SunTrust's Peck Re-Examines Yelp

• The share price of Yelp, Inc. YELP has declined from the high of $57.47 on February 5, 2015 to $22.58 at market close on September 24.
• Robert S. Peck of SunTrust Robinson Humphrey has maintained a Buy rating on the company, while lowering the price target from $37 to $32.
• Peck sees positive developments, such as the management beginning to engage with the top shareholders and a new Chairman likely to be named soon, as catalysts for “innovation, value creation, and change.”

Analyst Robert Peck believes that the top management engaging with shareholders would be “extremely important in rebuilding credibility,” while keeping “pressure on management to drive stock performance.”

SunTrust’s analysis suggests that productivity, revenue and churn per account have been stable and that this trend was likely to continue. “The key driver of core Local Ad revenue is sales headcount growth,” the report said.

While local ad revenue growth is expected to see easing comps, Yelp’s other non-core revenue growth are expected to face headwinds during 1H16 due to the shutting down of Brands. However, these revenues are expected to grow in 2017, with the headwind lapsing.

Peck believes that the company would witness near term margin headwinds due to “1) mix shift away from Brand to Eat24, 2) increased marketing spend, and 3) needed investment in the platform and self-serve advertiser tools.”

However, Peck expressed confidence in the company’s ability to achieve EBITDA margins of 30 percent and above in the long term. The revenue estimate for 2016 has been lowered, while that for 2017 has been raised. The EBITDA estimate for 3017 has been lowered.