Axiom Upgrades Yelp To Buy, Cites Improving Business Momentum And Revenue Visibility

Following a challenging 2015, Yelp Inc YELP has outperformed expectations for two consecutive quarters and raised its full year 2016 guidance twice already.

Axiom’s Victor Anthony upgraded the rating from Hold to Buy, with a price target of $44.

Improving Business Momentum

Anthony mentioned that local revenue accelerated in Q2, while the growth of key fundamentals, including local advertiser accounts and ARPU, were robust.

In fact, ARPU growth accelerated to the highest level in recent years, and the analyst believes the trends are sustainable.

Related Link: Yelp Spikes On Strong Results, Local Growth

All the ad segments performed well, with self-serve revenue growing more than two-fold and the national penetration improving. Local ad contributed more than 50 percent of the total local revenue growth, while sales force productivity has also been improving.

Anthony noted “competition for online reviews and for the local online advertising dollar… doesn’t appear to be impacting growth this year.”

In addition, the CFO transition risk has declined and the analyst expected improved execution to once again attract acquirers.

Management also noted 75 percent revenue visibility into Q3.

Beat & Raise

Yelp’s Q2 revenue, adjusted EBITDA and EPS came in above the consensus and the estimates. Management guided to Q3 revenue of $180-$184 million, with the midpoint meaningfully above consensus.

The full year 2016 revenue guidance was raised from $609-$702 million to $700-$708 million, again beating the consensus forecast.

The revenue and adjusted EBITDA estimates for 2016 and 2017 have been raised.

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