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Yelp: Room To Run

Jan. 13, 2017 1:28 PM ETYelp Inc. (YELP)9 Comments
Joe Kuefler, CFA profile picture
Joe Kuefler, CFA


  • Yelp is an intriguing investment based its strong revenue growth, solid balance sheet, large market opportunity and modest price-to-sales ratio.
  • Fears of slowing growth resulted in a bumpy 2016 and an opportunity for investors to pick up an attractive company at an appealing price.
  • The growing self-service channel and improving sales productivity could prove a catalyst to propel the stock higher.
  • My scenario-weighted valuation with fair value in the range of $50-56 per share represents a sizable margin of safety to Yelp’s current $40 share price for a patient investor.

Yelp (NYSE:YELP) has had a rough couple of years, peaking at $97 per share in 2014 before bottoming near $15 per share in Feb 2016. Management missteps, changing strategies and the absence of any operating leverage led to the decline. However, company strategy has sharpened and the market opportunity remains large. Even after an impressive rally in the back half of 2016, the stock has room to run based on its very modest valuation.

In 2016, the company has brought the focus back to its core: connecting people to great local businesses in the US and Canada. It is doing this by increasing engagement of consumers and businesses on the platform and expanding its transactions functionality. Additionally, since bringing Lanny Baker onto the management team as CFO in April, the company has showed impressive margin improvement while continuing to scale its business.

Company Strategy:

Yelp's strategy is to grow its communities and users within those communities, while increasing consumer engagement and enhancing monetization by attracting more local businesses to promote themselves on its platform.

While Yelp has a presence in more than 30 countries, the company recently announced it is ceasing all international sales activity to focus its efforts at growing its business in the US and Canada. These international markets represented less than 1% of Yelp's revenue, but a much larger percentage of spend.

At the end of Q3 2016, Yelp had 115 million cumulative reviews on its platform, (up 30% from Q3 2015) and 25 million unique app devices (up 24% from Q3 2015). While Yelp content also can be accessed through the desktop and mobile web, traffic via its app is growing the fastest and offers the lowest traffic acquisition cost. Additionally, the company asserts that app users view more than 10 times as many pages as website users. In Q3 2016, 74% of searches and 65% of ad clicks came

This article was written by

Joe Kuefler, CFA profile picture
Joe Kuefler is a brand marketing executive at a consumer durable goods manufacturer. Joe holds a Masters of Science in Finance from the University of Alabama and is a Chartered Financial Analyst.

Analyst’s Disclosure: I am/we are long YELP. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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