B. Riley Upgrades Yelp Amid Valuation, Expectation For Improvements In Traffic

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  • Yelp Inc YELP shares have plunged 57 percent year-to-date. Trading in the low $20s, the shares are a far cry from their 52-week high of $86.88.
  • B. Riley’s Sameet Sinha upgraded the rating for the company from Sell to Neutral, with a price target of $22.
  • Following the steady decline in shares, Sinha believes the near-term issues appear to be already priced into Yelp’s stock.

Analyst Sameet Sinha said that the upgrade was a result of Yelp’s stock now being within 5 percent of the price target, near-term issues already reflected in the valuation and improvement in traffic to the site after June.

Expectations for 2H15 are now low, after Yelp reduced its guidance twice. Sinha added, however, that the estimates appeared “reasonable” and not conservative.

Yelp had been witnessing a significant slowdown in traffic to its sites. Sinha believes this was on account of increased competition, especially with Google Inc GOOGL diverted traffic directly to merchants through its local products. Following a weak performance in June, there has been some improvement in traffic.

Quantcast data indicates UV [unique visitors] rose by 2 percent year-over-year in July and by 5 percent so far in August. “While traffic trends are unpredictable and could reverse quickly, we believe this improvement does soften our negative thesis,” Sinha wrote.

Moreover, App traffic is improving, having grown 51 percent year-over-year in 2Q15 - an acceleration from 47 percent in 1Q15, and could improve further in the back half of the year, “as most of advertising spend is to be focused in this period, we could see some overall benefit to UV trends, which would allay investor fears,” the B. Riley report stated.

“To be clear, we still do not think that YELP is out of the woods as competition is increasing in the core business as well as at Eat24, international is a drag and sales productivity is expected to be low for a while; however, we do think barring broad based stock market volatility that impacts the valuation for the space, the stock has limited downside and could find support at these levels,” Sinha explained.

Image credit: Nan Palmero, Flickr

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Posted In: Analyst ColorUpgradesAnalyst RatingsB. Riley
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