Yelp Inc: 3 Priorities Could Make YELP Stock Soar

YELP StockShares of Yelp Inc (NYSE: YELP) traded as low as $14.53 per share earlier this year as investors became concerned with its stalling user base and its failure to deliver profits over the past several quarters.

Some investors avoided investing or exited their positions in YELP stock. Others maintained their stakes and remained confident on the future of the online review platform provider. The stock price of the company gained more than 80% over the past six months, or 30% year-to-date.

Is it time to buy YELP stock, and will the company be able to continue or sustain its growth? Let’s take a look at its recent quarterly financial performance.

YELP Stock Returned to Profitability

Last month, Yelp surprised Wall Street analysts after reporting earnings of $0.01 per share on $173.4 million in revenue, which is up 30% in the second quarter. Its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) increased to $28.1 million from $22.7 million last year. According to the company, its local revenue grew 41% to $152.0 million, and its transactions revenue increased 37% to $15.5 million year-over-year. (Source:  “Yelp Announces Second Quarter 2016 Financial Results,” Yelp Inc, August 9, 2016.)

Analysts expected YELP stock to deliver a loss of $0.07 per share on $169.81 million in revenue in the quarter. The company beat the “Street” estimates significantly. Investors were pleased with the company’s business outlook for the third quarter and full fiscal 2016. Yelp Inc raised its adjusted EBITDA guidance.

Yelp expected its third-quarter net revenue to be in the range of $180.0 million to $184.0 million, and its adjusted EBITDA to be around $24.0 million to $28.0 million. For the full year 2016, the company forecasted its net revenue to be around $700.0 million to $708.0 million and its adjusted EBITDA to be in the range of $85.0 million to $87.0 million.

YELP Stock: Three Strategic Priorities

Yelp CEO Jeremy Stoppelman noted that the company has connected more than 300 million people with local businesses through mobile calls, clicks for directions and map views, food orders, restaurant reservations, reviews, and in other ways. According to Stoppelman, the company’s platform has more than 108 million reviews, and its users have the intention to make purchases.

Yelp has three strategic priorities this year: growing its local advertising business, increasing awareness and engagement of Yelp, and driving transactions. The company is investing in TV, online video advertising, and direct marketing. It is delivering compelling returns for Yelp advertisers, and its engineering teams are focused on innovation to realize the company’s goals.

In its second quarter, Yelp made it easier for consumers to find and transact with local businesses because of its improved search filters and streamlined checkout flows. The company added five partners to its platform, enabling customers to transact directly with more than 100,000 businesses in different categories.

Yelp has partnered with—and has made a small investment in—”Nowait,” a mobile platform that allows restaurants to manage their waitlists. More than 4,000 restaurants are currently using Nowait, and Yelp already sees significant benefits from its investment.

Yelp App Is Growing Rapidly

It is important to note that Yelp is growing fast and driving user engagement, alleviating investors’ concern regarding its user growth.

The company reported that unique visitors to its app increased 27% from 18 million to 23 million in the second quarter.  The app’s growth rate is crucial because its mobile app users view as many as 10 more pages than its Web users. Yelp has noted that approximately 70% of its page views came from its app users. (Source: “Investor Presentation Q2 2016,” Yelp Inc,  last accessed September 18, 2016.)

Those who are using the Yelp app to search for local businesses are the types of consumers who have a high intent to purchase. Business owners are very interested in reaching these kinds of customers. The growth of the Yelp app means more profits and revenues for the online review platform provider, which is currently the leading local guide.

There are more than 20 million business locations in the United States. The advisory firm BIA/Kelsey has forecasted that local ad spending in the country would reach $151.0 billion this year, which means that Yelp has plenty of room to grow.

The Bottom Line for YELP stock

Yelp’s latest financial results showed that management is steering its business on the right track toward growth and profitability. If the app continues to grow by double digits, YELP stock could surge more and reward investors with huge returns.

Right now, a majority of 18 Wall Street analysts covering YELP stock are advising investors to hold their position in the company. Fourteen analysts have an “outperform” rating for the stock, and two of them have a “buy” rating. The analysts have forecasted that YELP stock could trade at as much as $50.00 per share, which is an upside of 31.8% over the next 12 months.