Give Yelp A Bullish Review In 2017, Deutsche Bank Says

Deutsche Bank expects upside to Yelp Inc YELP’s fourth-quarter numbers, but sees muted initial guidance when Yelp reports results on February 9.

“We see upside to our 4Q revenue/EBITDA ests of $193.7 million/$36.2 million, driven by 7,200 net new LAA and ARPU growth of 4 percent,” analyst Lloyd Walmsley wrote in a note.

Street estimates call for quarterly earnings of $0.03 per share on revenue of $194.51 million.

Analyst's Likes

The analyst ranks Yelp among its favorite SMIDcap internet names for 2017 given solid core local business trends and revenue upside potential in second half 2017 and 2018 from several key product cycles.

However, Walmsley projects initial guidance for 2017 to bracket Street estimates and do not expect a big guide-up starting the year.

That said, Walmsley noted that Yelp is on track to generate incremental EBITDA margins in the mid to high 40 percent range exiting 2017, despite backing away from high margin display ads. Consensus estimate imply mid-20 percent incremental margins in 2017.

What To Listen For

On the call, the analyst would focus on the following:

• “Color on user engagement around RAQ (request a quote).”
• “Category expansion in RAQ.”
• “Monetization tests and ideas for RAQ.”
• “Disclosure around the national and self-service business.”
• “Update on sales force efficiency.”
• “Update on marketing investment plans for 2017.”

Rating And Justification

Meanwhile, Walmsley maintains his Buy rating on the stock as he remains bullish on Yelp's ability to improve monetization through “solid core local trends, national ads growing above company average at an increasing mix, and through new RAQ and self-service products.”

Looking ahead to 2019, the analyst estimates Yelp’s revenue growth at a 22 percent CAGR from 2016 to 2019, and compound EBITDA at a 33 percent CAGR, with 2019 adj EBITDA margins of 20.4 percent.

Shares of Yelp closed Wednesday’s trading at $41.41 and were seen down 1.28 percent at $40.88 at last check in Thursday's morning session. Walmsley raised his price target by $2 to $52.