Yelp Stock: This Is Why the Bears Are Wrong on Yelp Inc

Yelp StockYelp Stock Could Soar in 2016

Yelp Inc (NYSE:YELP) has been rising ever since it hit its low of $15.56 in February. Some analysts have warned that the recovery would be over by now, yet Yelp stock is defying warnings of an impending doom. Instead, on July 25, Yelp stock managed to gain an additional 2.1%.

For those investors who like charts, the last time YELP stock enjoyed this kind of growth pattern was from October 2012 to April 2013, when Yelp stock gained 78.3%. In fact, from February 11 to July 25 of this year, Yelp stock has gained 95.27%.

Yelp Stock Making a Comeback?

Yelp didn’t even need to get in on the “Pokémon Go” trend to get that kind of growth. Of course, joining the Pokémon craze didn’t hurt. No joke, Yelp reviews now include details on whether an establishment is a Pokéstop!

For years, Yelp was seen as one of the “less expensive” tech stocks, but Yelp has recently managed to grow both on the almost passé requirement of solid earnings and the new and more popular requirement of future guidance. During its most recent earnings, issued last May, Yelp supplied both in spades.

That earnings effect has served as the main driver of Yelp stock. If Yelp delivers on its guidance in the next earnings report, to be delivered next August 9, there’s no telling how high Yelp could go—though within reason, of course.

Reason has played a role in resizing Yelp stock in 2015. There were even questions about its survivability amid controversial claims.

If you aren’t aware, Yelp stock collapsed in 2015; it lost almost half of its value. The potential risk is that the rally that began in February of this year could be a redemptive rise—but it could also be more than that.

Yelp’s momentum does not appear to have suffered any loss in steam. The company’s first-quarter 2016 earnings beat the most optimistic of expectations. Revenue grew by 34%. At $158.6 million, it was $3.0 million higher than what the Street expected. Earnings trounced analysts, delivering $0.08 per share instead of the miserly $0.03 a share predicted. (Source: “Yelp Announces First Quarter 2016 Financial Results,” Yelp Inc, May 5, 2016.)

The key factor in this story of Yelp bullishness is that the web site had more than 100 million reviews in March 2016. In a crazy quest for visitor/user numbers, the reviews are solid evidence of the kind of social media power Yelp can muster. In fact, the company’s quarterly report showed growth in review numbers to be even higher, as Yelp added two million more reviews by its earnings release date.

The intensity of the review increase stems from recent posters—some 50% in the past two-and-a-half years.

Moreover, Yelp has managed to capture users who prefer to use its mobile app, capturing well over 20 million visitors a day using smartphones. Indeed, given its addition of Pokéstop information, users might like accessing Yelp from their smartphones even more. After all, the Pokémon addition is not just for hype; there is a strategy there and it’s to attract more users. (Source: “Yelp Update Helps Pokémon Go Users Find Nearby Pokéstops,” Adweek, July 15, 2016.)

The Bottom Line on Yelp Stock

Yelp has another key measure that offers valuable insight into the course of YELP stock: its success with businesses. There had been complaints about Yelp in the past, but if local revenue is any indication, Yelp’s reputation with the companies its users review has grown, as evidenced by growing revenue. Local revenue increased by 40% year-over-year in the last quarter. (Source: Yelp Inc, op cit.)

As for guidance, Yelp said it would rake in revenue of between $690 million and $702 million for 2016. The Street projected a number toward the company’s higher end at $691 million.

If that is not a sufficiently bullish bottom line for Yelp stock, consider that David Einhorn of Greenlight Capital recently entered Yelp stock. He sees Yelp doubling its revenue by 2019. (Source: “Einhorn’s Greenlight Buys Yelp, Takes Wager on Natural Gas,” Bloomberg, May 2, 2016.)