Baird Top Analyst Is Dialing Up Price Targets on Yelp Inc (YELP) and Activision Blizzard, Inc. (ATVI) After 2Q Wins


Top analyst Colin Sebastian at Baird is throwing his bullish hat into the earnings ring, vouching on two tech stocks that from his perspective merit price target jumps following encouraging second-quarter performances: Yelp Inc (NYSE:YELP) and Activision Blizzard, Inc. (NASDAQ:ATVI). After both the customer review platform and the video game maker not only beat out expectations, but likewise have management teams bumping up guidance for the full-year, it is a happy time to be an investor in the tech-verse.

Before we start, as usual, we like to include the analyst’s track record when reporting on new analyst notes. According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, Colin Sebastian has a yearly average return of 24.6% and a 77% success rate. Sebastian is ranked 12 out of 4,625 analysts.

 

Yelp’s Grub Partnership is a Key Positive

Yelp investors were delighted to see yesterday evening’s second-quarter print that offered not only a nice outclass, but also a hike in outlook. As a result, the Street is throwing a bullish celebration today for the company, with shares flying 25% to the skies.

Though the analyst already became more positive on the stock after even its first quarter earnings were released, he believes its near-term success is built-in to the trading price, reiterating a Neutral rating on shares of YELP while boosting the price target from $26 to $37, which represents a 42% increase from where the stock is currently trading.

For the second quarter, the customer review platform posted a 20% year-over-year rise in revenues, reaching $208.9 million, also surging 24% in growth from the last quarter. These revenues outclassed both the analyst’s expectations of $205.4 million as well as outlook calling for $202 to $206 million on back of national and self-serve beat momentum. Local advertising revenue earned Yelp $186.6 million for the quarter, striding in on a 23% year-over-year rise and a 28% quarter-over-quarter wave, outperforming consensus of $184 million thanks to robust performances in core SMB, national/multi-location, as well as self-serve.

Transaction revenue spiraled 19% year-over-year and 25% quarter-over-quarter to $185.5 million, but underperformed consensus of $18.9 million, which the analyst attributes to “slower” Eat24 volume. However, on the plus side, the recently announced Grubhub alliance should be advantageous to Yelp here, bolstering transaction volumes and unit economics- however this might come “likely at the expense of overall revenues,” writes Sebastian.

Moreover, the analyst adds, “We believe this partnership has the potential to significantly improve transaction volumes, and on the call, management highlighted unit economics will also meaningfully improve. While this will likely have a negative impact on overall transaction revenues, we view the improved margin profile as a key positive for Yelp. Additionally, management also announced a new $200M share repurchase authorization.”

For the third quarter, Yelp set guidance between $217 and $212 million, with the midpoint revealing an 18% year-over-year incline, and EBITDA between $32 and $35 million with a roughly 15% margin. This very much mirrored consensus forecasts calling for $219.9 million in revenue and $35.8 million in EBITDA. The Yelp team has become more confident, raising its outlook for the year, upping revenues from a range of $850 to $865 million up to $855 o $865 million, and hiking adjusted EBITDA from $130 to $145 million up to $130 to $145 million.

“Yelp reported Q2 revenue and EBITDA above consensus and guidance, with encouraging growth in Request-aQuote (requests +50% Q/Q) and a healthy increase in paying advertising accounts. While we became more constructive on the stock after the Q1 report on what seemed to be an overly cautious outlook, we believe with shares now trading +15-20% after hours, much of the near-term upside is likely already imbedded in the current share price,” surmises Sebastian.

TipRanks analytics indicate YELP as a Buy. Out of 22 analysts polled by TipRanks in the last 3 months, 12 are bullish on Yelp stock, 9 remain sidelined, and 1 is bearish on the stock. With a return potential of 11%, the stock’s consensus target price stands at $34.84.

Activision All About Glowing User Engagement

Activision shares were on a 4% wave of investor excitement yesterday ahead of the video game maker’s second-quarter financial results. Although some of the buzz has simmered down with shares dipping almost 3% in the light of day, Sebastian takes another shot of confidence, maintaining an Outperform rating on ATVI while lifting the price target from $60 to $68, which implies a 13% increase from current levels.

Digital outperformance did well for Activision, sparking both a top and bottom-line outclass, with second-quarter revenues of $1.42 billion shooting past consensus of $1.22 billion and guidance that called for $1.2 billion. Moreover, Activision handed in more than $1 billion of in-game revenues with persistent excellent engagement with leading titles: Overwatch, Hearthstone, and Black Ops III. Non-GAAP EPS of $0.43 handily beat consensus of $0.30 and outlook of $0.30. Non-GAAP operating income of $471 million also hit ahead of consensus of $344.8 million.

Sebastian notes, “Core franchises continue to drive user engagement. On the call, management highlighted continued user growth, with Blizzard reaching a record 46M MAUs (+38% Y/Y), an especially significant achievement considering the lack of new title releases in the quarter. Despite a slight Y/Y decline in King MAUs to 314M, we note an increase in gross bookings per user is a promising sign of deeper mobile engagement. The shift to digital continues to drive strong performance […]” highlighting digital net revenues experienced a robust performance in particular, shooting up 15% year-over-year and comprising of 80% of total net revenue present-day.

Ultimately, the user engagement is Activision’s pathway to triumph, opines Sebastian, concluding, “Another beat and raise quarter driven by strong user engagement. Activision Blizzard reported Q2 results above expectations, with strong growth in digital revenues and in-game purchases driving outperformance as we await new title releases in 2H17. We remain encouraged by the company’s extensive portfolio of key franchises, and believe growth opportunities remain as new titles, growing esports offerings, and improving monetization trends continue to generate upside potential.”

TipRanks analytics demonstrate ATVI as a Strong Buy. Based on 16 analysts polled by TipRanks in the last 3 months, 14 rate a Buy on Activision stock while 2 maintain a Hold. The 12-month average price target stands at $66.29, marking a nearly 4% upside from where the stock is currently trading.