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Summary

  • Yelp's revenue is still growing considerably, and the growth in Yelp's numbers of review has outpaced Google.
  • Yelp is expanding globally, and this should further boost Yelp's revenue.
  • The acquisition of Qype is already proving to be beneficial and will add to Yelp's growth in the long run.
  • The technological advancements and moves to strengthen ties with local business owners make Yelp a great buy.

Yelp (NYSE:YELP) has been rising steadily over the last three months, gaining to the tune of 6.5% and beating the S&P 500. Yelp has seen rapid growth in its business, as the number of users and advertisers on its platform has continue to grow. For example, Yelp reported revenue of $76.4 million, up 66% year-over-year, in the first quarter.

More importantly, Yelp's average monthly visitors grew 30% year-over-year to around 132 million, while average monthly mobile visitors grew 52% year-over-year to approximately 61 million. Active local business accounts grew 65% year-over-year to approximately 74,000.

For the next quarter, analysts expect revenue ranging between $85 million and $86 million, a 55% year-over-year increase. Full-year revenue is expected to range between $363 million and $367 million, which will be a growth of 57% over 2013. A closer look at Yelp's business will make it clear why the company is reporting such solid growth and why the momentum should continue.

Growing globally

Yelp's acquisition of its European competitor, Qype, has enabled it to expand globally, especially in Europe. Yelp is trying hard to be the top local search engine across the world. While there is tremendous quarterly and yearly growth in the revenue, the expenses of the company are just growing just as fast, resulting in no profits and consecutive losses. But, the good news is that Yelp has seen a 130% increase in the number of reviews on its site in the past year, as compared to a 75% increase in reviews at Google (NASDAQ:GOOG) (NASDAQ:GOOGL).

The company has grown its revenue at an annual average of 70% for the last three fiscal years, and analysts expect that it will keep on doing the same, with an annual average of 34.5% for the next three years. Even if it achieves this projection, it will have revenue of $1.39 billion by 2019, which will give it a forward price-to-sales ratio of 3.

These strategies will drive growth

The company is currently focusing on three key themes that will play a considerable role in deciding its fate. Under the first theme, Yelp is aiming at technological advancements. With the growing use of smartphones and tablets, Yelp has introduced a number of new features and functions that will help contributors, consumers, and business owners. Yelp also introduced a feature that allows its users to post reviews based on their likes and dislikes. The company has increased its reviews by around 1 million under this theme.

Under the second theme, Yelp is focusing on its expansion plans. The acquisition and integration of Qype in Germany led to a contribution of around 1.8 million reviews and approximately 1.4 million photos to Yelp.

Lastly, Yelp aims to strengthen its ties with local business owners. Its Revenue Estimator function has helped businesses evaluate the leads they get from Yelp. It also helps consumers to discover the business and to place their orders. Also, Yelp's call to action feature has received great response, driving more than 40,000 customer leads per week to Yelp advertisers.

One of the most interesting features that the company has added is SeatMe, which will allow its users to reserve tables at a restaurant, bar, or a lounge. Also, Yelp's balance sheet shows that the company is strong, has no debt, and has a strong cash position of almost $390 million.

Analyst upgrades

In addition to Yelp's strong prospects, the recent upgrades from numerous research firms is also a reason to consider adding Yelp to your portfolio. Research firm Zacks recently upgraded Yelp from "neutral" to "buy" on mobile growth opportunities. Zacks stated:

"Yelp has been continuously endeavoring to improve the mobile web experience for its users. In the first quarter, it launched a feature that enabled users to add photos via mobile web. In the reported quarter, Yelp had approximately 61.0 million mobile unique visitors (which includes both mobile web and mobile app users), up 52.0% on a year-over-year basis.

Approximately 35.0% of the new reviews were contributed through mobile devices. Almost 60.0% of all searches came from mobile in the quarter. We remain encouraged by the company's international expansion (Japan, Mexico, Argentina and Portugal in 2014) which in turn will boost ad revenues."

In addition, Northland Securities also upgraded Yelp to Outperform and raised its price target from $85 to $94.

Conclusion

Hence, Yelp is growing at a terrific pace. The company's focus on product innovation and expansion will allow it to sustain its terrific rate of growth going forward. As such, investors should consider buying Yelp for the long run.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Source: 3 Reasons To Buy Yelp