Yelp Sensitivity Analysis: How Changes In Market Share Impact Yelp’s Value
Yelp (NYSE:YELP) is the largest local ads business in the U.S. According to the company, local ad spending in the U.S. is estimated at around around $150 billion, and the company estimates that there are over 20 million local business locations in the U.S., presenting a substantial market opportunity. At present, we forecast the company to end 2018 with 188,000 paying local businesses. However, given the massive market size in the U.S., this number of paying businesses for Yelp could be significantly higher should the company execute on business development initiatives. We have created an interactive model that details how changes in Yelp’s local ad market share can impact its valuation. You can modify assumptions such as price-to-sales multiples, average revenue per local business and others to see how the dynamics of market share/market price sensitivity change.
Due to the sheer size of the market, Yelp currently accounts for less than 1% of the local ad market in the U.S. Our dashboard illustrates that for every 1% increase in the existing local ad businesses, Yelp’s valuation would improve by nearly 1%, or around 40 cents per share. To the extent that more businesses sign up for Yelp’s advertising services, this would materially boost Yelp’s paying active businesses.
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Our price estimate for Yelp stands at $38, which is around 10% below the current market price.
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