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A Cry for Yelp

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.

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  • Report this Comment On April 10, 2014, at 1:42 PM, BLOWMO wrote:

    Of course Oppenheimer and others are gong to yell buy buy buy. One of 2 things is going on;

    1. They own a bunch of the stock and are getting decimated

    2. They are being paid by YELP to keep recommending its stock.

    Yelp has no earnings and can't make a profit yet its market cap is in the billions ????!!!! Ridiculous.

    Yelp will come crashing down. They cannot even control its expenses and their cashflow is in the low millions.

    DUMP this stock. They are reaping what they have sowed and small businesses are tired of it. I have great reviews on Yelp yet the keep calling to get me to advertise. I would never and I have told them I would never. I have also taken screen shots of my reviews after the fact and document how Yelp manipulates the system.

    Yelp needs HELP

  • Report this Comment On April 10, 2014, at 6:14 PM, sanoran wrote:

    Jeremy Stoppleman, Yelp founder, raped and sodomized a 14 year old Jewish girl, according to a review I read. The Jewish girl that Stoppleman raped happened to be an orphan, so no one was there to defend her, and Stoppleman got away with it.

    I also heard that the author of the review has offered to hide the review if Stoppleman pays him $850/month.

    Reviews are powerful, you get to know the truth about people.

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Rick Munarriz

Rick has been writing for Motley Fool since 1995 where he's a Consumer and Tech Stocks Specialist. Yes, that's a long time. He's been an analyst for Motley Fool Rule Breakers and a portfolio lead analyst for Motley Fool Supernova since each newsletter service's inception. He earned his BBA and MBA from the University of Miami, and he now lives a block from his alma mater.

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9/1/2015 4:00 PM
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Yelp CAPS Rating: **