Yelp Churn The Cause For Lowered Outlook, But Some See A Buying Opportunity

Even though shares of Yelp Inc YELP plunged more than 30 percent immediately following its first-quarter earnings report, not all of Wall Street is throwing in the towel.

Cantor Fitzgerald's Kip Paulson maintained an Overweight rating on Yelp's stock with a price target lowered from $46 to $39. The analyst cited an elevated churn seen in some of the company's less-established local businesses that entered the base a year ago along with management's lowered outlook.

Also factoring in to the analyst's price target revision is a slowdown in ad revenue which rose 23.8 percent year-over-year in the quarter versus 34.0 percent growth in the prior quarter.

Focus On The Positives

Despite some of the concerning metrics, Paulson is focusing on some of the positive aspects of the report.

One of the positives seen in the quarter is a re-acceleration in transaction revenue, which rose 24.8 percent year-over-year to $18.1 million and ahead of the consensus estimate of $17.3 million. The analyst noted this metric was boosted by transaction volume growth of 50 percent year-over-year and marketing spend at Eat24, while at the same time revenue from "Others" rose 102.1 percent to $2.2 million.

Paulson's bullish stance is also based on the company's long-term outlook, rather than on the company's 2017 guidance.

The analyst argued Yelp's focus on the "substantial" local advertising opportunity and growth from the "still-nascent" national and self-serve channels and transactions makes the setback in the stock a buying opportunity.

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