Morgan Stanley Gives Yelp A Mixed Review

Yelp Inc YELP reported its 2Q results ahead of expectations and raised its full-year guidance. There are, however, concerns around the company’s sustained growth into 2017, Morgan Stanley’s Brian Nowak said in a report. He maintained an Equal-weight rating on Yelp, while raising the price target from $26 to $29.

Healthy Performance

Yelp’s 2Q local ad revenue came in ahead of the MS estimate by $0.6 million. The beat was driven by higher average spend per account, which recorded 6 percent y/y growth, backed by “higher average spend per local account (pricing actions, upsells), growth in national advertiser spend and continued benefits from ad serving/fulfillment improvements,” analyst Nowak mentioned.

Concern Areas

Although Yelp’s turnaround efforts are showing results, there are concerns over the company's ability to “sustainably grow its ad spend per account in 2017 and over the long-term after lapping this year's ad serving/fulfillment changes,” Nowak stated.

The were also concerns around the long-term efficiency of Yelp’s sales force and their ability to achieve higher net additions. The analyst enumerated the reasons for the concerns as:
Yelp is already 12 years old and possibly already has high consumer and business awareness
AlphaWise survey data indicated churn challenges, with about 50 percent of small- and medium-sized businesses that sign up with Yelp not paying after the completion of a year.

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