Yelp posted stronger than expected earnings Wednesday, but cautious guidance sent shares tumbling in after-hours trading. The reviews company saw revenues jump to $102 million in the third quarter — and profits improve as well — setting up a bittersweet second sequential quarter of profitability for the firm.
The revenue increase appears to have come, in part, from a partnership with YP that the company launched earlier this year. The company saw its other revenue, a category that includes revenue from partnerships and deals, nearly double, jumping from a little over $4 million to $8 million in the third quarter. But, leadership said it expected the same category to see revenue drop to $7 million in the fourth quarter of 2014.
“The YP partnership started off with a bang, and the performance of the deal exceeded both of our expectations,” Rob Krolik, chief financial officer at Yelp, said during an earnings call Wednesday. “There were some issues with regards to how we were thinking about the deal in the long term, but we have mutually agreed to solve [those problems.]”
Announced in March, the deal gave YP access to Yelp’s content and included an agreement in which the former yellow pages publisher would distribute listings of a number of YP advertisers to Yelp’s enriched listing. A spokesperson for YP on Wednesday said that the restructured deal expanded the number of YP advertisers who would have their listing syndicated on Yelp .
However, given that Yelp expects a decline in “other revenue,” it appears that the restructuring also included meaningful changes to a possible revenue-sharing agreement. If we assume that the acceleration in other revenue growth came exclusively from the YP deal, Yelp appears to have made a little over $3 million on the deal last quarter.
Looking at its core metrics, Yelp is in a relatively stable period of growth. Both the number of reviews and claimed local businesses continue to hum along, growing between 7-10% each quarter. The growth in active advertising accounts has slowed slightly, but it’s still growing each quarter. In an interesting note, traffic to its site was nearly flat from the previous quarter, but that’s likely due to the continued shift among consumers desktop to mobile devices.
Meanwhile, the company’s international business remains nascent. A year after acquiring Qype — its largest European competitor — the leadership said that it has just started to deploy sales teams in Italy and other European countries. But other high growth markets such as Asia and Latin American remain earlier in their maturation phase.
Still, the most exciting initiative for investors is Yelp Platform, the company’s business development initiative. CEO Jeremy Stoppelman says that users can now transact at over 25,000 business through partnerships with Eat24 and Booker among others. Earlier this week, Yelp announced a deal with Hipmunk that will allow users to book hotels without leaving the site.
“We’ve started to look at Yelp as a marketplace [where users can] not only find, but transact, with local businesses to make the user experience better,”said Stoppelman, speaking about the initiative.”
Steven Jacobs is Street Fight’s deputy editor.