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Should I Buy Yelp Stock? 3 Pros, 3 Cons

The stock is certainly at lofty levels

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YelpOnline review site Yelp (YELP) reported earnings Tuesday, and Yelp stock is off more than 8% in the aftermath.  Part of the reason for Yelp stock’s plunge is the announcement of a secondary offering of $250 million.  Yelp also posted a loss of $0.04 a share, well short of the consensus estimate of a profit of $0.01 a share.

But on the top line, Yelp showed strength.  Revenues jumped 68% to $61.2 million, which beat the Street forecast of $59.5 million.

So the drop in the YELP stock price an opportunity here? To see, let’s take a look at the pros and cons:

Pros for YELP

Mobile: Yelp is positioned nicely for this fast-growing market. Keep in mind that local commerce is inherently mobile.

So yes, engagement has been high for YELP. In Q3, about 46% of local ads and 62% of searches were on mobile devices. The monthly average users is about 11.2 million.

A key part of YELP’s mobile strategy has been a strong relationship with Apple (AAPL). With this deal, Yelp has been deeply integrated into Apple maps, which has provided a strong source of traffic.

Market potential: It’s massive. According to IDC, there are 73 million local businesses across the globe. As for Yelp, it has only scratched the surface of the opportunity, with 57,200 local business accounts (the growth rate on a year-over-year basis was 61%).

In terms of expanding into other countries, Yelp has been getting more aggressive as well. This year Yelp entered markets like Brazil, the Czech Republic and Turkey.

Leverage the platform: With a growing user base, Yelp has an opportunity to expand its offering. One example of this is the purchase of SeatMe, which is a web/iPad-app based reservation system for restaurants. This cloud-based service could wind up being a nice revenue generator.

YELP also should benefit by expanding its service into new categories. For example, about 20% of reviewed businesses are restaurants but only 7% are arts & entertainment and 9% are in beauty and fitness.

Article printed from InvestorPlace Media,

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