Why I Love Yelp

RELATED QUOTES

SymbolPriceChange
YELP38.43-0.20
AAPL106.00-0.82
GOOG769.09-3.06

NEW YORK (TheStreet) -- Yelp YELP will report earnings tonight. It will be its first earnings call since going public.

I am long the company for several reasons:

1. Its growth is coming in bunches:

As of the end of last year there were 71 Yelp markets. The company added 22 last year and 22 the year before after adding only seven in 2009. There's a delayed effect in how a new market contributes to revenue -- in its S-1, Yelp reveals that markets founded in 2005-06 had average local ad revenues last year of $5.8 million, while the 2007-08 cohort had average sales of $1.1 million and the 2009-10 cohort had average sales of $143,000. That means that, between the three- and five-year mark post-launch, there's an explosion of revenue per market from almost $1 million per year in ad revenue to $6 million.

If you model it out, Yelp seems like a lock to do $113 million in local advertising this year. For the past two years, local has represented about 70% of their overall revenue (with brand ads and other services such as Yelp Deals -- a competitor to Groupon GRPN -- accounting for the rest). This suggests they're on track to do $160 million in revenues this year, not the analyst consensus of $124 million.

9 Stocks That Prove Dividends Make All the Difference >>

If you model out next year, Yelp seems on track to do $218 million in local ads next year and total revenues of $312 million. That's far ahead of the analysts' consensus of $177 million.

2. It is building a small-business social graph in which the data it owns are worth more than the ad revenue:

More important to me than the ad revenues Yelp can accumulate to me are the data. In the end, this information is the much more valuable part of its business and what will power its revenues three to five years from now. This data is going to power how ads and deals get served to consumers through mobile devices and smart TVs.

3. In the meantime, the ad revenue is stable:

Until the next generation of ad revenue kicks in, Yelp investors have to rely on their local ads, brand ads and other sources. Luckily, as per Point 1, that's a growing business. I assume we will see minimum 22 markets open each year from now on, and probably higher than that, to ensure future growth.

4. Yelp will do a good job exceeding revenue expectations in the next 18 months:

10 Stocks That Won't Leave You High and Dry >>

This also goes back to Point 1. If you go by its cohort growth data, Yelp's table is set for them to exceed analysts' expectations by a country mile. Generally, good things happen to stock prices when that occurs, although one risk is that the rapid shift by users to mobile changes the monetization dynamics of the growth process Yelp described. That's fairly reasonable. Luckily, the revenue estimates in Point 1 are so far ahead of expectations there appears to be ample wiggle room.

5. They've got a fat price-to-revenue multiple tied to that revenue growth.

It's 16 times trailing. That's high, although it might get higher as Yelp's revenues scale up and investors see even more value in the network it's building. LinkedIn LNKD has a trailing price-to-sales of 21 times. Applying a trailing 16 times sales multiple to my estimated 2012 revenue (of $160 million) gets you to a market cap of $2.6 billion, or $42 per share, by the end of the year. This would represent an increase of 88% from its current levels.

6. They're an attractive M&A takeout candidate.

At the moment, Yelp has a $1.3 billion market cap. If it did get to $320 million in revenues for 2013 and a LinkedIn-type price-to-sales ratio, you're talking about a company with a $6.7 billion market cap. Now, $1.3 billion -- even with a hefty premium slapped on it -- is a much more digestible takeout target. And there would be many willing buyers -- including Yahoo! YHOO , Google GOOG , Apple AAPL , Microsoft MSFT or -- wait for it -- the PayPal unit of eBay EBAY .

7. It was launched in the middle of the social era, but its service lends itself to mobile.

I wrote recently about the differences between companies founded in the social era and those founded in the mobile era. The older generation of social companies have difficulties successfully moving their social businesses into the mobile world, just as older Web companies had problems moving into the social age. Yelp was clearly a social company, founded in 2005, just a year after Facebook, but Yelp is lucky in that it is a service that lends itself well to the mobile world; it was quick to jump into the mobile space with iPhone and iPad apps. It has been mentioned prominently by Steve Jobs in Apple keynotes discussing how people using mobile would rather search for information in Yelp than Google it.

8. You are getting a free call option on their move to in-car navigation systems and iTV ads.

10 Stocks Poised to Rise in Apple's Wake >>

As I implied in Point 2, I think the best is yet to come for Yelp. It's not a new way of doing the Yellow Pages; I see it as a new way of doing ads in the mobile world and on TV. As we get more and more Internet-connected navigation systems in cars, it's a natural they would be tied into Yelp localized listings. Interesting partnerships could be in the works with major car makers and Sirius SIRI . Even more exciting is what will happen when Apple launches its iTV -- what will iAd do for ads in that paradigm of delivering content to viewers? Won't they need a local ad content partner? Yelp could become the ad agency for the equivalent of local affiliates wanting to meet the demand of local businesses who want to drive foot traffic to their stores.

The risks to Yelp are:

1. Can it monetize its markets as well on mobile devices as on the Web?

2. What if Google turns off the firehose of traffic to them? Could Google tweak its algorithm result in far less referral traffic, as they did with Demand Media DMD ? Especially if Yelp was cozying up more with Apple?

3. Yelp can't monetize its ads and becomes another Patch local ad biz model bust. AOL's AOL Patch has been a money pit for the company because it has to have local ad people in each of its patches. To some extent, Yelp faces the same challenges as it grows its business market by market. This drains margins from the business. But Yelp believes that -- over time -- the revenues start to explode to more than compensate for it.

The bottom line is that I see Yelp as a category-killer in the local business market and it's perfectly well situated to benefit from the move to mobile and iTV. And we haven't even discussed how it could eventually overtake Groupon and other pure-play group-buying businesses.

--

Get stories like this on the Yahoo app and discover more every day.
Download it now.
Loading...
  • Tokyo stocks open higher as weaker yen offsets Wall Street loss AFP - 16 minutes ago

    Tokyo stocks rallied in opening trade on Wednesday as a weaker yen and bargain-hunting offset a lacklustre lead from Wall Street. The benchmark Nikkei 225 index soared 0.79 percent, or 132.47 points, to ... … More »

  • Exclusive: SWIFT discloses more cyber thefts, pressures banks on security
    Exclusive: SWIFT discloses more cyber thefts, pressures banks on security Reuters - 17 minutes ago

    In a private letter to clients, SWIFT said that new cyber-theft attempts - some of them successful - have surfaced since June, when it last updated customers on a string of attacks discovered after the attack on the Bangladesh central bank. The … More »

  • SWIFT discloses more cyber thefts, pressures banks on security
    SWIFT discloses more cyber thefts, pressures banks on security Reuters - 18 minutes ago

    In a private letter to clients, SWIFT said that new cyber-theft attempts - some of them successful - have surfaced since June, when it last updated customers on a string of attacks discovered after the attack on the Bangladesh central bank. The … More »

  • How Much Does It Cost To Run A Hawker Stall In Singapore?
    How Much Does It Cost To Run A Hawker Stall In Singapore? DollarsAndSense.sg - 26 minutes ago

    Two young hawkers share with us their cost of running a stall. The post How Much Does It Cost To Run A Hawker Stall In Singapore? appeared first on DollarsAndSense.sg. … More »

  • Los Angeles developer buys iconic Tribune Tower in Chicago
    Los Angeles developer buys iconic Tribune Tower in Chicago Associated Press - 38 minutes ago

    The iconic Tribune Tower on Chicago's Michigan Avenue will have a new owner. Los Angeles-based CIM Group has agreed to buy the tower for up to $240 million. Chicago-based Tribune Media announced the deal ... … More »

  • Asian Futures Look Beyond U.S. Losses as Yen, Oil Nurse Declines Bloomberg - 45 minutes ago

    Futures on stock gauges in Sydney and Hong Kong edged higher, even as a drop in Apple Inc. helped drag the S&P 500 Index down 0.2 percent Tuesday, almost erasing its August advance. U.S. crude fell for a third session, ahead of government data … More »

  • APNewsBreak: Ohio State tells alumni clubs to fall in line Associated Press - 50 minutes ago

