Here’s Why Top Analysts Are Bullish on Two Internet Players: Alibaba Group Holding Ltd (BABA) and Yelp Inc (YELP)

Why do Alibaba Group Holding Ltd (NYSE:BABA) and Yelp Inc (NYSE:YELP) have two of Wall Street’s best analysts singing the praises of these key players of the world wide web? Both Cantor and RBC capital have boosted price targets on these stocks on back of quarterly earnings released today. Even though BABA faces an accounting inquiry from the SEC, Cantor still believes the company is at a competitive advantage. With regards to Yelp, RBC Capital awards the stock his #1 small cap long pick amid the internet-verse. Let’s dive in:

Alibaba Group Holding Ltd

Alibaba just impressed top analyst Youssef Squali at Cantor with second fiscal quarter of 2017 results that went above and beyond expectation riding a strong wave of “healthy” monetization and user growth.

Therefore, the analyst reiterates a Buy rating on shares of BABA while raising the price target from $100 to $115, which represents a nearly 18% increase from current levels.

The Chinese online retail giant posted revenue that reached $5,142 million, outclassing the Street’s estimate of $5,007 million, with EBITDA of $2,381 million also coming in above consensus of $2,211 million. Meanwhile, BABA’s $0.79 in adjusted EPS “comfortably topp[ed]” the Street’s expectation for $0.69. Moreover, where BABA’s true strength lies is in its China retail, comprising 70% of the giant’s overall revenue, which flourished thanks to a 47% year-over-year surge in online marketing services revenue coupled with a 25% boost in year-over-year growth in commission revenue. Upon assessing the results, the analyst believes this platform has revealed sustained “strong traction with merchants.”

Furthermore, both revenue and active users in the China retail segment saw a 17% climb this quarter, which is significant as mobile underscores 78% of revenue and saw a 30% year-over-year acceleration in monetization.

Squali believes, “Importantly, we view these monetization gains as sustainable, driven by platform tweaks and mobile’s growing share.”

“We believe this trend is sustainable into the seasonally strong F3Q17, powered by growing merchant spending, greater mobile adoption, platform tweaks and rising consumer engagement (including 11.11). Our positive thesis reflects 1) BABA’s dominant position as a cost effective platform to reach Chinese consumers, 2) competitive advantages from an ecosystem with a widening moat, 3) success in Cloud, and 4) attractive SOP, anchored in the potential for upside from its Ant Financial stake. That said, the SEC’s on-going inquiry into BABA’s accounting practices is likely to dampen enthusiasm for the stock until resolution,” Squali surmises.

Squali has a very good TipRanks score with a 71% success rate and he stands at #4 out of 4,173 analysts. Squali garners 12.0% in his annual returns. When recommending BABA, Squai earns 15.5% in average profits on the stock.

TipRanks analytics exhibit BABA as a Strong Buy. Based on 22 analysts polled in the last 3 months, 21 rate a Buy on BABA while 1 maintains a Hold. The 12-month price target stands at $117.63, marking a nearly 19% upside from where the shares last closed.

Yelp Inc

Yelp shares are ascending 10% after delivering a third-quarter print that notched yet “another beat and raise quarter” for the customer review giant. For top analyst Mark Mahaney at RBC Capital, this performance proves “the company continues to execute following a rocky 2015.” The beat can be attributed in part to YELP’s Local Advertising segment that continued its “very robust” rise of 41% in year-over-year growth, seen last quarter as well.

As such, in the height of Yelp’s “turnaround” and on the heels of a “very strong quarter,” the analyst reiterates an Outperform rating on YELP while lifting the price target from $48 to $55, which represents just under a 54% increase from where the shares last closed.

For its third quarter, YELP hit revenues of $186MM, outperforming both Mahaney’s expectations of $184MM as well as the Street’s of $183MM. “More importantly” to the analyst, the giant’s $164MM in Local Ad Revenue outclassed consensus of $160MM and maintained its climb. Meanwhile, EBITDA of $34MM rose over the analyst’s and the Street’s projection of $28MM. Additionally, management guided both fourth-quarter revenue as well as EBITDA upwards and the Street in turn will lift estimates.

“We still see in Yelp a strong and improving Local solution – one that is morphing from a Local Marketing Platform to a Local Marketing AND Transactions Platform. Which means that the strategic value of Yelp is rising. And we still view Yelp as facing a way under-penetrated market opportunity (in Los Angeles, Yelp’s most “mature” market, only 4% of small businesses are customers). And YELP remains for us a core play on both Mobile and Native Advertising Growth. We continue to believe that we are witnessing right here a fundamentals inflection story for a stock with relatively mixed sentiment. This remains our #1 Small Cap Long in the Internet sector,” Mahaney contends.

Moving forward, the analyst looks to the forthcoming RBC Annual Internet Conference next Wednesday, November 9th to be held in NYC, where YELP CFO Lanny Baker will present.

As usual, we like to include the analyst’s track record when reporting on new analyst notes to give a perspective on the effect it has on stock performance. According to TipRanks, top five-star analyst Mark Mahaney has achieved a high ranking of #3 out of 4,173 analysts. Mahaney upholds a 69% success rate and realizes 19.5% in his yearly returns. When recommending YELP, Mahaney yields 6.7% in average profits on the stock.

TipRanks analytics indicate YELP as a Buy. Out of the 26 analysts polled by TipRanks, 14 are bullish on Yelp stock, 9 remain sidelined, and 3 are bearish on the stock. With a return potential of 11%, the stock’s consensus target price stands at $39.36.

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