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YELP: UBS Ups Estimates But Cuts to Hold on Valuation

UBS‘s Eric Sheridan today cut his rating on shares of Yelp (YELP) to Neutral from Buy, while raising his price target to $40 from $32, writing that it is “one of the best positioned businesses within our coverage universe in terms of key secular themes (social, local, mobile)” but that the stock is fairly valued at 7 times enterprise value as a multiple of sales, 46 times enterprise value as a multiple of Ebitda, and 55 times cash flow.

The stock today is down 82 cents, or 2%, at $38.58.

Sheridan actually has several favorable things to say about the company’s products, including a new “Platform” initiative:

On July 9th Yelp introduced Yelp Platform, adding a consumer purchasing capability to the site. This pivot toward becoming a more transactional eCommerce platform will begin with just food delivery services, limited to San Francisco and New York. We view Yelp’s entry into local eCommerce as a bullish development, as this pivot expands the company’s TAM to include consumer purchases (vs. previously addressing local merchant advertising budgets). Specifically, this initiative adds high margin, fee-based revenues, which are likely to be accounted as part of the “Other Services” bucket within the company’s reporting structure.

He likes a recently introduced advertising feature, “call to action“:

Yelp’s management has stated that more clearly communicating the value of the company’s services to local business owners is a key priority for 2013. Aligned with this statement, Yelp rolled out the “Revenue Estimator Tool” in March, and more recently introduced its “Call to Action” feature (available on both desktop and mobile as of June 18th) […] Yelp’s “Call to Action” feature is available only to businesses that have purchased one of Yelp’s advertising packages, and thus will not directly contribute to increased revenue in the near-term. That said, we believe that the new feature could enhance the value of Yelp’s advertising packages, leading to increased close rates and customer retention levels.

Sheridan raised his revenue estimate for next year to $340 million from a prior $322 million, above consensus of $314 million, and raised his Ebitda estimate to $52 million from $47 million, and above the average estimate of analysts of $50 million.


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Mystic Maggie

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