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Yelp: 21st-century yellow pages

Young Woman Florist Small Business Flower Shop Owner, Checkout Counter copyright YinYang, the Agency Collection, Getty ImagesBy Mike Cintolo, Cabot Top Ten Trader

Our latest Top Ten list has an impressive crop of stocks with good stories and charts that have shown large recent buying power (usually on earnings).

Our favorite is Yelp (YELP), a relatively recent IPO that has a great, sustainable story, rapid sales growth and a stock that just exploded higher on earnings. The company is becoming the 21st-century, interactive version of the yellow pages.

Yelp is essentially the de-facto search engine that connects local businesses with consumers who are ready to buy. One study showed that just having a decent presence on Yelp can boost sales by about $8,000, with that number tripling if it’s combined with marketing efforts.

All of this is leading to more businesses signing up, which is attracting more individuals to the site, which is leading to greater and greater advertising opportunities. Revenue growth has been rapid, as has the growth in reviews (now 39 million, up 42% from a year ago), monthly unique visitors to the site (102 million, up 43%) and active local business accounts (45,000, up 63%).

These days, much of the viewership is taking place on mobile devices, and Yelp has a burgeoning business in that area; 45% of the firm’s searches in Q1 came on mobile devices, and Yelp’s mobile app is used on more than 10 million devices.

Today, most of the revenue is in the U.S., but the company now has operations in 21 countries (New Zealand is the latest), so there’s every reason to expect years of growth ahead.

Earnings remain in the red, but that’s because management is investing; cash flow is already positive and the bottom line should hit the black during the next couple of quarters. With competition at bay (Yelp is the hands-down leader in content and viewership), we think this is a good, sustainable growth story.

Technically, YELP gyrated all over the place from its initial offering in March 2012 through last October, a clear sign not many big investors were involved. However, since then, the trend has been both up and persistent; YELP chugged higher for a few months before launching to the moon recently on humongous volume (the stock rose 27% in one day with volume eight times normal!).

Given that many recent earnings gaps have invited some short-term selling, you can buy around here with a stop in the $26 to $27 area.

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Mystic Maggie

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