Yelp (YELP)

Local business platform Yelp (NYSE:YELP) announced better-than-expected revenue in Q1 CY2025, with sales up 7.7% year on year to $358.5 million. The company expects the full year’s revenue to be around $1.48 billion, close to analysts’ estimates. Its GAAP profit of $0.36 per share was 10.7% 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.

A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Luckily, Yelp’s sales grew at a decent 10.1% compounded annual growth rate over the last three years. Its growth was slightly above the average consumer internet company and shows its offerings resonate with customers.

This quarter, Yelp reported year-on-year revenue growth of 7.7%, and its $358.5 million of revenue exceeded Wall Street’s estimates by 1.8%.

Looking ahead, sell-side analysts expect revenue to grow 3.7% over the next 12 months, a deceleration versus the last three years. This projection is underwhelming and indicates 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 91.2% gross margin over the last two years. Said differently, roughly $91.17 was left to spend on selling, marketing, and R&D for every $100 in revenue.

In Q1, Yelp produced a 90.3% gross profit margin, down 1.5 percentage points year on year. Zooming out, the company’s full-year margin has remained steady over the past 12 months, 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 44.7% 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.

Operating income is often evaluated to assess a company’s underlying profitability. In a similar vein, EBITDA is used to analyze consumer internet companies because it excludes various one-time or non-cash expenses (depreciation), providing a clearer view of the business’s profit potential.

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 25.7%. 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 3 percentage points over the last few years, as its sales growth gave it operating leverage.

In Q1, Yelp generated an EBITDA profit margin of 23.7%, up 4.3 percentage points year on year. The increase was encouraging, and because its gross margin actually decreased, we can assume it was more efficient because its operating expenses like marketing, R&D, and administrative overhead grew slower than its revenue.

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.

Yelp’s EPS grew at an astounding 53.2% compounded annual growth rate over the last three years, higher than its 10.1% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into Yelp’s quality of earnings can give us a better understanding of its performance. As we mentioned earlier, Yelp’s EBITDA margin expanded by 3 percentage points over the last three years. On top of that, its share count shrank by 6%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

In Q1, Yelp reported EPS at $0.36, up from $0.20 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 $2.08 to grow 13.4%.

Although EBITDA is undoubtedly valuable for assessing company performance, we believe cash is king because 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 19.6% 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 1.6 percentage points over the last few years. This is encouraging because it gives the company more optionality.

Yelp’s free cash flow clocked in at $87.46 million in Q1, equivalent to a 24.4% margin. This result was good as its margin was 4.6 percentage points higher than in the same quarter last year, building on its favorable historical trend.

Companies with more cash than debt have lower bankruptcy risk.

Yelp is a profitable, well-capitalized company with $324.4 million of cash and $33.51 million of debt on its balance sheet. This $290.9 million net cash position is 12.6% 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’ EBITDA expectations this quarter. We were also happy its revenue outperformed Wall Street’s estimates. Overall, this print had some key positives. The stock traded up 2.1% to $36.49 immediately after reporting.

Updated: May 22, 2025 at 10:16 PM EDT

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Yelp, you should also grasp the company’s longer-term business quality and valuation.

In our opinion, Yelp is a good company. To kick things off, its revenue growth was decent over the last three years. And while its projected EPS for the next year is lacking, its admirable gross margins are a wonderful starting point for the overall profitability of the business. On top of that, its impressive EBITDA margins show it has a highly efficient business model.

Yelp’s EV/EBITDA ratio based on the next 12 months is 7.1x. Looking at the consumer internet space right now, Yelp trades at a compelling valuation. If you believe in the company and its growth potential, now is an opportune time to buy shares.

Wall Street analysts have a consensus one-year price target of $38.57 on the company (compared to the current share price of $38.05).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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