I posted the following on the YELP board on RB. Titled the post “Is anybody out there still interested?” because I honestly wonder…and I’m not sure anybody here is either, but just in case, here it is:
YELP doesn’t get a lot of love. I can imagine a few reasons why…the first being its share performance. Especially if you bought around late 2013 when RB recommended it, or heaven forbid in early 2014 near $100 a share, it hasn’t been a very good 3 years.
Yet while the stock has been down as much as 80% from those stratospheric all time highs, then up 150% from Feb 2016 lows, now down 20% again, here’s what the revenue has been doing:
Dec 14: 110M
Mar 15: 119M
Jun 15: 134M
Sep 15: 144M
Dec 15: 154M
Mar 16: 159M
Jun 16: 173M
Sep 16: 186M
Dec 16: 195M
All while growing its cash to 480M, which given it’s current mkt cap of ~2.8B, gives it an EV around 2.3B and a laughably low EV/S of 3.2 (fwd 2.6). Remember that the company is still expected to grow at a 25% clip in 2017.
Their margins have been much maligned, but FCF was up from 15M to 90M in 2016. That was based on improving EBITDA margin from 12.6% to 16.8%. Their long term target is 35-40%. So yeah, I’d say there’s a lot of upside.
Obviously 2017 has been great for most stocks so far – in fact YELP is the only stock in my portfolio that’s down YTD. This was mostly because investors were disappointed with Q1 guidance. So let’s take a look at the midpoints:
197M in rev – that would be up 25% from 158.6M
26.5M EBITDA – that would be up 104% from 13M
Is that really so bad? But the expectations were for 204.4M and 30.2M. I try to be understanding whenever possible but really all I can manage here is a profound eye roll. Perhaps a company with a higher valuation and priced for perfection should be held to such expectations, but YELP is neither. As I said on Saul’s board the day these earnings were released, “My friends, if that is the reason someone wants to sell their shares, I suggest you take them up on their offer. I think I’ll buy a little more myself.”
Well I have been buying, and not just a little. This company is steadily and impressively growing Revenue, EBITDA, FCF, Cumulative Reviews, App Unique Devices, and Local advertising accounts…not to mention diversifying revenue streams, transitioning to mobile, increasing user engagement, streamlining and focusing on local (cutting international), and just succeeding all around.
The current valuation is simply far too low. But hey, enough outta me. What does everybody else think?