Credit Suisse Sees Opportunity In 'Unloved' Yelp

In a report published Wednesday, Credit Suisse analyst Stephen Ju discussed a recent series of investor meetings with Yelp Inc YELP's senior management team which left him with "incremental conviction" in a bullish long-term thesis.

According to Ju, Yelp's business model isn't "flawed" nor is it "broken" and the current cycle of downward revisions to guidance is "largely behind us." In addition. investors need to "step back and look at the bigger picture" in which the "unloved" company offers a "differentiated consumer value proposition" that is still under-monetized.

Ju said Yelp's sales force attrition (and not a lack of hiring) was the main reason behind the downward revised fiscal 2015 guidance. The analyst further suggested that in fact "one of the underappreciated nuances" of Yelp's sales force is its "hunters as opposed to farmers" mentality – meaning that it is geared toward customer acquisitions over retention.

While a lack of focus on retention may be "anathema" to investors, the primary reasons for churn are mostly due to advertisers going out of business or dissatisfaction due to Yelp's refusal to remove a negative rating and review - both of which Yelp's sales force and customer service team are in a position to do anything.

Ju also argued that while Yelp's shutdown of its display business was disappointing, investors need to "look forwards as opposed to backwards" especially when considering the ad unit was proving to be "harmful" to the consumer experience.

Finally, Ju pointed out that Yelp regularly reports the percentage of local revenue generated by CPC advertisers. The percentage has grown to 46 percent in the most recent quarter from 23 percent in the third quarter of 2014. The analyst stated that the increasing penetration of CPC is a "bullish indicator" and shows increasing advertiser willingness to adopt a more ROI-driven approach to buying leads versus a flat monthly subscription. As such, the company is now in a position to see its average revenue per user increase.

Shares remain Outperform rated with an unchanged $44 price target.

Image credit: Nan Palmero, Flickr