Execution At Yelp Improving; MKM Upgrades To Buy

Although Yelp Inc YELP has seen a recovery in its share price from the lows seen in February, the stock is still meaningfully below the 2014 highs. MKM Partners’ Rob Sanderson upgraded the rating on the company from Neutral to Buy, with a price target of $40.

Sanderson mentioned that while mid-caps in the sector had all underperformed, “YELP is among the cleanest stories of the group for potential recovery.”

Sales Productivity

Contrary to bear concerns regarding the addressable market and customer churn, the analyst believes a rebound in sales productivity could lead to continued momentum in revenue growth.

Related Link: Deutsche Bank: Buy Yelp

“After 3-qtrs of improved execution, sales productivity is rebounding. Sales headcount acceleration in Q4/ Q1 sets up further gains as these hires ramp to tenured productivity in 2H,” Sanderson stated.

Execution & Growth

The analyst believes Yelp is well positioned to report another robust quarter and guide to local ad sales growth. The momentum is likely to continue into 2017, which could drive the stock up.

Sanderson also believes the progress the company has made with product innovation is being underappreciated.

According to the MKM Partners’ report, “The site has become much more photo and content rich. Reviews continue to grow by more than 30 percent per year. Tools like dashboard, revenue estimator, activity feed have improved utility for business owners.”

In addition, Sanderson noted that transactional capabilities had also meaningfully improved, offering the ability to book reservations, request for a quote for service and order food.

“Transaction volume grew by 150 percent last quarter. We consider transactions a hallmark of engagement and utility for users and merchants,” Sanderson said.

Image credit: Nan Palmero, Flickr