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Yelp Inc (YELP) Q3 Earnings Preview: Shorts Beware

 October 24, 2013 09:45 AM

Yelp, Inc. (YELP) will issue its financial results for the third quarter ended September 30, 2013 after the market close on Tuesday, October 29, 2013.  Yelp will host a conference call to discuss the results at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time) on the same day.

Wall Street anticipates that internet services provider will lose a penny for the quarter. iStock expects YELP to hit Wall Street's consensus number. The iEstimate is a loss of a penny, too.

Yelp, Inc. operates Yelp.com, an online urban city guide that helps people find places to eat, shop, drink, relax, and play based on the informed opinions of a community of locals in the know.

Since Yelp business is online and advertising dependent, investors can get an idea of what to expect by looking at traffic and search volume trends. According to Alexa.com, Yelp's page views were up 9.5% versus the previous three months. Quantcast.com shows the online service's number of unique visitors rising in July and August, but flattening out in September.

[Related -Yelp Inc. (YELP) Q2 Earnings Preview: About to Pound Wall Street’s Expectations?]

When we flip over to Google trends, we find that search volume intensity for "Yelp" is up 3.44% in the third quarter relative to Q2, and 8.5% compared to Q2 2012.

Based on the trio of online resources, iStock expects to see Yelp's unique visitor number to log in at a minimum of 112 million. More visitors with more page views equal more ads served, which usually means more advertising dollars.

Based on our calculations, those dollars should add up to revenue close to $59.98 million for the three months ended September 30, 2013. Our estimate is a little higher than the consensus revenue target of $59.41 million.

[Related -Are Google And Others Looking To Make A Deal?]

If the relationship between sales growth and cost increases remains somewhat constant quarter-over-quarter (QoQ), then our excel sheet says total costs and expenses should be in the neighborhood of $58.54 million, which mean an operating profit of $0.013 before other income/expenses.

Should YELP deliver a profit, not matter how small when a loss is expected, we wouldn't be too shocked to see the stock rock. In its limited public life, Yelp has produced two bullish surprises in its half-dozen quarterly checkups. The pair of beats propelled bulls big-time as the stock gained 28.30% and 30.3% in the three days bookending the better than expected EPS announcements.

With 26.10% of the float (stock available for trading) sold-short, a surprise trip into the black could make short-sellers yelp, ENOUGH! and write up a bunch of buy tickets to cover.

Overall: Web traffic and Google trends hint at a little better than expected quarter for Yelp, Inc.'s (YELP) top and bottom lines. Shorts beware if we've made the correct call.

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