2Q18 Takeaways
- Another new high in both gross adds and churn: YELP beat the top-line by about 1%. Both new account growth and churn accelerated to new highs on the heels of non-term ad packages, which greases the wheels for new PAA adds but exacerbates attrition at the same time. Remember that churn is recognized on a lag given the way YELP reports its accounts (paid vs. ending), so we'll likely see another surge in 3Q18 attrition corresponding to the 2Q surge in account growth, similar to what we saw on this print. That combined with the next bullet is probably why 3Q revenue guidance came in light.
- Waning benefit from non-term ad packages: Gross adds didn't keep pace with the rate at which YELP migrated its reps over to selling non-term ad packages. We estimate based on the YELP's disclosed percentages of reps selling non-term ad packages that there was a +50% sequential increase in the number of those reps in 2Q18, yet gross PAA adds increased by less than 20% during the quarter. Remember that non-term add packages are a much easier sell, so there really isn't any reason for the relatively slower PAA growth unless the demand isn't there. Put another way, these non-term ad packages are exhausting YELP's TAM at an accelerated rate.
- Kicking the can on the guide: As a reminder, we're expecting YELP to disappoint in 2H18, which it partially guided to, but in a nonsensical manner. YELP guided light for 3Q revenues, but raised the bottom end of its 2018 guidance by $9M, which in excess of its $3M beat on its 2Q guide. So mgmt inadvertently told consensus to increase 4Q estimates, which appears to be the case as of this morning. Remember mgmt has less visibility in the age of non-term ad packages, so we wouldn't view the effective 4Q raise as an indication of optimism, but rather just wishful thinking. That said, All YELP has done is set itself up for a nastier fall when it has to guide to 4Q18 revenues on its next print.
YELP 2018 DECKS & REPLAYS
- INTERNET | BEST IDEAS MID-YEAR UPDATE | 6/28/2018 | CLICK HERE
- YELP | NEW BEST IDEA SHORT | 2/5/2018 | CLICK HERE
See the deck & replay above for supporting detail/analysis on our Short thesis. Let us know if you have any questions or would like to discuss further.
