What's Yelp Inc. Stock Worth?

A Fool does the math, and finds Yelp Inc. stock to be worth buying at current prices.

Jun 7, 2014 at 12:46PM

New data from eMarketer says that Yelp Inc(NYSE:YELP) is one of the emerging winners in the multibillion-dollar mobile search market. Even Google (NASDAQ:GOOGL)(NASDAQ:GOOG) is losing ground to the local search app.

Emarketer Mobile Search Spend

Yelp is among the fastest growing participants in the mobile search advertising market. Credit: eMarketer.

Specifically, eMarketer says that mobile search spending will rise from $4.95 billion last year to $28.41 billion in 2018 with Yep outgrowing peers over most of that span. Google, meanwhile, is expected to see its share of the market drop from nearly 83% in 2012 to about 64% in 2016. What's that disruptive growth worth to us as investors? More than $10 billion, I think, putting Yelp stock in a position to double from today's $4.67 billion market cap.

3 key assumptions
My Foolish colleague Ishfaque Faruk has the statistics that explain Yelp's astounding growth, which is largely driven by mobile usage. Click here to read the story so far. Here, I'm going to show you how I get to a $10 billion or better Yelp valuation. Here are my key assumptions:

1. Specialist apps will increasingly become our go-to sources for information on mobile devices. Ever notice that when you use a smartphone you're less willing to endure the distractions of the Web? Specialist apps such as Yelp enhance the experience by giving us what we want in short order.

2. Yelp will grow in line with or faster than the mobile search industry from now through 2018. According to Yahoo! Finance, Yelp will grow profits by 86% annually over the next five years versus about 17% for the sector. S&P Capital IQ pegs revenue growth at about 42% annualized over the same period, about even with eMarketer's estimates for the overall industry.

3. Consequently, Yelp will trade for a premium multiple to industry peers. At present, Yelp trades for 17.7 times sales versus 8.3 for the overall industry. A heady premium, to be sure, but deserved when you consider Yelp's record of consistent growth despite tough and intensifying competition.

Valuation range
Now, let's do some math. The table shows a range of future market cap estimates derived from current analyst forecasts and multiplied by a series of revenue multiples -- half, double, or even with today's average as tracked by Yahoo! Finance.

Metrics
Worst-Case 2018 Revenue Estimate
($841 Million)
Average 2018 Revenue Estimate
($1,332.86 Million)
Best-Case 2018 Revenue Estimate
($1,655 Million)

Worst Case Multiple 
(9x revenue)

$7,569 million

$11,995.74 million

$14,895 million

Average Multiple
(18x revenue)

$15,138 million

$23,991.48 million

$29,790 million

Best Case Multiple
(36x revenue)

$30,276 million

$47,982.96 million

$59,580 million

Source: S&P Capital IQ.

Interestingly, in the worst-case revenue scenario ($841 million), Yelp stock would need to trade for only 12 times revenue -- significantly less than today -- to reach a $10 billion market cap, a double from today's prices. Odds appear to strongly favor outperformance.

Now it's your turn to weigh in. Have a bear argument for Yelp stock? Let's hear in the comments box below.

In the app economy, the company that controls this device wins
Yelp is winning because useful, niche apps have become our default interface to the computing experience. Devices that handle them portably and efficiently are the future, and Apple is working on one that could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. He owned shares of Google (A and C class) at the time of publication. Check out Tim's Web home and portfolio holdings, or connect with him on Google+Tumblr, or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

The Motley Fool recommends Google (A and C shares) and Yelp and owns shares of Google (A and C class). Try any of our Foolish newsletter services free for 30 days. 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers