Deutsche Bank's Contrarian Post-Earnings Yelp View: Buy

Yelp Inc YELP is down sharply on the day, falling more than 20% after the company said that earnings will be impacted by investments in marketing and hiring sales staff. Deutsche Bank analysts say the pressure is “overdone.” Deutsche Bank’s view reflects the idea that the company is a monetization story, not a traffic growth story and that profitability ex-advertising investments will be healthy.

Deutsche Bank has a price target of $70 on Yelp, down from $75 estimate prior and reflecting the lower EBITDA estimates moving forward. However, despite lower profits, revenues, cost-per-clicks and local continue to be a bright spot.

The analysts outline key risks as increased competition, dependency on Google for traffic, and failures to ramp up transaction business, to monetize international traffic and macroeconomic risks.

Yelp last traded in the mid-$40s in 2013.