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Can Yelp Stock Keep Going After Last Week's 21% Pop?

Like a rumbling belly that gets fed every three months, shares of Yelp (NYSE: YELP) get moving during earnings season. The provider of crowd-sourced reviews for local venues soared 21.3% last week, fueled by a strong report and a win-win deal with GrubHub (NYSE: GRUB). Several analysts would go on to boost their price targets on Yelp following the encouraging news.

Revenue climbed 20% to hit $208.9 million, the first time that quarterly results have topped $200 million. Earnings clocked in at $0.09 a share on a reported basis and $0.25 on an adjusted basis. Analysts were holding out for a small deficit on roughly $205 million in revenue. Yelp's earlier guidance was calling for just $202 million to $206 million on the top line.

Image source: Yelp.

Dine and dash

A beat on both ends of the income statement is typically good for a pop, especially if guidance is encouraging, which in Yelp's case it was. However, the real head-turning moment in Yelp's report last week was the announcement that it would be selling its Eat24 online takeout and delivery service to GrubHub for $287.5 million.

The money's nice, but Yelp itself isn't hungry for capital. It announced a $200 million stock buyback as a result of the transaction, so it's actually just returning money to its shareholders. The asset sale is important because it makes both Yelp and GrubHub better. The sale accompanies a partnership that will make all of GrubHub's eateries available for takeout and delivery orders through Yelp, a move that roughly doubles the number of restaurants on the site with online order integration. 

Everybody wins. GrubHub's base of accounts naturally gets larger and access to Yelp's foodies will only help. Yelp is able to increase its food-ordering velocity without having to bankroll the infrastructure. GrubHub and Yelp shares both posted double-digit percentage gains last week, so the market definitely saw this as a win-win arrangement. 

Many Wall Street pros liked what they were hearing last week. MKM Partners and Roth Capital upgraded their ratings on the stock, and several analysts including SunTrust, Credit Suisse, JPMorgan, Jefferies, and Deutsche Bank jacked up their price targets. 

This is the third quarter in a row that Yelp stock has had a double-digit move the week the company announced earnings, but this is the first time it's moved higher. The stock took a 20% hit three months earlier when first-quarter results failed to impress, and disappointing guidance delivered a 15% blow to shareholders three months before that. Momentum is on Yelp's side now, but this obviously isn't a stock for risk-averse investors to be holding when earnings season rolls around.

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Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Yelp. The Motley Fool has a disclosure policy.