Online review site, Yelp Inc (NYSE:YELP) is expected to report strong first quarter earnings results on Wednesday by analysts at Cantor Fitzgerald Equity Research. The analysts anticipated that the company will post a 74 percent year-over-year increase in local ad revenue, relatively consistent with its performance in the previous quarters.
Cantor Fitzgerald analysts Youssef Squali, Naven Khan, and Kip Paulson noted that Yelp Inc (NYSE:YELP) is positioned to benefit primarily from the massive local online advertising opportunity because the number of players with scale, brand, network effect, and solid execution are limited.
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Paulson and his fellow analysts projected a Yelp Inc (NYSE:YELP) earnings performance of $44.7 million revenue (+632% Y/Y) and $1.4 million EBITDA (3.2 percent margin). The consensus estimate of Wall Street analysts were $44.5 million revenue and $1.5 million EBITDA based on data from FactSet.
Yelp Inc (NYSE:YELP) earnings guidance for the current quarter is in the range of $44 million to $44.5 million revenue and $1.25 million to $1.5 million EBITDA.
The analysts expected that company’s local advertising revenue will be around $37.29 million, which accounts 83.4 percent of Yelp Inc (NYSE:YELP)’s total revenue and represents 44 thousand active local businesses by the end of the quarter. According to them, the sequential average revenue per local business is approximately ~$892.
Paulson and his colleagues estimated that branded ad revenues will increase 27.8 percent year-over-year to $5.10 million (11.4 percent of total revenue). In terms of mobile revenue, the analysts cited that Yelp Inc (NYSE:YELP) still needs to break out in this category and they will closely monitor if it will be able to close the monetization usage gap.
In a note to investors, the analysts wrote, “We continue to see Yelp as a differentiated platform that is ideally positioned to benefit from rapid growth in mobile and local advertising. Yelp’s brand, scale, network effect, and first-mover advantage are a strong differentiators that should prove hard to replicate.”
The analysts recommended a buy rating and $27 price target for shares of Yelp Inc (NYSE:YELP). According to them, the stock is not cheap because it is trading at 7.5x at EV/ revenue based on FY13 estimates or 5.2x EV/revenue based on FY14 estimates. They said, the company’s “outside growth rate and margin potential” are the reasons behind their positive conviction for the company over the long-term. Their price target is based on a five year DCF and represents 7.7x revenue.
According to Paulson and his fellow analysts, Yelp Inc (NYSE:YELP)’s risk is the competition in local advertising from Google Inc (NASDAQ:GOOG) and Facebook Inc (NASDAQ:FB), and its dependence on the search engine giant for traffic generation.
Stock of Yelp Inc (NYSE:YELP) is trading around $25.41 per share, down by more than 2 percent on Wednesday 10:30 AM in New York.