According to Piper Jaffray senior analyst Gene Munster, online local guide Yelp (NYSE:YELP) can grow at a rate of more than 40% for the next six years. This doesn't come as a big surprise, as its recent first-quarter results will show us. However, Yelp shares are down almost 15% in 2014. But in my opinion, I think this is a good opportunity for investors who should consider buying Yelp, as its business is expected to grow rapidly going forward.
Rapidly improving financials
Yelp's recent results have also been quite strong, with revenue growing 66% year-over-year in the previous quarter. Also, for the ongoing quarter, Yelp's revenue is expected to be in the range of $85 million to $86 million, representing growth of approximately 55% compared to last year.
Additionally, Yelp is looking to improve its profitability. Its adjusted EBITDA in the first quarter was approximately $8.5 million, a solid improvement from $3.2 million last year. For the second quarter, adjusted EBITDA is expected to be in the range of $11.5 million to $12.5 million. Hence, it is clear that Yelp is growing at a good pace, and a look at the company's moves will reveal why its terrific performance is expected to continue going forward.
The business is gaining traction
Yelp is seeing some great growth in its key metrics. Cumulative reviews for the company that connects consumers with local businesses grew 46% year-over-year to approximately 57 million in the previous quarter. Average monthly unique visitors grew 30% year-over-year to approximately 132 million, and average monthly mobile unique visitors grew 52% year-over-year to approximately 61 million. Active local business accounts grew 65% year-over-year to approximately 74,000.
To improve the experience that Yelp offers, it announced its integration into Yahoo (YHOO) local search, building on its existing partnerships with Apple Maps and Bing. In addition, it has integrations with several car navigation systems. Yelp has also entered into an advertising partnership with YP.com, which will enable it to introduce Yelp to an even broader pool of business owners. For the rest of the year, it targets to continue to support and engage its community of Yelpers, expand geographically, and create innovative products.
Yelp's mission is to connect consumers with local businesses. Its goal is to be wherever consumers are looking for a local business, no matter where they are in the world or how they access its content. Yelp has been successful in its mission so far, as evidenced by the 132 million unique visitors who visited Yelp on a monthly average basis in Q1.
More improvements in the cards
To enhance the experience, Yelp is also rolling out new features to enhance the experience for its community of contributors and readers. It has been working to improve the mobile web experience. In Q1, it launched the ability to add photos via mobile web. The investment it has made over the past year has resulted in the strong engagement that it's experiencing across mobile. Approximately 35% of new reviews came from mobile, and about 60% of all searches came from mobile in the quarter.
Yelp has also revamped its business listing page by increasing the number and size of photos, along with improving review highlights to emphasize the information that consumers find most useful. Also, Yelp's international communities are also experiencing increased traction and brand awareness. In Germany alone, the number of contributors has increased over 350% since it completed the Qype integration in October 2013.
It continues to provide new ways to provide local businesses with more value. Recently, Yelp integrated its latest Yelp platform partner, Booker, allowing consumers to book spa and salon appointments directly on Yelp. It looks forward to integrating additional platform partners throughout 2014.
Yelp is also experiencing good traction with the products it rolled out last year. Call to Action (CTA) is a popular feature with both advertisers and consumers, which is generating approximately 100,000 leads for advertisers every week. Further, the Customer Activity Feed, which it launched in Q4 of last year, provides business centers with details of each lead.
Given the fast-growing nature of Yelp's business, it is not surprising to see that it trades at an expensive forward P/E ratio of 179. However, the company has a solid balance sheet with no debt. Its cash position is also quite strong, at $400 million. Moreover, according to Yahoo Finance, Yelp's earnings are expected to grow at a CAGR of 86% for the next five years, making it a solid growth pick.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.