The Puzzling Upgrade of Yelp
Yelp has received an interesting upgrade from Merrill Lynch, which said the company as well positioned to capitalize on key Internet trends.
Yelp Inc. (NYSE: YELP) has received an interesting upgrade from Merrill Lynch, which said the company as well positioned to capitalize on key Internet trends. Merrill Lynch upgraded Yelp to Buy from Neutral and lowered its price target to $70, which seems to be out of the blue considering Yelp’s recent history.
Yelp shares were down 20% in 2014 and since last March have fallen 47%, compared to the Nasdaq, which gained 15% in 2014 and has gained 9% since last March. The brokerage firm believes now is the time to buy.
The positive view on Yelp is based on its position as a local category leader with a strong position in mobile, enviable engagement trends and strong viral attributes. At the same time, the company is in one of the best positions to capitalize on three very important Internet trends: local, mobile and social (reviews).
As Merrill Lynch moves its price objective basis forward to 2016 estimates, the valuation becomes more compelling considering the 2014 multiple compression and the 2015-2016 revenue growth and margin expansion.
Now there are risks to this upgrade that are seen in both Google and Facebook. Both companies are looking to build review ecosystems and tap into local ad spending. According to Merrill Lynch, Street estimates imply significant margin expansion from this.
Yelp’s price target is based on a 44 price-to-earnings multiple from Merrill Lynch’s 2016 earnings per share estimate, which is a premium to the competition, which has an average multiple of 33. Merrill Lynch believes that this premium is warranted because Yelp’s growth will be faster in 2015 and 2016 than any company in its competitive group, excluding Twitter.
Shares of Yelp were up 4.5% at $56.24 in the last two hours of trading Friday. The stock has a consensus analyst price target of $82.10 and a 52-week trading range of $49.11 to $101.75.
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Chris Lange is a financial and geopolitical writer with more than a decade of experience covering a myriad of topics. He has published thousands of articles for 24/7 Wall St., with past coverage focused heavily on stocks, IPOs, healthcare, defense, global affairs, and technology.
His work has been quoted, or referenced by a number of outlets including Business Insider, USA Today, Yahoo Finance, MSN, The Motley Fool, and many other publications. A graduate of Southwestern University, he studied business with a focus on investments and has previous experience in banking and startups.
When not reading or writing the news, he is following his passion for Lacrosse, playing chess, or building solar projects with his dad.
