Yelp Inc (NYSE:YELP) stock is having a bad year. Actually, it’s been downright horrible, with YELP stock falling about 30% since the start of the year. And this is already on top of a drop of almost 48% in 2015. So why has Yelp stock been hammered? Investors are worried about decelerating user growth rates.
However, the current price of Yelp stock suggests it may be a bargain and there is still a lot to like about Yelp’s growth story. Here are three reasons that may propel YELP stock higher.
Huge Community of Users
Since its inception, Yelp has built a large, thriving community of users that post tons of reviews. In the latest quarter, cumulative reviews, which are a key business metric Yelp uses, grew 34% over last year. There are now more than 95 million reviews on the site.
That is something that is very valuable to advertisers, as four out of five Yelp users visit the site with the intention to spend money. (Source: “Nielsen: 4 out of 5 Yelp users visit the site when preparing to spend money,” Yelp Inc, June 25, 2013.) And that is also very valuable to Yelp, since the bulk of the company’s revenue comes from advertising dollars. In the latest quarter, advertising revenue grew 35% over last year, up to $125.9 million, while advertising accounts grew 32% over last year.
Mobile App Engagement
As mobile Internet has become more ubiquitous through the use of smartphones over the years, Yelp has evolved into a mobile-centric company. The company says that 70% of searches on the site now come from a mobile device and that by the end of 2015, about 20 million unique devices accessed the site through the mobile app, which is an increase of 38% over last year. This is very important for Yelp and its advertisers, since the company says that Yelp app users are more than 10 times as engaged as web site users.
For a stock that has been hit so hard, one would think that growth has stalled, but that’s not the case for Yelp, which is still growing very rapidly. Revenue in the fourth quarter was $153.7 million, which is up 40% over the same quarter last year. For the full year, revenue grew 45% over 2014.
The company is guiding a bit lower for 2016, but growth rates are still high at 26%, which is a growth rate any company would love to have.
Yelp is also looking to grow beyond its core business. Last year Yelp acquired Eat24, an online food ordering service, for $134 million. Yelp didn’t disclose revenue numbers in its latest earnings report, but the company said that revenue grew 80% over last year.
Yelp also acquired SeatMe, a web and mobile reservations service, for $12.7 million in 2013. In the fourth quarter, Yelp says that more than 15 million diners were seated through SeatMe, up about 120% over last year.
The Bottom Line on Yelp Stock
Yelp’s stock may have been hit hard over the last year due to fears of slowing growth. Growth may not be as high as it once was for this young company, but it’s sill rapidly chugging along. YELP stock may be oversold at this point, meaning it may be worth a closer look.