    Ohio State University is requiring its roughly 150 alumni clubs and societies to keep mum when it comes to disparaging comments about the school, or risk losing the money and other perks it provides them. ... … More »

  • Kurdish-backed fighters in Syria agree Turkey truce
    Kurdish-backed fighters in Syria agree Turkey truce AFP News - 1 hour 32 minutes ago

    Kurdish-backed militias in Syria agreed Tuesday to a US initiative to stop fighting Turkish forces whose week-old incursion in the country has stoked tensions between Washington and Ankara. The truce was announced separately by a senior US defence … More »

  • Russia questions report blaming Syria regime for gas attacks
    Russia questions report blaming Syria regime for gas attacks AFP News - 1 hour 33 minutes ago

    Russia on Tuesday questioned the findings of a UN-led investigation that blamed the Syrian regime for chemical attacks, saying they were not conclusive enough to trigger sanctions. Britain and France called for UN sanctions after the investigative … More »

  • Pimco’s Baz Says Japan In a Bind as Total Debt Tops 600% of GDP Bloomberg - 1 hour 34 minutes ago

    With a government debt load that’s 2 1/2 times the size of annual gross domestic product and a total national borrowing burden that’s six times as large, “Japan is suffering from the excesses of the past” and the country “is in a bind right now,’’ … More »

  • Political Hotspots May Bubble Up on G-20 Sidelines in China Bloomberg - 2 hours 26 minutes ago

    Last year’s summit in Turkey was overshadowed by Islamic State’s deadly attacks on Paris just days before. The previous year in Australia, talks were dominated by Russia’s occupation of Crimea and its alleged support for Ukraine separatists. The … More »

  • EU tax avoidance action could hurt foreign investment: U.S. Treasury Reuters - 2 hours 31 minutes ago

    The actions of European regulators could hurt foreign investment, the U.S. Treasury said on Tuesday after the European Commission ruled Apple must pay up to 13 billion euros ($14.5 billion) in taxes plus interest to the Irish government. "The … More »

  • White House 'concerned' EU tax penalty on Apple may hit U.S. taxpayers Reuters - 2 hours 31 minutes ago

    The White House said on Tuesday it was concerned about a European Commission order for Apple Inc to pay billions in unpaid taxes to Ireland because it seemed TO undermine joint U.S.-EU progress on creating a more fair international tax system. … More »

  • EU hits Apple with 13 billion euro Irish tax demand
    EU hits Apple with 13 billion euro Irish tax demand Reuters - 2 hours 32 minutes ago

    BRUSSELS/DUBLIN (Reuters) - The European Commission ordered Apple Inc to pay Ireland unpaid taxes of up to 13 billion euros ($14.5 billion) on Tuesday as it ruled the firm had received illegal state aid. Apple and Dublin said the U.S. company's tax … More »

  • S&P 500’s August Advance in Peril as Apple Slumps; Dollar Climbs Bloomberg - 2 hours 36 minutes ago

    The S&P 500 Index dropped from near a record high as the iPhone maker was ordered to pay 13 billion euros ($14.5 billion) plus interest in a European Union tax crackdown. The dollar rose against most of its major peers, while Treasuries held onto … More »

  • US, European markets split as Apple hit with $14.5 bn tax bill
    US, European markets split as Apple hit with $14.5 bn tax bill AFP News - 2 hours 37 minutes ago

    European and US equities markets went in opposite directions on Tuesday, with Wall Street in negative territory after European officials ordered Apple to pay $14.5 billion in back taxes. Apple's shares fell 0.8 percent on the Nasdaq, leaving them … More »

  • Dollar rises after US consumer confidence uptick AFP - 2 hours 48 minutes ago

    The dollar on Tuesday continued rising against major currencies following a gain in US consumer confidence. Markets were also anticipating Friday's release of official US figures on monthly job creation, ... … More »

  • Oil falls on strong dollar, crude glut; storms limit losses
    Oil falls on strong dollar, crude glut; storms limit losses Reuters - 3 hours ago

