Yelp Looks Expensive At $40

[Updated: 07/13/2021] YELP Stock Update

We believe that Yelp’s stock (NYSE: YELP), an online site for discovering local businesses ranging from bars, restaurants, and cafes, to hairdressers, spas, and gas stations, looks expensive at current levels of around $40, after being up 70% in the last twelve months, compared to a 39% rise for the broader S&P 500 index. Yelp’s revenues have also fallen 17% to a consolidated figure of $855 Mil for the last four quarters from the consolidated figure of $1 Bil for the previous four-quarter period. We believe that this revenue and stock price mismatch looks like a reason to sell the stock – as YELP stock remains highly valued at a price-to-sales ratio of 3.3x. The company’s current P/S multiple could likely see a downward correction based on its historical multiples in the short to medium term. Our dashboard, Buy or Fear Yelp’s Stock provides the key numbers behind our thinking, and we explain more below.

It should also be noted that Yelp’s revenue growth has been decelerating since 2013. Even before the pandemic struck (revenues fell 14% y-o-y in 2020), annual growth slowed to 8% y-o-y in 2019 as compared to 11% y-o-y in 2018. By the look of things, enterprises started shifting away from Yelp as a lead generator – even before the severity of the pandemic and the resultant restrictions were placed on businesses.

In the recent Q1, the company’s revenue was down 7% y-o-y to about $232 million, and nearly flat quarter-over-quarter from Q4 2020. Earnings also came in at a loss of 8 cents per share compared to a loss of 22 cents per share in the prior-year period. While the company does not expect traffic to return to pre-pandemic levels in the near future, it is still hoping for a gradual recovery as consumers are vaccinated. It is aiming to achieve at least $1 billion in revenues with an adjusted EBITDA target of $185 million in fiscal 2021. It should be noted that before the pandemic, Yelp entered 2020 with targets of revenues reaching $1.1+ billion with EBITDA margins of 22% to 23%, or the equivalent of nearly $250 million in adjusted EBITDA profits.

[Updated: 5/5/2021] YELP Q1 Pre-Earnings

Yelp (NYSE: YELP) is scheduled to report its fiscal first-quarter results on Thursday, May 6. We expect the stock to see little to no movement post the fiscal Q1 release with earnings beating expectations but revenues falling short. In Q4, the company saw sales falling under pandemic pressures, but profitability rising on the back of cost cuts. We expect a similar trend in the upcoming Q1, as local businesses such as restaurants continued to see reduced demand during this period. But, Yelp could enjoy a traffic rebound in the long term with the reopening of the U.S. economy and vaccine rollouts gaining steam.

Our forecast indicates that Yelp’s valuation is around $38 a share, which is largely around the current market price. Look at our interactive dashboard analysis on Yelp’s pre-earnings: What To Expect in Fiscal Q1? for more details.

(1) Revenues expected to be marginally below consensus estimates

Trefis estimates Yelp’s Q1 2021 revenues to be around $227.2 Mil, slightly below the consensus estimate of $228.3 Mil. The company saw Q4 revenues fall in double-digits due to advertising declines, but the growth trend was positive with revenue improving quarter-to-quarter in each of the last two quarters. It is worth mentioning that Yelp’s adjusted EBITDA margins grew 260 basis points year-over-year (y-o-y) in Q4 despite a double-digit revenue fall. For the full year 2021, we expect Yelp’s revenues to grow 14%  y-o-y to $997 million.

2) EPS likely to come in ahead of consensus estimates

Yelp’s Q1 2021 ear1nings per share (EPS) is expected to come in at a loss of 22 cents per Trefis analysis, ahead of the loss of 26 cents of the consensus estimate. The company saw a net loss of $19 million in 2020, resulting in -$0.27 in earnings per share. We expect the company to continue to post a loss in fiscal 2021 as well.

(3) Stock price estimate largely around the current market price

Going by our Yelp’s Valuation, with a revenue per share (RPS) estimate of $13.66 and a P/E multiple of 2.8x in fiscal 2021, this translates into a price of around $38, which is almost in line with the current market price

E-commerce is eating into retail sales, but this might be an investment opportunity. See our theme on E-commerce Stocks for a diverse list of companies that stand to benefit from the big shift.

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