Has Yelp Stock Finally Bottomed?
Shares of Yelp Inc (NYSE:YELP) hit an all-time low of $15.56 last February, but Yelp stock is now heading for a recovery. At its current price level, YELP stock may be an overlooked bargain for many investors looking to get into the less expensive tech stocks space.
Founded in 2004 in San Francisco, Yelp.com is a web site that connects users with local businesses. Present in many major cities across 32 countries and with more than 80 million reviews, Yelp.com has established itself as one of the leading “word-of-mouth” services, where consumers can read (and post) reviews about restaurants, hotels, vacations, dentists, and even hairdressers. One of its keys to revenue growth could be its recent addition of U.S. utilities in the portfolio of services Yelp users can review thanks to an agreement to this effect with the U.S. government.
Federal agencies are also relying on Yelp to gauge favorable or unfavorable services as users post comments. This allows them to address inevitable criticism in real time. Yelp has also ventured into food delivery to boost revenue.
In its last quarter (February), Yelp reported $0.11 in earnings per share (EPS) for the quarter, which widely beat a consensus estimate of a $0.03 loss. This was higher than the $0.08 EPS year-over-year results. Yelp also beat analysts’ estimates on revenue, which came in at $153.70 million instead of the estimated of $152.35 million. That means revenue increased some 39% year-over-year.
Not surprisingly, many banks have expressed a bullish sentiment toward Yelp stock. b, for one, reissued a “Buy” rating and set a $33.00 price target in February. (Source: “Yelp Inc. (NYSE:YELP) Receives Average Rating of ‘Hold’ from Analysts,” The Hilltop News, last accessed March 7, 2016.)
Recently, Yelp has been the object of media rumors over its work conditions. The spillover effects were damaging enough that the company offered a statement online. However, the material impact of Yelp stock is negligent at best. For starters, Yelp stock has not stopped moving upward since the incident occurred. Secondly, the legal implications are null.
Yelp, which fired an employee after she complained about her working conditions at the company in an online statement, did nothing illegal. Yelp terminated Talia Jane, acting within its full rights. Likewise, the company fired Jaymee Senigaglia, a single mother, acting again in its full rights. Individuals may certainly reproach Yelp, if they wish, and blame it, but Yelp stock is not at risk. California, where the two women were dismissed, is an at-will employment state. The employer need not offer any cause for termination. (Source: “Can Yelp escape its own employee loyalty spiral?” The Next Web, last accessed March 7, 2016.)
Therefore, there is little chance of any legal obstacles standing in the way of Yelp stock’s recovery.
Moreover, as the U.S. industrials show growth in the wake of a much more optimistic than expected jobs report last Friday, consumer spending will increase. Higher consumer spending is one of the keys to Yelp’s popularity and growth, as more workers become increasingly eager consumers of goods and services, leading to more product reviews on web sites like Yelp.
If all of this plays out, Macquarie’s $33.00 target price on YELP stock looks very realistic.