Yelp (YELP) to Focus on US Expansion After Q3 Beat

By Carrie Williams

Yelp (YELP) to Focus on US Expansion After Q3 BeatThe week before U.S elections saw many stocks finishing in red while very few bucked the trend to close higher. Popular online review platform Yelp Inc. (NYSE: YELP) definitely belonged to the latter category, as it continued its impressive upward movement catalyzed by its Q3 beat last Wednesday. YELP had reported a 3Q revenue of $186 million (vs $183 million) and non-GAAP EPS of $0.22 (vs $0.18). The revenue outlook for 4Q was announced as $191-195 million (in-line with Street) while the adjusted EBITDA was $36-40 million (better than Street at $37 million).

Interestingly, mobile devices played a good part in revenue growth. Over 72 million unique visitors were reported to have used their mobile device to visit Yelp, which is a 4% YoY growth in the mobile arena. On the other hand, over 77 million unique visitors used desktop computers during Q316, a decline of 2% YoY for desktop computers. The mobile user base is expected to increase further in the future, as many customers were found to use mobile devices to read Yelp reviews while doing in-store shopping.

Bank of America Merrill Lynch analyst Justin Post weighed in on the recent development by raising YELP’s price target from $40 to $41 while reiterating the earlier Neutral rating. The new PT is an upside of 13.45% from the last close of $36.14. The stock had catapulted by nearly 12% this past week, predominately during the second half of the week, and is currently trading close to its 50-day SMA.

After scrutinizing the fact that the Local ad revenue drove the upside with a 41% YoY growth (vs est. 38%), YELP management has decided to focus on local businesses in the U.S. Consequently, YELP announced the halting of its global expansion plans as well as cut down its workforce by 4%. This sudden move would leave 175 employees of YELP in sales and marketing roles worldwide in the firing line.

Despite the negatives like the higher expected US tax and high stock comp, the current upward momentum of YELP is expected to be sustained for a while thanks to the superior relative growth and margin leverage potential of YELP.

Based on the 26 analysts covering the stock lately, YELP has an overall rating consensus of a Moderate Buy. The average analyst price target on YELP according to is $40.16 which is an upside of 11.12% from current levels.