Yelp: No Reason To Panic

| About: Yelp (YELP)
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Summary

Yelp dipped on perceived weak Q1 guidance.

Conservative 2016 guidance provided a similar dip that made for a good buying opportunity.

The stock has a compelling valuation despite the big rally last year.

Yelp (NYSE:YELP) traded down a sharp 14% on Friday following what the market saw as weak guidance. The market is overlooking some promising metrics in the process.

The stock is up sharply from the early 2016 lows so possibly a pause was needed. The market, though, needs to pay more attention to the value proposition of Yelp and not where the stock traded last year.

For Q4, Yelp showed the strong ability to leverage growth on the consumer review platform. The company generated a profit that far exceeded estimates and even produced a GAAP profit of $0.10 despite a restructuring charge and stock-based compensation.

The prime reason for the stock dip was the guidance that Q1 revenues wouldn't meet analyst estimates. This number, along with full-year guidance, provided multiple ways for interpretation.

For Q1, sequentially flat revenues at $195 to $199 million was far below the analyst estimates at $204 million. Yet, the company guided towards a doubling of adjusted EBITDA to $26.5 million from Q1 levels last year of only $13 million.

Another point is that the company guided to 2017 revenues of $880 to $900 million. The midpoint of the guidance at $890 million was a tad below analyst estimates at $895 million, but Yelp guided in a similarly conservative manner for 2016.

With the Q4 report last February, Yelp predicted that 2016 revenues would reach $680 to $700 million. The consumer review site ended up reporting revenues of $713 million for 2016.

Yelp beat the original midpoint guidance of $690 million by $23 million or 3.3%. A similar beat for the 2017 guidance would equate to revenues of roughly $920 million and far above analyst estimates.

At the end of the day, Yelp originally guided towards 2016 revenue growth of 26% and is now guiding towards 2017 growth of 25%. Investors have no reason to panic on the guidance numbers.

So, while the guidance is no reason to panic, the valuation is extremely compelling. In comparison to other Internet stocks that live off advertising revenues, Yelp offers by far the better value in comparison to other stocks like Alphabet (NASDAQ:GOOGL) (NASDAQ:GOOG) and Twitter (NYSE:TWTR).

YELP PS Ratio (Forward 1y) Chart

YELP PS Ratio (Forward 1y) data by YCharts

The key investor takeaway is that Yelp offers a company throwing off solid cash flows and an attractive valuation. The market doesn't offer many stocks growing revenues at 25% and trading at an incredibly low forward P/S multiple, especially for a platform that offers the holy grail of local advertising.

Disclosure: I am/we are long YELP, TWTR.

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.

Additional disclosure: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion or consult a financial advisor. Investing includes risks, including loss of principal.