Yelp’s earnings report triggered euphoria in its stock as investors grabbed hold of a solid beat-and-raise at a time when there haven’t been a lot of them. Analysts are very positive on last night’s report, although several firms said they’re still holding back to see if the first quarter’s strong performance continues or whether this was nothing but a fluke.
Investors seem convinced for now though, as Yelp shares skyrocketed on Friday, climbing by as much as 22.83% to $26.31.
Bulls raise price targets for Yelp
Credit Suisse analyst Stephen Ju reiterated his Outperform rating and raised his price target from $44 to $46 per share. Yelp posted $158.6 million in revenue, beating management’s guide of $154 million to $157 million and the consensus of $155.6 million. EBITDA came in at $13 million, compared to the guidance of $10 million to $12 million and the consensus of $12 million, even though the company significantly increased its sales force.
Ju and team noted that Yelp’s results received a boost from its local advertising efforts. The company had 121,000 local ad accounts, compared to the CS estimate of 117,100. Also local ad revenue came in at $138.1 million, compared to their estimate of $131.4 million, and average revenue per user was $397, also ahead of their estimate of $384.
They also said Yelp’s hiring and retention trends continue to improve as the sales headcount growth rate accelerated again to 44%. They believe the hiring pace is a leading indicator of progress, and because it takes six to nine months for new salespeople to become effective, they believe the inflection point for sales growth will come between the second and third quarters.
Looking ahead
MKM Partners analyst Rob Sanderson upped his price target for Yelp from $19 to $24 per share but remains Neutral-rated on the stock. He sees the first quarter beats as a “solid step forward in repairing highly negative investor sentiment.” He remains concerned, however, as the company is competing with Google, which favors its own content in search results. Also mobile web traffic growth is decelerating, and mobile app users make up only about 25% of mobile unique users. He wants to see another quarter of strong execution before becoming more constructive on the stock.
Sterne Agee CRT analysts Arvind Bhatia and Brett Strauser also want to see another good quarter before they become convinced that Yelp has passed an inflection point, as does Susquehanna analyst Shyam Patil, who raised his price target from $16 to $22 per share but reiterated his Neutral rating.
Barclays analyst Christopher Merwin also upped his price target for the stock, pushing it up from $20 to $25 while maintaining his Equal-weight rating. He noted that management told investors that local ad revenue growth received a boost from growth in promotional activity in customer accounts.
