It has been about a month since the last earnings report for Yelp (YELP Quick QuoteYELP - Free Report) . Shares have lost about 17.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Yelp due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Yelp’s Q2 Earnings and Revenues Surpass Estimates

Yelp Inc. reported second-quarter 2020 loss per share of 33 cents, narrower than the Zacks Consensus Estimate of a loss of 54 cents.  In the year-ago quarter, Yelp had reported earnings of 16 cents per share.

Yelp provides information through online communities on restaurants, shopping, nightlife, financial, health and other services. However, the coronavirus-led lockdowns and restrictions on public life are hurting these businesses, in turn, affecting Yelp.

Revenues declined 31.6% year over year to $169 million. The figure surpassed the Zacks Consensus Estimate by 10.5%.

Revenues

Advertising revenues (95.8% of total revenues) decreased 32% year over year to $162 million. This decrease was due to coronavirus-led reduction in advertising budgets by customers, particularly those in the restaurants and nightlife categories. Paying advertising locations declined 31% year over year to 377K sites in the second quarter.

Other service revenues declined 53% to $3 million, primarily as a result of approximately $5 million in relief provided to customers in the second quarter of 2020, mainly in the form of waived fees.

Transaction revenues were $4 million in the second quarter of 2020, up 26% from the year-ago quarter due to increases in food take-out and delivery orders as a result of the coronavirus pandemic, which forced many restaurants to close for dine-in services and provide take-out and delivery services only.

Cumulative reviews climbed 12% year over year to 214 million. However, app unique devices declined 23% year over year to 28 million on a monthly-average basis.

Profits and Margins

Gross profit decreased 32.2% year over year to $157.2 million. Gross margin contracted 90 basis points (bps) to 93%, mainly on inflated cost of sales. Costs flared up on higher advertising fulfillment costs and website infrastructure expense.

Total costs and expenses declined 13% year over year to $204 million. Yelp’s second-quarter adjusted EBITDA plunged 80% year over year to $11 million. Moreover, adjusted EBITDA margin shrunk to 7% from the year-ago quarter’s 22%.

Balance Sheet & Cash Flow

As of Jun 30, 2020, Yelp’s cash, cash equivalents & marketable securities were $526 million, up from $491 million as of Mar 31, 2020.

Net cash flow from operating activities was $57.2 million compared with the previous quarter’s $41 million.

Outlook

Yelp had already withdrawn the full-year 2020 outlook citing uncertainties related to the coronavirus pandemic, which is impacting global business and consumer activities.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -119% due to these changes.

VGM Scores

Currently, Yelp has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Yelp has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.