In a research report issued today, RBC Capital analyst Mark Mahaney upgraded shares of Yelp Inc (NYSE:YELP) from a Sector Perform to an Outperform rating, while raising the price target to $42 (from $34), on the back of a “highly attractive” risk-reward factors. The stock price surged 3% following the recommendation on Friday.
Mahaney wrote, “YELP has been one of the biggest underperformers in the ‘Net sector YTD, down 53%. Per our 10/28 EPS note, this seems excessive to us, despite the modest deceleration in Local Ad Revenue growth rates. Overall, we still view YELP as a top-of-funnel, strong-brand unique asset with downstream transaction capability. Recent integration into Amazon Echo devices, along with Apple Siri and Yahoo! Maps integration, provides some marketplace evidence of Yelp’s unique asset status. Execution risks remain, as does the risk of Google disintermediation, but the increasing Mobile App skew of Yelp usage means that disintermediation risk is declining.”
The analyst concluded, “We are upgrading YELP to Outperform with a new $42PT; largely a risk-reward call. Our upgrade is also based on takeaways from YELP’s presentation at this week’s RBC Technology Conference and from recent meetings with management. Finally, we continue to see unique core and strategic value in YELP.”
Specific upgrade factors: 1. Highly attractive risk-reward. 2. Realistic path to local ad revenue growth stabilization. 3. Strong and improving local solution. 4. Still significant strategic value. 5. Core play on mobile and native advertising growth.
According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Mark Mahaney has a total average return of 22.1% and a 65.7% success rate. Mahaney has a -28.4% average return when recommending YELP, and is ranked #4 out of 3842 analysts.
Out of the 31 analysts polled by TipRanks, 12 rate Yelp stock a Buy, 17 rate the stock a Hold and 2 recommend a Sell. With a return potential of 42.5%, the stock’s consensus target price stands at $38.82.