Yelp Inc. (YELP) operates an international platform that connects consumers with local businesses. The company’s platform covers categories like restaurants, shopping, beauty and fitness, health, and other categories within its ambit and helps businesses by providing free and paid advertising products.

In the new age of technology, the majority of people have access to the latest digital platforms and significantly rely on information available over the globe. Amid this speculative environment, YELP offers people and businesses an efficient channel to connect and obtain reliable facts. With its innovations like Yelp Guest Manager, YELP allows customers to access online reservations and waitlists remotely.

Extending its innovation series, recently, the company introduced more than 20 new updates designed to simplify the way users discover and connect with local businesses. The latest releases include AI-driven features, review insights, and personalized home feeds to cater to consumers and business owners effectively. In 2024, YELP revealed over 80 new features, enhancing the user experience.

Besides, growing demand for broadband services, along with work-from-home trends and rising penetration of online platforms, have resulted in significant opportunities for the Internet service market. The market is projected to grow to $766.08 billion by 2032 at a CAGR of 4.4%. Increasing adoption of digital technologies like AI, IoT, cloud computing, and data analytics across various industries will propel the Internet market.

The favorable industry trends are also favoring Yelp’s operations. During the third quarter, Yelp achieved double-digit year-over-year revenue growth for the 14th consecutive quarter in its Services categories. It also achieved revenue growth of nearly 15% year-over-year in its Home Services category.

Yelp’s stock performance is also a reflection of its strong performance and ongoing growth. Shares of YELP gained 13.8% over the past three months and 7.3% over the past six months to close its last trading session at $39.02.

Let’s look at factors that could influence YELP’s performance in the upcoming months.

Positive Recent Developments

On December 10, YELP introduced over 20 new updates designed to enhance the user experience for both consumers and business owners. YELP’s latest product release consists of AI-driven features, like Review Insights, a personalized home feed with more user content, and enhancements to Yelp Assistant, the AI chatbot to connect consumers with service pros.

The company also enhanced the business owner experience with the announcement of AI-powered improvements, featuring job summaries to help businesses manage inboxes and a smart selection tool that automatically optimizes ad performance.

Also, on November 26, YELP completed its planned acquisition of RepairPal, an auto services platform, for approximately $80 million in cash. The strategic acquisition will broaden YELP’s operations into a new horizon and offer prosperous opportunities in the long run.

Solid Financials

For the third quarter that ended September 30, 2024, YELP’s net revenue increased 4.4% year-over-year to $360.34 million. The company’s income from operations rose 11.4% from the prior quarter’s quarter to $46.65 million. Also, its adjusted EBITDA of $101.36 million indicates growth of 5.1% from the previous year period.

Furthermore, net income attributable to common stockholders came in at $38.44 million and $0.56 per share for the quarter, respectively. YELP’s free cash flow was $92.54 million for the quarter.

As of September 30, 2024, the company’s cash and cash equivalents and total assets were $261.59 million and $980.21 million.

Impressive Historical Growth

YELP’s revenue grew at a CAGR of 12% over the past three years, while its EBITDA improved at a CAGR of 36.8%. Its EBIT increased at a CAGR of 58.1% over the same period, while the company’s net income and EPS grew at respective CAGRs of 46.5% and 50.4% over the same time frame.

In addition, the company’s normalized net income and levered free cash flow increased at CAGRs of 65.5% and 18.7% over the same timeframe, respectively.

Favorable Analyst Estimates

Analysts expect YELP’s revenue for the first quarter (ending March 2025) to come in at $347.26 million, indicating an increase of 4.4% year-over-year. The consensus EPS estimate of $0.75 for the same period reflects a 13.3% year-over-year improvement. Moreover, the company topped consensus EPS estimates in all of the trailing four quarters, which is remarkable.

For the fiscal year (ending December 2025), the company’s revenue and EPS are anticipated to grow 5.4% year-over-year to $1.48 billion and $4.01, respectively.

Low Valuation

In terms of forward non-GAAP P/E, YELP is currently trading at 10.26x, 23.7% lower than the industry average of 13.44x. Also, the stock’s forward EV/Sales and Price/Sales of 1.58x and 1.83x are considerably lower than the industry averages of 1.99x and 1.30x, respectively.

Additionally, the stock’s forward EV/EBITDA of 6.45x is 19.8% lower than the industry average of 8.04x.

High Profitability

YELP’s trailing-12-month EBIT margin of 10.67% is 8.2% higher than the 9.86% industry average. Its trailing-12-month net income margin of 8.48% is significantly higher than the industry average of 3.87%. Likewise, the stock’s trailing-12-month levered FCF margin of 21.52% is 143.8% higher than the industry average of 8.83%.

Furthermore, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 15.96%, 11.40%, and 12.04% are higher than the 4.67%, 3.92%, and 1.79% industry average, respectively.

POWR Ratings Reflect Promise

YELP’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. YELP has an A grade for Value and Quality, which is in sync with its low valuation and higher-than-industry profitability.

The stock also has a B grade for Growth, consistent with its impressive historical growth and financial performance.

YELP has topped among the 49 stocks in the A-rated Internet industry.

Beyond what I have stated above, we have also given YELP grades for Stability, Sentiment, and Momentum. Get access to all the YELP ratings here.

Bottom Line

YELP reported solid financial results in the last reported quarter. Further, the company’s long-term prospects appear promising, driven by growing internet penetration across the globe, easy access to digital platforms, and rising awareness among consumers. Also, strategic innovations and acquisitions by the company solidify its future opportunities.

Given YELP’s strong financial performance, accelerating profitability, strong market position, and robust growth outlook, it could be wise to invest in this stock.

How Does Yelp Inc. (YELP) Stack Up Against Its Peers?

While YELP has an overall POWR Rating of A, investors could also check out these other stocks within the industry with A (Strong Buy) or B (Buy) ratings: Expedia Group Inc. (EXPE), Meituan ADR (MPNGY), and LEGALZOOM.COM, INC. (LZ).

For exploring more A and B-rated internet stocks, click here.

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YELP shares were trading at $39.02 per share on Thursday afternoon, down $0.31 (-0.79%). Year-to-date, YELP has gained 0.83%, versus a 0.58% rise in the benchmark S&P 500 index during the same period.

About the Author: Rjkumari Saxena

Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions. More...

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