Yelp Stock is Up 60% So Far. What’s Next?

+11.67%
Upside
35.74
Market
39.91
Trefis
YELP: Yelp logo
YELP
Yelp

After more than 60% growth year-to-date (YTD) at the current price of around $44 per share, we believe Yelp’s stock (NASDAQ: YELP), an online site for discovering local businesses ranging from bars, restaurants, and cafes, to hairdressers, spas, and gas stations – is fairly priced. YELP stock has increased from around $27 to $44 YTD, compared to a 17% rise in the S&P index. The stock rise during this period can be attributed to better-than-expected fiscal first-half results in 2023. We continue to believe that the company stands to benefit from its shift from local businesses and restaurants to multi-location advertiser strength and an uptrend in cost-per-click (CPC) rates.

Notably, YELP stock had a Sharpe Ratio of 0.3 since early 2017, which is lower than the figure of 0.6 for the S&P 500 Index over the same period. Compare this with the Sharpe of 1.2 for the Trefis Reinforced Value portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.

In Q2, Yelp generated net revenue of $337 million, up 13% year over year (y-o-y), driven by an increase in average revenue per location. The company’s ad clicks were flat y-o-y but its ad monetization saw improvement – meaning it made more per click. Its average cost per click was up 14% y-o-y. Moreover, its earnings per share (EPS) grew to 21 cents in Q2 2023 from 11 cents in Q2 2022. Its adjusted EBITDA also increased by 25% y-o-y to a record $84 million. Yelp has significant exposure to the restaurant industry, which explains the 14% growth in its second-quarter advertising revenue despite inflationary pressures throughout the period. Going forward, the company has guided 2023 full-year revenue to be in the range of $1.32 billion to $1.33 billion, reflecting a $20 million increase at the midpoint compared to its previous outlook. In addition, it also expects adjusted EBITDA in the range of $310 million to $320 million, an increase of $15 million at the midpoint compared to its previous outlook.

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We forecast Yelp’s Revenues to be $1.3 billion for the fiscal year 2023, up 12% y-o-y. Looking at the bottom line, we now forecast EPS estimates to come in at $0.98. Given the changes to our revenues and EPS forecast, we have revised Yelp’s Valuation to $44 per share, based on a $0.98 expected EPS and a 45.1x P/E multiple for the fiscal year 2023.

It is helpful to see how its peers stack up. Check out how Yelp’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Returns Sep 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 YELP Return 3% 61% 15%
 S&P 500 Return 0% 17% 100%
 Trefis Reinforced Value Portfolio -2% 29% 563%

[1] Month-to-date and year-to-date as of 9/12/2023
[2] Cumulative total returns since the end of 2016

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