Should You Consider Investing in Yelp?

As a leading one-stop local platform provider for consumers, Yelp (YELP) has been ramping up its self-serve channels and service platform to capitaliz...
Should You Consider Investing in Yelp?
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This story originally appeared on StockNews
As a leading one-stop local platform provider for consumers, Yelp (YELP) has been ramping up its self-serve channels and service platform to capitalize on the uptick in business activities and increasing restaurant bookings amid the economy's fast-paced reopening. Consequently, the stock has gained 16.3% year-to-date. But does the stock have more upside to deliver? Read on to find out.

Incorporated in 2004, Yelp Inc. (YELP) is a social networking platform that connects local businesses, including restaurants, shopping, beauty and other categories, with consumers in the United States and internationally. The company’s increasing investment in product innovation and its efficient go-to-market approach have allowed it  to cater to the needs of businesses as they recover from the pandemic-induced downturn.

In May, YELP’s restaurant bookings surged above their pre-COVID-19 levels in nearly every U.S. state largely because an increasing number of restaurant owners are embracing digital platforms to boost their sales.

A substantial improvement in consumer foot traffic as pandemic restrictions have eased, coupled with YELP’s initiatives to boost its self-serve advertising channel, position it to take full advantage of the uptick in business activities. The stock has gained 16.3% year-to-date to close yesterday’s trading session at $38.00. As demand from retail and other businesses continues to surge, YELP is well positioned to maintain its growth and deliver solid returns.

Here is what we think could shape YELP’s performance in the coming months:

Surging Diner Bookings

Last month, the number of diner bookings via YELP’s platform across the United States rose 48%, as compared to May 2019,  to a record 3.7 million. Cities such as Houston, Las Vegas and Honolulu, which lifted pandemic restrictions early on  high vaccination rates, have  contributed to the uptick in restaurant bookings. YELP recorded pre-pandemic level bookings in California as restaurant owners enhanced their digital features by setting up digital menus and contactless payments. Also,  robust interest in pick-up and delivery orders services on the company’s platform should boost its revenues significantly.

Strategic Business Initiatives

YELP’s strategic investment in building a new audience mode—Yelp Connect—for service business should enable its leading customers, including  restaurants, retailers and other business segments, to better engage with potential consumers and increase the relevancy of their products. Moreover, in the first quarter of the year, YELP improved its Request-A-Quote flow feature and added new targeted filters to its search results to accelerate the demand for its services. In addition, YELP substantially improved the percentage of its monetized leads in its  services categories during the first quarter.

Favorable Analyst Estimates

The consensus EPS estimate for the current quarter, ended June 30, 2021, indicates a 72.7% improvement year-over-year. Its EPS is expected to rise 55.6% in the current year, and 433.3% in  2022.

Analysts expect YELP’s revenues to rise 60% year-over-year to $245.6 million in the current quarter, 16.1% year-over-year to $1.01 billion in 2021 and 13.9% next year.

Impressive Financials

YELP’s adjusted EBITDA increased 159% from the prior-year quarter to $44 million in the first quarter, ended March 31, 2021. Its net revenue came in at $232 million, driven primarily  by a substantial increase in advertiser demand. Also, the company’s revenue growth from its self-serve channel rose nearly 30% year over year for the first quarter, while its services revenue hit  a record $141 million, representing a 6% year-over-year increase. YELP’s net cash provided by operating activities rose 44.5% year-over-year to $58.93 million.

POWR Ratings Reflect Promising Outlook

YELP has an overall B rating, which translates to Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight different categories. YELP has a Quality Grade of A. This justifies the stock’s 93.5% gross profit margin, which is 84.5% higher than the 50.7% industry average.

Also, in terms of Value Grade, YELP has a B. The stock’s 2.42 EV/Sales ratio, which is 10.1% lower than the 2.69 industry average, is in sync with this grade.

Click here to see the additional POWR Ratings for YELP (Sentiment, Stability, Growth, and Momentum).

The stock is ranked #3 of 74 stocks in the F-rated Internet industry.

If you’re looking for other top-rated stocks in the same industry, with an Overall POWR Rating of A or B, you can access them here.

Bottom Line

YELP’s strategic initiatives to drive sustainable growth across all its business categories should position it uniquely to benefit from the post-pandemic reopening of the economy. Thus, it could be wise to bet on the stock now.

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YELP shares were unchanged in premarket trading Friday. Year-to-date, YELP has gained 16.31%, versus a 16.48% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.


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