Yelp Is MKM's Top SMID Stock Into 2017

MKM Partners’ Rob Sanderson noted that despite some missteps by Yelp Inc YELP, along with an “extreme overreaction” by the market, execution had improved at the company and the sales channel was becoming more efficient and diverse, and that there still was a meaningful run-way for growth for Yelp.

Sanderson maintains a Buy rating on the company, with a price target of $48.

Improving Business

“We believe YELP is serving a very large and underpenetrated opportunity,” the analyst mentioned, while adding, “Continued progression of the business supports our belief in a large TAM.”

Even during periods of mis-execution, Yelp’s local ad revenue growth did not decline below 35 percent and has reaccelerated over the past three consecutive quarters to 41 percent in Q3.

“We think with this sales model, these growth rates would not be possible unless the market is large and underserved,” Sanderson stated.

Large Opportunities

The analyst also sees the shift in the company’s ad model from simple listings to a more modern CPC marketplace as an important shift that would prove to be the foundations of digital marketing.

In addition, Sanderson pointed out that Yelp was “seeing momentum with an expanded focus on national and multi-location accounts. This has been driving revenue per account, which has accelerated from 1 percent growth to 9 percent over the past four quarters.”

The analyst also believes that the self-serve could prove to be a large opportunity, while the Request a Quote facility could be a material revenue growth driver going forward.