Yelp Shares Jump On Ad Report

by , Jan 8, 2014, 12:14 PM
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New research released by JP Morgan Wednesday indicated a wide ad base for Yelp across the U.S. and strong advertiser demand for its promotions in the fourth quarter. As a result, the investment bank raised its 12-month price target on the local ratings and review site to $89 from $75.

That, in turn, boosted the company’s share price as much as 8.9% to $79.15 in early trading, continuing an upward trajectory for the stock, which traded at about $20 a share a year ago. Yelp went public in March 2012 at $15 a share.

The JPMorgan report prompting the latest surge focuses on a pair of tracking studies it conducted to gauge Yelp’s ad growth. One examines coverage of Yelp’s active local business accounts across 194 cites and 22 industry categories. The other looks at the number of businesses offering a deal on Yelp across those cities as an additional measure of local ad demand on the site.

The investment firm found that almost every domestic market had at least one advertiser in 17 of the 22 categories analyzed, with North America representing 164 of the 194 cities where Yelp operates. International ad coverage is still nascent, and most cities had no ads in nearly every category, with the exception of a few in the U.K. such as London and Edinburgh.

The other study focusing on Yelp Deals -- its daily deals offering -- found that the number of advertisers adopting the ad product increased 8% to 62,032 during the fourth quarter, suggesting continued strong advertiser demand through the holiday season. JPMorgan noted, though, that there might be duplication in the count as some advertisers offer deals in multiple cities.

Not surprisingly, New York and L.A. had the highest concentration of Yelp Deals, although newer Yelp cities like San Diego and Phoenix also showed healthy adoption rates at 9% and 10%, respectively. Uptake of deals among advertisers internationally remains low.

“There’s significant room for strong revenue growth and margin expansion for Yelp as it remains relatively under-penetrated in local advertising,” wrote JPMorgan analyst Kaizad Gotla.

For the fourth quarter, JPMorgan raised its net revenue estimate to $67.4 million, up 63.8% from the year-earlier period. That compares to an average analyst estimate of $67.2 million. Yelp, however, is still losing money, and is expected by Wall Street to lose two cents a share in the fourth quarter, narrowing from four cents in the prior quarter.

The JPMorgan report follows two days after Telsey Advisory Group raised its price target on Yelp to $95 from $62 a share based on ad growth. 

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