Yelp Stock (NYSE:YELP) Seems Ready to Make a Major Comeback
Yelp Inc (NYSE:YELP) has been flying in 2016. Yelp stock has risen from a low of $15.56 in February to $41.70 at the end of September.
Two years ago, Yelp was trading at peaks of over $90.00. After losing more than 20% in October, as a bearish wave overturned August’s gains, Yelp seems ready to return to the $40.00 level. In fact, a trend of successive better-than-expected quarters could see YELP stock trade above its 52-week high of $43.36.
Does Yelp stock have what it takes to go even higher? That’s the big question.
Certainly, the latest earnings results suggest that Yelp is back in the black. YELP stock just released its third-quarter results, and they are good. Rather than a loss of over $8.0 million, year-over-year, Yelp posted a gain of $2.1 million, or $0.02 per share. Adjusted earnings per share (EPS) was $0.22. Revenues of $186.0 million handily beat the $143.0 million in the same period last year.
Analysts on average expected a quarterly $0.03 per share loss on revenues of $183.0 million. This explains Yelp stock’s steady and steep decline over the past month. This could set the stage for a nice comeback in November. Certainly, Yelp shares took off after the earnings surprise, which accounts for its gains of over 10%. Yelp now aims to achieve revenues of $191.0 million to $195.0 million.
Yelp Continues to Surprise Analysts and Investors
Indeed, Yelp’s guidance could hardly have surprised analysts more, and for the better. The results show that Yelp is still relevant. Judging by the fact that users are posting more reviews, it seems that Yelp has never been more relevant. Indeed, the site had 115 user million reviews; that’s a massive 29% more. This supports Yelp’s full-year revenue forecast of $709.0 million to $713.0 million, which would beat analysts’ expectations of $707.97 million. (Source: “Yelp’s Stock Soars After Posting An Unexpected Profit,” Forbes, November 2, 2016.)
The one sour note is that international growth has not matched Yelp’s growing popularity in North America. The company has already started to restructure, shifting more resources accordingly. Still, the sharp rise in the number of reviews is what is most significant. It shows that the company’s business model remains valid, perhaps more valid than ever.
Earlier this year, Yelp even tried some gimmicks to gain users. It summoned “Pikachu” of Pokémon fame to lift its fortunes. It took advantage of the global Pokémon Go craze by simply listing whether a given establishment featured a “PokeStop.” (Source: “Yelp Update Helps Pokemon Go Users Find Nearby PokeStops,” Adweek, July 15, 2016.)
That helped, and—in an industry where user growth is everything (or almost everything)—the move was valid.
The good news is that the Pokémon feature was not added in desperation. Yelp, despite the criticisms—some of which have slipped into lawsuit territory—has reached a peak in 2016. That’s when a Yelp lawsuit went all the way to the California Supreme Court. (Source: “Lawsuit over negative Yelp review heads to Calif. Supreme Court,” CBS News, September 22, 2016.)
That’s not the kind of popularity Yelp needs.
Yelp’s Solid Numbers Don’t Deceive
Given the rise in user reviews on Yelp, an argument could be made that a little controversy could even be good for Yelp’s brand and YELP stock. In the world where social media and tech intersect, news—even bad news—can serve as fuel for growth. Yelp is certainly one of the smaller tech companies, but it has big visibility. The company’s latest quarters have demonstrated that Yelp has remarkable fiscal value.
Over the past few quarters, Yelp has offered up solid numbers and guidance. The company has often beaten that guidance, as in the case of the recent Q3 2016 results. In the first quarter of 2016, revenue grew 37%, beating analyst estimates. Yelp offered up more command performances in the second and third quarters.
At this point, the main question to ask about Yelp stock is: just how high can it go (or bounce back, depending on your perspective)? Wall Street analysts set the target at $37.41 on November 1, ahead of the earnings release.
Been there, done that, retorts Yelp stock. There’s a reason to be bullish. A climb back to its 52-week high of $43.36 is possible, if not probable. RBC Capital Markets thinks those numbers are conservative. It has set its price target for Yelp stock at $55.00. If the next quarter matches Yelp’s guidance, that’s an entirely realistic figure.