is 81.4% higher than the 50.32% industry average. Likewise, its 6.54% trailing-12-month EBITDA margin is 65.5% higher than the industry average of 18.95%. Furthermore, the stock’s 17.20% trailing-12-month levered FCF margin is 115.1% higher than the industry average of 8%.

Discounted Valuation

YELP’s forward non-GAAP P/E of 13.85x is 19.5% lower than the 17.21x industry average. Its forward EV/EBITDA of 6.61x is 22.8% lower than the 8.55x industry average. Also, the stock's 1.49x forward EV/Sales is 24.1% lower than the 1.96x industry average.

POWR Ratings Show Promise

YELP has an overall rating of B, equating to a Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. YELP has a B grade for Value, consistent with its discounted valuation.

It has an A grade for Quality, in sync with its high profitability.

YELP is ranked #3 out of 60 stocks in the Internet industry. Click here to access YELP’s Growth, Momentum, Stability, and Sentiment ratings.

Bottom Line

YELP’s short-term trend is bullish as the stock is trading above its 10-day and 50-day moving averages of $28.84 and $28.63, respectively. Continuing its momentum from the second quarter, YELP witnessed strong advertiser demand for its performance-based ad products, leading to a 36% yearly rise in Average CPC.

The company showed resilience against the uncertain macroeconomic environment by achieving record high net revenue, services, advertising revenue, multi-location, and self-serve channel revenue, paying advertising locations, and adjusted EBITDA.

Its investments in strengthening its business in product and engineering, marketing, and multi-location sales have helped it maintain its revenue estimates for fiscal 2022 despite the uncertain macroeconomic environment.

Given its robust financials, high profitability, and discounted valuation, it could be wise to buy the small-cap stock now.

How Does Yelp Inc. (YELP) Stack up Against Its Peers?

YELP has an overall POWR Rating of B, equating to a Buy rating. Check out these other stocks within the Internet industry with a B (Buy) rating: Travelzoo (TZOO) and trivago N.V. (TRVG).

YELP shares were trading at $29.77 per share on Monday morning, up $0.06 (+0.20%). Year-to-date, YELP has gained 8.89%, versus a 4.26% rise in the benchmark S&P 500 index during the same period.

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.

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