Yelp (YELP)

Local business platform Yelp (NYSE:YELP) reported Q3 CY2025 results beating Wall Street’s revenue expectations, with sales up 4.4% year on year to $376 million. The company expects the full year’s revenue to be around $1.46 billion, close to analysts’ estimates. Its GAAP profit of $0.61 per share was 16.1% above analysts’ consensus estimates.

Company Overview

Founded by PayPal alumni Jeremy Stoppelman and Russel Simmons, Yelp (NYSE:YELP) is an online platform that helps people discover local businesses through crowd-sourced reviews.

Businesses must meet their customers where they are, which over the past decade has come to mean on social networks. In 2020, users spent over 2.5 hours a day on social networks, a figure that has increased every year since measurement began. As a result, businesses continue to shift their advertising and marketing dollars online.

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last three years, Yelp grew its sales at a mediocre 8.2% compounded annual growth rate. This wasn’t a great result compared to the rest of the consumer internet sector, but there are still things to like about Yelp.

This quarter, Yelp reported modest year-on-year revenue growth of 4.4% but beat Wall Street’s estimates by 2.1%.

Looking ahead, sell-side analysts expect revenue to grow 2.7% over the next 12 months, a deceleration versus the last three years. This projection doesn't excite us and suggests its products and services will see some demand headwinds. At least the company is tracking well in other measures of financial health.

A company’s gross profit margin has a significant impact on its ability to exert pricing power, develop new products, and invest in marketing. These factors can determine the winner in a competitive market.

For social network businesses like Yelp, gross profit tells us how much money the company gets to keep after covering the base cost of its products and services, which typically include customer service, data center, and other infrastructure expenses.

Yelp’s gross margin is one of the highest in the consumer internet sector, an output of its asset-lite business model and strong pricing power. It also enables the company to fund large investments in product and marketing during periods of rapid growth to achieve higher profits in the future. As you can see below, it averaged an elite 90.9% gross margin over the last two years. That means Yelp only paid its providers $9.09 for every $100 in revenue.

In Q3, Yelp produced a 90.3% gross profit margin, in line with the same quarter last year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs have been stable and it isn’t under pressure to lower prices.

Consumer internet businesses like Yelp grow from a combination of product virality, paid advertisement, and incentives (unlike enterprise software products, which are often sold by dedicated sales teams).

Yelp does a decent job acquiring new users, spending 44.1% of its gross profit on sales and marketing expenses over the last year. This decent efficiency indicates relatively solid competitive positioning, giving Yelp the freedom to invest its resources into new growth initiatives.

Yelp has been a well-oiled machine over the last two years. It demonstrated elite profitability for a consumer internet business, boasting an average EBITDA margin of 25.8%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Looking at the trend in its profitability, Yelp’s EBITDA margin rose by 4 percentage points over the last few years, as its sales growth gave it operating leverage.

This quarter, Yelp generated an EBITDA margin profit margin of 26.1%, down 2.1 percentage points year on year. Since Yelp’s EBITDA margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, R&D, and administrative overhead increased.

Revenue trends explain a company’s historical growth, but the change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Diving into the nuances of Yelp’s earnings can give us a better understanding of its performance. As we mentioned earlier, Yelp’s EBITDA margin declined this quarter but expanded by 4 percentage points over the last three years. Its share count also shrank by 11.6%, and these factors together are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

In Q3, Yelp reported EPS of $0.61, up from $0.56 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Yelp’s full-year EPS of $2.26 to grow 18%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Yelp has shown robust cash profitability, driven by its attractive business model that enables it to reinvest or return capital to investors while maintaining a cash cushion. The company’s free cash flow margin averaged 20% over the last two years, quite impressive for a consumer internet business.

Taking a step back, we can see that Yelp’s margin expanded by 6.9 percentage points over the last few years. This shows the company is heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability.

Yelp’s free cash flow clocked in at $118.9 million in Q3, equivalent to a 31.6% margin. This result was good as its margin was 5.9 percentage points higher than in the same quarter last year, building on its favorable historical trend.

One of the best ways to mitigate bankruptcy risk is to hold more cash than debt.

Yelp is a profitable, well-capitalized company with $333.6 million of cash and $27.4 million of debt on its balance sheet. This $306.2 million net cash position is 15.1% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We were impressed by how significantly Yelp blew past analysts’ EPS and EBITDA expectations this quarter. We were also glad its full-year EBITDA guidance slightly exceeded Wall Street’s estimates. On the other hand, it lowered its full-year revenue guidance. Overall, this print had some key positives. The stock remained flat at $31.94 immediately after reporting.

Updated: December 4, 2025 at 9:29 PM EST

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

Yelp has some positive attributes, but it isn’t one of our picks. Although its revenue growth was mediocre over the last three years and analysts expect growth to slow over the next 12 months, its admirable gross margins are a wonderful starting point for the overall profitability of the business. Tread carefully with this one, however, as its projected EPS for the next year is lacking.

Yelp’s EV/EBITDA ratio based on the next 12 months is 5.5x. This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're pretty confident there are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $33.50 on the company (compared to the current share price of $29.98).