    Oil prices fell Tuesday, with Brent losing nearly 2 percent, as the dollar rallied and glut worries grew amid forecasts for higher U.S. crude stockpiles and Iran's remark that it was on target to reach peak production. News that energy firms in the … More »

  • Business Highlights Associated Press - 3 hours ago

    ___ EU orders Apple to pay up to 13B euros in back taxes Apple has to pay up to 13 billion euros ($14.5 billion) — plus billions more in interest — in back taxes to Ireland after the European Union found ... … More »

  • Wall St. weighed by Apple but banks shine on
    Wall St. weighed by Apple but banks shine on Reuters - 3 hours ago

    Apple Inc was the largest weight on U.S. stock indexes on Tuesday after antitrust regulators ordered the company to pay about $14.5 billion in back taxes to the Irish government, but gains in bank shares partly offset the decline. The S&P 500 fell … More »

  • Templeton’s Hasenstab Finds Haven in Emerging-Market Assets (1) Bloomberg - 3 hours ago

    In this new economic world, emerging markets are becoming a surprising haven, according to Franklin Templeton bond manager Michael Hasenstab, who beat almost all his peers for years until making wrong-way bets on the yen and Treasuries. While his … More »

  • Perceptron reports 4Q loss Associated Press - 3 hours ago

    The Plymouth, Michigan-based company said it had a loss of $1.66 per share. Earnings, adjusted for non-recurring costs, came to 8 cents per share. The industrial measurement and inspection company posted ... … More »

  • EU ruling on Apple stirs calls for U.S. tax reform
    EU ruling on Apple stirs calls for U.S. tax reform Reuters - 3 hours ago

    A European Commission order requiring Apple Inc (AAPL.O) to pay Ireland $13 billion euros ($14.5 billion) in unpaid taxes on Tuesday drew swift rebukes from the Obama administration and lawmakers in Congress, while reigniting calls for U.S. tax … More »

  • ICBC Halts Bad-Loan Increases With $6.3 Billion of Write-Offs Bloomberg - 3 hours ago

    ICBC wrote off 42 billion yuan ($6.3 billion) of loans in the first half, 35 percent more than a year earlier, an earnings statement showed Tuesday. “It’s a race of NPL formation against NPL disposal,” Yi Huiman, ICBC’s chairman, told analysts at a … More »

  • If Singapore Wants a Facebook, Dual-Class Shares Aren’t Enough Bloomberg - 3 hours ago

    Some of the world’s largest companies, including Facebook Inc. and Alphabet Inc., have multiple share classes, which usually are in place to allow minority shareholders to have majority voting rights. An independent body on Monday said it was in … More »

 
Recent Quotes
Symbol Price Change % Chg 
Your most recently viewed tickers will automatically show up here if you type a ticker in the "Enter symbol/company" at the bottom of this module.
You need to enable your browser cookies to view your most recent quotes.
 
Sign-in to view quotes in your portfolios.

MARKET MOVERS

    Market Data

    • Currencies
      Currencies
      NamePriceChange% Chg
      1.3642+0.0004+0.03%
      USDSGD=X
      1.5206+0.001+0.07%
      EURSGD=X
      1.7839+0.0005+0.03%
      GBPSGD=X
      75.4270-0.031-0.04%
      SGDJPY=X
      5.6839-0.0009-0.02%
      SGDHKD=X
      2.97120.000.00%
      SGDMYR=X
      9,766.3584+6.3438+0.06%
      SGDIDR=X
      4.8961-0.0008-0.02%
      SGDCNY=X
      1.0253+0.0009+0.09%
      AUDSGD=X
    • Commodities
      Commodities
      NamePriceChange% Chg
      1,314.30-2.20-0.17%
      GCZ16.CMX
      18.60+0.03+0.15%
      SIU16.CMX
      91.84-5.09-5.25%
      ^XAU
      2.070.00+0.05%
      HGU16.CMX
      46.24-0.11-0.24%
      CLV16.NYM
    • Bonds
      Bonds
      TreasuryYield (%)Yield Change
      1.180.00
      ^FVX
      1.570.00
      ^TNX
      2.23+0.02
      ^TYX