Yelp Rises After Earnings Beat Estimates, Analysts Back Stock

  • The user-review site improved its local advertising sales
  • Shares gain most intraday since May on earnings, forecast

Yelp Inc. gained the most in three months after better-than-estimated quarterly profit and revenue spurred analysts to raise their recommendations on the user review site, citing strong local advertising and partnership deals.

The shares rose 13 percent to $37.03 at 1:50 p.m., after earlier climbing as high as $37.57, the biggest intraday increase since May 6. Yelp’s stock had gained 13 percent this year through Tuesday’s close.

“We think there’s significant room for strong revenue growth and margin expansion for Yelp as it remains relatively underpenetrated in local advertising,” JPMorgan Chase & Co. analyst Doug Anmuth said Wednesday in a note.

Yelp, which started in 2004 as one of the first companies to build a business on customer reviews, has been buffeted by competition for users and advertising by technology giants such as Facebook Inc. and startups including MunchAdo. In an effort to spur growth, Yelp pulled back from national brands to focus on local advertising, which now makes up more than 85 percent of its revenue, and increasing its partnerships.

RBC Capital Markets analyst Mark Mahaney cited the strong growth in local ad revenue in upgrading his price target. “The company continues to execute following a rocky 2015,” he said in a note. Mahaney and Anmuth increased their target prices on the stock to $48 and $42, respectively. Analysts at Raymond James, Axiom Capital and Mizuho Securities USA on Wednesday raised their recommendations to buy from neutral, according to data compiled by Bloomberg.

The San Francisco-based company Tuesday reported second-quarter profit of 1 cent compared with analysts’ estimates for a loss of 7 cents. Revenue was $173.4 million, beating the average estimate of $169.8 million, according to data compiled by Bloomberg.
Yelp also raised its forecast for annual revenue to $700 million to $708 million, which may top analysts’ projections of $699.8 million.

Yelp’s profit increased in the second-quarter as more customers used the company’s smartphone app. Shyam Patil, an analyst at Susquehanna, maintained reservations about the company’s execution, saying the rate of growth on mobile phones slowed to 27 percent compared with 51 percent in the same quarter a year earlier. Those getting on the site through desktop computers declined, Patil said.

Anmuth also pointed out that Yelp depends in large part on search giant Google for visits to the website.

“Yelp receives nearly half its traffic from Google search results, and traffic growth could potentially slow if Google significantly changed its search results rankings,” he said.

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