After solid 1H18 performance, Yelp Inc (YELP) disappointed with a 3Q miss and guide down as sales execution issues once again reared their head. Specifically, revenue of $241.1 million missed consensus estimates at $245.6 million. EBITDA also missed forecasts, totaling $50.3 million, less than the $51.2 million expected. The company guided 4Q18 revenue and EBITDA (midpoints) to $241 million and $49.0 million, well below consensus at $259.6 million and $59.1 million, respectively.
Is the Yelp share price a falling knife you should catch after tanking nearly 30% today? B.Riley FBR analyst Sameet Sinha believes “valuation is now compelling.” Sinha lowered his price target to $45 (from $58), while keeping his rating at Buy. The updated target implies nearly 45% upside from current levels. (To watch Sinha’s track record, click here)
Sinha commented, “Situations like these test the resolve and thesis of any analyst, but in the case of YELP, we have seen such issues several times. The difference this time is that the no-term contracts have increased variability of the business outcomes in any given quarter and hence the metrics are more volatile. We do not think no-term is a broken product, it just did not scale well due to inadequacies of support systems at YELP and as quickly it declined, it can also reverse. With that thesis and giving credibility to management’s call for DD% growth in 2019.”
“Additionally, we believe the company has the capability to buy back about 30% of shares outstanding over the next two years. We are reducing our FY18/FY19/FY20 revenue by 2%/1%/7%, and AEBITDA from $188.7M/$235.6M/$283.9M to $181.8M/$220.9M/$268.0M. We reduce our PT from $58 to $45, which is based on 12x 2020E EV/AEBITDA (previously 15x), as we change YELP’s comp group from high-growth comps to the broader online advertising/marketing comp group,” the analyst continued.
TipRanks reveals YELP as a stock that has not drawn a vote of confidence among Wall Street opinion. Out of 16 analysts polled in the last 3 months, 3 are bullish on the stock, 11 remain sidelined, while 2 are bearish. Worthy of note, the 12-month average price target stands at $36.38. (See YELP’s price targets and analyst ratings on TipRanks)