Yelp Inc. (NYSE:YELP) is set to report FQ1 2014 earnings after the market closes on Wednesday, April 30th. Over the past 6 months, every company in the online ads business has said over and over again that the immediate focus of the industry is all about monetizing mobile ads. Facebook (NASDAQ:FB) has been in a leader in that category, and correspondingly, has posted 2 blowout quarters in a row. Yelp is a restaurant and business reviews platform that offers an outstanding mobile experience. Since the beginning of March, Yelp stock has fallen 37% as the high momentum and social stocks have sold off steeply. Regardless of the stock plunge, this quarter, Wall Street is expecting Yelp to follow Facebook's lead and report year-over-year sales growth of 63%, and cut its quarterly loss from 8c per share last year to 6c per share. Here's what investors expect from Yelp on Wednesday.
The information below is derived from data submitted to the Estimize.com platform by a set of Buy-side and Independent analyst contributors.
The current Wall Street consensus expectation is for Yelp to report -6c EPS and $75.33M revenue, while the current Estimize.com consensus from 24 Buy-side and Independent contributing analysts is -3c EPS and $76.21M in revenue. This quarter, the buy side, as represented by the Estimize.com community, is expecting Yelp to beat Wall Street's expectations by a considerable margin on EPS and a small margin on revenue.
Over the past 6 quarters, the consensus from Estimize.com has been more accurate than Wall Street in forecasting Yelp's revenue every quarter, but has also been less accurate in predicting EPS. By tapping into a wider range of contributors, including hedge-fund analysts, asset managers, independent research shops, students, and non-professional investors, Estimize has created a data set that is more accurate than Wall Street up to 69.5% of the time, but more importantly, it does a better job of representing the market's actual expectations. It has been confirmed by Deutsche Bank Quant. Research and an independent academic study from Rice University that stock prices tend to react with a more strongly associated degree to the expectation benchmark from Estimize than from the Wall Street consensus.
The magnitude of the difference between the Wall Street and Estimize consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market. In this case, we are seeing a larger differential than usual between the two groups' expectations on Yelp's earnings.
The distribution of estimates published by analysts on the Estimize.com platform range from -8c to 3c EPS and from $73.0M to $79.00M in revenues. This quarter, we're seeing a wide range of estimates on Yelp's EPS and moderate range of revenue predictions.
The size of the distribution of estimates relative to previous quarters often signals whether or not the market is confident that it has priced in the expected earnings already. A wider distribution of estimates signals less agreement in the market, which could mean greater volatility post-earnings.
This quarter, the Wall Street EPS consensus decreased from 1c to -6c, while the Estimize consensus fell from 1c to -3c. Meanwhile, Wall Street raised its revenue consensus from $73.77M to $75.33M, while the Estimize community took its numbers down to a low of $75.73M, before raising their consensus to $76.21M. Timeliness is correlated with accuracy, and upward analyst revenue revisions from the Estimize community are often a leading indicator of a strong report on the top line, although things look less attractive on the EPS chart.
The analyst with the highest estimate confidence rating this quarter is BradHewitt91, who projects -5c EPS and $76.7M in revenue. BradHewitt91 is ranked 11th overall among over 4,300 contributing analysts. Over the past 2 years, BradHewitt91 has been more accurate than Wall Street in forecasting EPS and revenue 53% and 51% of the time respectively throughout 758 estimates. Estimate confidence ratings are calculated through algorithms developed by deep quantitative research, which looks at correlations between analyst track records and tendencies as they relate to future accuracy. In this case, BradHewitt91 is expecting Yelp to beat estimates on revenue, but report between the consensuses from Wall Street and Estimize on EPS.
Since the start of March, Yelp's stock has sold off relentlessly, but fundamental earnings estimates remain intact. Wall Street has even raised its revenue projections throughout the quarter, and the Estimize consensus has been rising going into the report. On the other hand, though, EPS estimates have fallen and neither the Estimize community nor Wall Street expect Yelp to be profitable this quarter.