Yelp Inc: This Is Why Yelp Stock Is Going Bonkers Today

Yelp IncMajor Upside Ahead in Yelp Stock

As we have seen this earnings season, solid performance in the past is not enough to spark a rally—investors are also looking for future guidance. Fortunately, Yelp Inc (NYSE:YELP) stock delivered both.

The path has not really been smooth for the restaurant review site. In 2015, Yelp stock plunged more than 45%. Since entering February 2016, however, things have started to change. In the past three months, Yelp shares climbed an impressive 58%.

The good news is that the stock’s upward momentum is continuing. After a tremendous earnings report, Yelp stock was up another 19% this morning.

In the first quarter of 2016, Yelp grew its net revenue by an impressive 34% year-over-year to $158.6 million, which also beat Wall Street’s expectation of $155.6 million. The bottom line was even better. The company earned an adjusted net income of $6.0 million, translating to $0.08 per share and smashing analysts’ estimate of $0.03 per share. (Source: “Yelp Announces First Quarter 2016 Financial Results,” Yelp Inc, May 5, 2016.)

The company achieved a major milestone in March 2016—surpassing 100 million cumulative reviews. By the end of the quarter, total reviews on Yelp surged 31% year-over-year to 102 million. Moreover, a lot of them were recently added: around 50% of reviews on Yelp were posted in the previous two-and-a-half years.

Yelp is also capturing the shift to mobile. On average, approximately 21 million unique devices used the Yelp mobile app on a monthly basis in the first quarter. That represented a 32% increase compared to the same period last year. The neat thing is that mobile app users were also more engaged. Measured by the number of page views, app users were more than 10 times as engaged as web site users.

Another highlight was the company’s success with local businesses. In the reporting quarter, Yelp’s local revenue improved 40% year-over-year to $138.1 million. Also, the company has a strong recurring revenue base, which would help add certainty to its future revenue.

On the guidance front, Yelp does not disappoint either. The company forecasts full-year 2016 net revenue to be in the range of $690 million to $702 million. At midpoint, that would represent a 27% growth year-over-year. The guidance range was also better than Wall Street’s projection of $691 million.

In a note to investors on Friday morning, RBC Capital Markets raised its price target on Yelp stock to $33.00. That represents another 26% upside after the recent climb. (Source: “Yelp Company Profile,” Market Beat, last accessed May 6, 2016.)

The Bottom Line on YELP Stock

Note that Yelp recently had a major institutional investor onboard: David Einhorn. His hedge fund, Greenlight Capital, took a stake in Yelp at an average price of $21.16 a share. (Source: “Einhorn’s Greenlight Buys Yelp, Takes Wager on Natural Gas,” Bloomberg, May 2, 2016.)

In particular, Einhorn believes that at the current pace, Yelp could double its revenue by 2019. The hedge fund manager said that based on the industry’s valuations, Yelp stock could be worth $55.00 per share.

Will Yelp stock be able to reach those bullish price targets? Only time will tell. But right now, everything looks pretty solid.