Yelp Is 'Poised To Surpise,' Says Morgan Stanley

Morgan Stanley initiated coverage on Yelp Inc YELP Thursday with an Overweight rating and a $62 price target.

Analysts led by Brian Nowak felt the company was “poised to surprise” based on a sales force productivity analysis.

Nowak commented on Yelp’s plan to expand its sales force by 40 percent in 2015 and, when combined with an estimated 9 percent surge in ad dollars, an increase of 53 percent in local ad growth was expected for 2015 and 43 percent growth in 2016.

“Mobile app users are accelerating, and our OpEx breakdown shows YELP will deliver EBITDA upside to Street despite increased advertising spend,” according to Nowak.

The analysts were also positive on SMB satisfaction as a means of growing Yelp’s paying customer count as the firm’s survey found that Yelp satisfaction rose to 90 percent in early 2015. “SMBs intend to increase their YELP spending by 6 percent” in the near to medium term and this represented “a sea change from a year ago when SMBs planned to decrease their spending by 18 percent,” Nowak said.

Nowak also pointed out that mobile business concerns appeared “overblown as mobile app user growth accelerated 39 percent in 2014.” Customer acquisition costs, on the other hand, were rising but the analysts felt it was manageable.

The analyst note concluded that Yelp’s “current 29x EV/EBITDA is near a historical trough” and that it created “an attractive entry point to buy a company set to grow EBITDA 60 percent over the next two years.”

Yelp recently traded at $48.48, up 2.82 percent.