Analysts Still Have Faith In Yelp (YELP) Despite Recent Pulldown

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By Cody Miecnikowski

Shares of Yelp Inc (NYSE: YELP) skyrocketed over 33% between May 6 and May 8 after news broke that Yelp put itself up for sale. Nearly a month later on July 2, it was reported that Yelp will not be looking to sell itself afterall. Despite the subsequent 13% drop in share price, analysts still have some faith in Yelp’s future.

In reaction to potential buyers in early May, Yelp hired Goldman Sachs who valued the company at approximately $3 billion. Following the report of a potential sale, analysts at Credit Suisse identified six potential buyers, including Google, Apple, Amazon, and TripAdvisor.

It was reported on July 2 that Yelp’s CEO, Jeremy Stoppelman, had potential offers, but ultimately decided not to pursue the sale. Shares of the local reviews company started crashing on the market floor after the news broke, with sellers worrying that Yelp will not be able to make it alone.

On July 6, shares of Yelp hit a new low of $36.10.

Despite such news, Cowen & Co analyst Kevin Kopelman reiterated a Buy rating on Yelp with price target of $55 on July 6 with the expectation that focus will return to fundamental drivers.

Kopelman thinks the news could be a “positive sign for Q2, as Yelp would face more pressure to sell if business were deteriorating.” He finalizes his argument by pointing out, “shares reflect (1) an early ’15 slip-up, already overcome, and (2) ‘15E margin compression that is likely to reverse in ’16. Valuation of 4.8X EV/S is attractive on both current growth and [long-term] outlook.”

kevin Kopelman

When measured over no benchmark and a one-year horizon, Kevin Kopelman has a 76% success rate recommending stocks, earning a +17.4% average return per recommendation. The analyst has rated Yelp a total of five times, earning a 50% success rate recommending the stock and a +28.9% average return per YELP recommendation.

Piper Jaffray analyst Gene Munster is less optimistic about Yelp. On July 5, the analyst reiterated a Hold rating on the stock with a $40 price target, believing that Yelp is still “one quarter away from fundamentals stabilizing.”

Munster discusses Yelp’s deceleration in unique user growth. Essentially, fewer new users have been coming in the door, and investors have not taken to this news lightly. However, the analyst believes that user growth “will reaccelerate in the fall and investor sentiment will likely shift back to positive at that time.”

Munster explains that Yelp’s decision to call off the sale process will be inferred by near-term investors “as a sign that Yelp was unable to sell itself.” He continues, “Given that shares have historically enjoyed a takeout premium, we believe that investors will reduce the take out premium.”

He concludes that the “lack of near term catalysts [is] a reason to stay [on the] sidelines.”

gene munster

When measured over no benchmark and a one-year horizon, Gene Munster has a 69% success rate recommending stocks, earning a +25.7% average return per recommendation.  Munster has rated Yelp a total of 12 times, earning a 25% success rate recommending the company a -9.5% average loss per recommendation.

Out of the 22 analysts polled by TipRanks, 12 analysts are bullish on Yelp, 9 are neutral, and 1 is bearish. The average 12-month price target for Yelp is $54.84, marking a 47.74% potential upside from where the stock is currently trading.

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2 COMMENTS

  1. Yelp is crashing. Its stock has dropped 52.81% in the last 12 months. After 2 months it couldn’t find a buyer at its current market valuation. Recently Yelp indicated that Google was demoting its listings and Apple maps dropped Yelp in whole countries. Pacific Crest Securities indicated Yelp advertising is too expensive for restaurants. Yelp uses its SEO power to rank in searches above restaurants own listings, then uses high pressure sales tactics to charge 1000x times what Google does for the same exposure. When a restaurant finds out it can buy $500 Yelp worth of marketing for 50 cents they tend to not renew their Yelp contracts. Now that Yelp listings are being demoted, restaurants have even less reason to buy Yelp advertising. Yelp indicated its desktop traffic is dropping, its overseas sales (3% of revenues) have stalled and $200 million in acquisitions are not generating returns. It was also noticed above that Gene Munster, who is positive about Yelp has an average loss per Yelp recommendation of 9.5%. I would think that out of 8,000 analysts, one could find a more reliable supporter.

  2. Pacific Crest, a research firm, released a report showing Yelp charging ad rates 1000x over alternative online advertisers (Google, Facebook, etc). Yelp charges $600 for an ad that would cost 60-cents elsewhere. Yelp traffic is declining (Google Algorithm might be playing a role). Significant international investments (2 years ago) have contributed less than 4% towards current revenue. Growth is slowing, Expenses are rising, and the CEO continues selling off his shares (96,000 shares sold in the last few months). Do you REALLY think this is a stock to buy?? Day traders skimming off small profits due to volatility – possible. Holding this stock long?? Good luck!

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