Tuesday, Wolfe Research began coverage on Yelp Inc. (NYSE:YELP) stock with a Peerperform rating, citing potential obstacles in achieving significant market share gains.
The firm highlighted that Yelp might struggle to maintain double-digit percentage revenue growth due to challenges within the Restaurants, Retail & Other (RR&O) segment and increased spending on Search Engine Marketing (SEM) to drive Services revenue.
Wolfe Research anticipates an improvement in the quality of Yelp's EBITDA, influenced by changes in the company's compensation strategy. However, they also noted that Yelp's GAAP profit profile is expected to remain mostly unchanged.
The firm's valuation range for Yelp's fair value is set between $27 and $40, based on an estimated 2025 Enterprise Value/EBITDA (EV/EBITDA) multiple of 5 to 7 times. This valuation represents a discount compared to the median multiple of the digital advertising comparison group.
The assigned multiple is considered reasonable by Wolfe Research due to Yelp's modest growth prospects and stable margin profile. For reference, Yelp's shares are currently trading at approximately 6.6 times the projected 2025 EBITDA, compared to the company's five-year historical median multiple of 8.3 times. The firm's fair value range suggests a careful assessment of Yelp's future financial performance in the context of the broader digital advertising sector.
InvestingPro Insights
In light of Wolfe Research's coverage on Yelp Inc., it's beneficial to consider additional insights provided by InvestingPro. Yelp's strategic financial maneuvers, such as aggressive share buybacks, have been noted by InvestingPro as a positive signal. Moreover, Yelp's balance sheet strength is evident as it holds more cash than debt, and the company's gross profit margins have been impressive, standing at a robust 91.49% over the last twelve months as of Q1 2024.
InvestingPro data reveals that Yelp's market capitalization is currently at $2.45 billion, with a forward P/E ratio of 17.92, reflecting investor expectations of future earnings. Additionally, the company's revenue growth remains in the double digits at 10.42% for the last twelve months as of Q1 2024. These metrics could provide context to Wolfe Research's fair value estimation and Yelp's future financial standing in the competitive digital advertising landscape.
For readers looking to delve deeper into Yelp's financials and future outlook, there are additional InvestingPro Tips available, which might shed light on the company's profitability predictions for this year and its performance over the last twelve months. To explore these insights further, and for a comprehensive analysis, visit InvestingPro. Plus, use coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, and uncover the full range of InvestingPro Tips, including six more that have not been listed here.
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