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.
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.
|S&P 500 Return||0%||17%||100%|
|Trefis Reinforced Value Portfolio||-2%||29%||563%|
 Month-to-date and year-to-date as of 9/12/2023
 Cumulative total returns since the end of 2016
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