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Yelp: 21st Century Yellow Pages

by Mike Cintolo, editor 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.

Yelp is the third recent IPO in today’s Top Ten, and it might have the
best story of them all. The company is becoming the 21st century,
interactive version of the yellow pages; it’s 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.

(694)

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