What's In Store For Yelp Inc. (YELP) This Earnings Season?

Yelp Inc. (NYSE:YELP) is set to report second-quarter 2016 results on Aug 9. Last quarter, the company posted a 33.33% negative earnings surprise. The company has posted an average negative earnings surprise of 302.78% over the past four quarters.

Let’s see how things are shaping up for this quarter.

Factors to Consider

Though the company reported greater-than-expected loss last quarter, investors were pleased with the top-line growth.

This is because Yelp has been focused on expanding its platform to drive user growth. Not only has the company expanded to more international locations but has also been seeing strength in its local business leading to higher advertising revenues. Last quarter, the company revealed that it had crossed the 100 million reviews mark. The new management team and efforts to drive sales, headcount and advertising are positives. In addition, the company has also been seeing an increase in app unique devices indicating strength in its business.

We expect the top line in the to-be-reported quarter to be further driven by the company’s innovative offerings like Request a Quote and Eat24, which will not only allow the company to improve its sales productivity but also lead to improved customer retention. Furthermore, the ongoing transition to cost-per-click (CPC) pricing bodes well for the company, thereby allowing it to evolve to being a more transactional business.

However, the company is yet to make profits. Moreover, it also faces stiff competition from players like Uber, GrubHub (NYSE:GRUB) , OpenTable and Amazon (NASDAQ:AMZN) and even major tech companies like Google (NASDAQ:GOOGL) and Facebook (NASDAQ:FB) among others. All these companies are increasing their efforts to get a bigger share of the market.

Earnings Whispers

Our proven model does not conclusively show that Yelp is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.

Zacks ESP: Yelp has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at a loss of 7 cents.

Zacks Rank: Yelp’s Zacks Rank #3 when combined with a 0.00% ESP makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stock to Consider

Here is a stock, which you may consider, as our model shows that it has the right combination of elements to post an earnings beat this quarter:

Alcobra Ltd. (NASDAQ:ADHD) has an Earnings ESP of +18.18% and carries a Zacks Rank #3.