Shares Of Yelp Tumble As Analysts Offer Mixed Views

Shares of Yelp YELP are trading lower by 12 percent as certain aspects of the company's second quarter results were of concern.

Raymond James: Risk/Reward In Focus

Aaron Kessler of Raymond James focused on Yelp's growth in active local business accounts, which only rose by 5,900 in the quarter, lower than the expected 7,700 merchant heads. Kessler noted that Yelp's Other Services revenues, which includes third-party revenue streams from Google, OpenTable and other sources decelerated to $4 million, representing a 25 percent year-over-year growth, a deceleration from the 58 percent growth the company demonstrated in the previous quarter.

Kessler did note that there were plenty of positives in Yelp's quarterly report, including a 6.5 percent increase in Annual Advertising Revenue per Average Account, which came in higher than 6.0 percent he expected.

However, Kessler's projections fall short of what the company issued. Yelp's third quarter revenue guidance of $98 million to $99 million is above Kessler's estimates of $95.6 million. Yelp's third quarter EBITDA guidance of $18 million to $19 million is also above Kessler's guidance of $17.6 million.

Looking down the road, Kessler revised his full year fiscal 2015 revenue projections to $505.9 million from a previous $509.9 million given slower net advertisers add assumptions.

As a result of Yelp's risk-reward profile being “more balanced,” the analyst downgraded shares to Market Perform from Outperform with a previous $80 price target removed.

SunTrust: Strong Quarter

Robert Peck of SunTrust Robinson Humphrey believes that Yelp reported a strong quarter which justifies a reiteration of his Buy recommendation and a price target hike to $90 from a previous $85.

In a note to clients on Thursday, Peck also offered commentary on Yelp's active local business account growth, but didn't come to the same conclusion of Raymond James' analyst.

Peck confirmed that active local business account growth remains a potential issue and something that “bears will glom onto,” however the analyst isn't worried.

“Active local business account growth and local ad revenue growth have a very similar growth trajectory (as they should) with local ad revenue growth showing a slightly better trajectory on account of modestly rising average revenue per user,” Peck explained in his note. The analyst added that deceleration in active local business account growth is not necessarily a leading indicator for a slowdown in local ad revenue growth.

According to Peck the total market opportunity in the local ad space is $26 billion, with this figure expanding to $48 billion when considering online and mobile use. Yelp could benefit from its “robust margin structure” that has no content costs for the user or traffic acquisition costs. With no signs of saturation in the market and Yelp being in the early stages of an international expansion, the company could experience impressive growth.

Wunderlich: $105 Price Target Justified

Blake Harper of Wunderlich Securities believes that Yelp continues to execute well on its local advertising business, while growing its user base at the same time which will contribute to accelerating earnings growth over time.

The analyst maintained a Buy rating and made no changes to a previous $105 price target.

In a note to clients, Harper described Yelp's mobile platform and user generated content as being its strongest competitive advantages. The company was able to grow monthly mobile unique visitors by a factor of 50 percent from a year ago, while 50 percent of ads and 40 percent of reviews were created on mobile devices.

Yelp's future mobile initiatives include the ability to post videos, message businesses directly from within the Yelp platform and make reservations with a partnered business. By continuously improving its mobile and community-enhancing platform, Yelp will create what Harper describes as a “competitive barrier” and result in further margin expansions.

In addition to the under-penetrated domestic market, Yelp has room for international growth, according to Harper.

In the recent quarter, Yelp's International revenue remained flat at around three percent of sales. Harper believes that Yelp could scale up its International business given the fact that International accounted for 31 million unique visitors in the quarter, up 80 percent from a year ago.

UBS: Not Convinced

Eric Sheridan of UBS maintained a Neutral rating on Yelp based on his beliefs that there exists “execution hurdles” to address new markets.

The analyst maintained a Neutral rating on the stock, but did raise his price target to $80 from a previous $60.

In a brief note to clients on Thursday, Sheridan explained that Yelp's brand recognition lags those of other local discovery and eCommerce platforms such as TripAdvisor, Google and Priceline.

“Investors will likely cap the stock at after-market levels as questions arise on forward active local business account growth and implications of decelerating unit/revenue growth,” Sheridan argued in his note. He added that Yelp faces tough comps in coming quarters for active local business account growth.

Elsewhere on the Street

• Analysts at Barclays maintained both an Overweight rating and a $95 price target.
• Analysts at Citigroup maintained a Buy rating with a price target raised to $87 from a previous $74.
• Analysts at Credit Suisse maintained an Outperform rating with a price target raised to $93 from a previous $90.
• Analysts at CRT maintained a Buy rating and $85 price target.
• Analysts at Deutsche Bank maintained a Buy rating with a price target raised to $86 from a previous $74.
• Analysts at JPMorgan maintained an Overweight rating with a price target raised to $100 from a previous $94.