Solid Earnings Mean Yelp Stock Could Be Bound for All-Time Highs

Yelp stock needs to stay above $41 and preferably $43 to keep moving up

By Bret Kenwell, InvestorPlace Contributor

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YELP Stock Will Continue to Drop Thanks to Amazon, Facebook and Google

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Shares of Yelp (NASDAQ:YELP) are screaming higher Thursday, up more than 15% after the company reported second-quarter earnings results. Now trading near $44, is it possible for Yelp stock to rally to its former 52-week high at $48.40?

If it can, that’s another 10% higher from current levels and well worth investors’ time. Let’s take a closer look.

Yelp Earnings

Yelp reported earnings of 12 cents per share, smashing estimates calling for a penny per share in profit. Sales of $235 million grew 12.5% year-over-year (YoY) and beat out estimates by about 1%. Of that, its biggest segment, advertising growth, outpaced overall growth as sales jumped 21% YoY.

While net income of $11 million is low, it’s up almost 40% from the $8 million Yelp had in the same period a year ago. EBITDA also topped estimates handedly, coming it at $47 million vs. expectations for $41.2 million.

Management also gave a bump to its full-year outlook. Previously, the team was expecting sales to fall between $943 million and $967 million (midpoint of $955 million). Management raised that outlook to $952 million to $967 million (midpoint of $959.5 million). Analysts expect about $960 million in full-year revenue.

There were other positive developments in the quarter as well. Yelp Reservations saw a 113% YoY increase, while food orders saw a “mid-30%” YoY increase. Paying advertisers accounts climbed 31%, helped by momentum in local markets. According to the shareholder letter:

“Paying advertising accounts increased by nearly one-third from a year ago to 194,000, the fastest growth rate in two years. In the first two quarters of 2018, we added a total of 31,000 net new accounts, approximately the same number that we added in the preceding five quarters combined.”

Yelp Stock Valuation

Investors have had a tough time sizing up Yelp stock. For lack of a better description, it was essentially a review platform for restaurants and businesses on the internet. That allowed it to collect advertising revenue as more people used the site to get an idea of what to do and where to eat.

You can imagine how competitive an environment that can be with TripAdvisor (NASDAQ:TRIP), Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) and others in the mix. But now that Yelp is expanding its offerings, like reservations and online ordering, it’s easy to see where there could be big-time potential. This also helps make the platform “stickier.”

There are other considerations, too. For starters, the company ended Q2 with about $800 million in cash and cash equivalents. It has a market cap of about $3.2 billion and no debt. Tough to beat that among small and mid cap names.

Over the last 12 months, Yelp has become drastically more consistent in driving positive free-cash flow and operating cash flow. When a company can grow its revenue, turn a profit and generate positive cash flows, that’s a huge plus for investors.

That cash flow is used to pay down debt and re-invest in growth. Given that Yelp doesn’t have any debt, the cash will be used to grow its business, which is music to investors’ ears.

Yelp Stock Review

chart of Yelp stock after earnings
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So how do the charts setup? What bulls would like is for Yelp stock to hold up above $43. That gets it out of its downward channel and above all three major moving averages. Clearing these hurdles will be necessary if shares ever want to retest the $48 level.

However, the must-hold level is around $41-ish. That would clear Yelp stock out of its downward channel (drawn in purple) and get it above the 50-day. While that would mean shares lose plenty of altitude from its early highs, it does the minimum to still be considered bullish.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2018/08/yelp-stock-solid-earnings/.

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