A Cry for Yelp

Yelp keeps getting analyst upgrades.

Apr 9, 2014 at 2:30PM

Another day, another analyst upgrade for Yelp (NYSE:YELP). In what has to be a strange streak of good fortune for a stock that's coming under fire elsewhere, Wall Street pros have stepped up every day this week to offer a rosy assessment of the leading reviews website for local venues.

The week kicked off with Oppenheimer upgrading shares of Yelp on Monday morning, going from perform to outperform, with a price target of $78. Yesterday, it was SunTrust boosting its call from neutral to buy, offering up an $85 price target. This morning, it was CRT Capital raising its rating from fair value to buy.

The thesis in all three cases is essentially the same. Yelp's stock has been weak in recent weeks, and they all see this as a good buying opportunity.

The optimism comes at a time that may seem peculiar to bears, and desperately welcome to bulls. The stock began the week trading a brutal 35% below last month's triple-digit peak. There have been plenty of fallen tech darlings that have succumbed to corrections of 20% or greater in recent weeks, but Yelp is one of the leading losers. 

Naysayers and some irate restaurant owners will argue that the sell-off is warranted. The Federal Trade Commission rained on Yelp last week by revealing that it has received more than 2,000 complaints from small-business owners claiming that Yelp is featuring negative reviews for their venues after they decline to become premium sponsors.

Yelp is no stranger to accusations that it plays favorites, allowing paying merchants to stand out. However, the numbers show that customers and merchants continue to rely on Yelp in growing numbers. Revenue soared 69% last year, fueled by a 39% surge in unique monthly visitors and a 69% spike in active local business accounts. Profitability has been a challenge, but top-line growth has been too strong to ignore.

Yelp's been a big winner since going public at $15 two years ago. Internet giants that have tried to bust into this space have met the resistance that accompanies the network effect. Merchants go where the customers are, and vice versa. There are now 53 million reviews on Yelp, 47% more than it had a year earlier.

The stellar growth isn't going to make burned merchants any happier. As long as Yelp is merely coasting through the gray areas of ethical business practices without doing anything illegal -- and that appears to be the case despite some resentment from small-business owners who refuse to become active local business accounts -- it should continue to grow at a healthy clip. Yelp's loss of more than a third of its value during this harsh tech sell-off hasn't been fun for its investors, but the drop also paved the way for three days of upgrades with target prices that are still below last month's high.

Whose turn is it to upgrade Yelp on Thursday?

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Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Yelp. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

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This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

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The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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