Prior to crowd-sourced review platform Yelp (YELP) revealing its most recent earnings report, YELP stock moved all over the map. At one point, shares closed above the $33 level. Soon after, though, sentiment turned negative. A day before the financial disclosure, YELP closed at $27.29, basically going full circle. Now, however, the stats show a different story.
Since the beginning of this year, YELP stock returned patient stakeholders nearly 21% of market value. Over the past one-month period, YELP gained over 13%. While much of the enthusiasm centers on its robust earnings print, supporters of the review website and app also benefit from strong travel sentiment. With social media influence playing a major role in how consumers spend their money, Yelp has become incredibly significant.
Even better, broader headwinds to the consumer economy – such as mass layoffs – imply that households need to be much more careful about their spending habits. While that might hurt individual retail brands, crowd-sourced reviews essentially become the frontline for forging decisions. Therefore, YELP stock deserves to be on your radar.
Encouraging Framework for YELP Stock
As mentioned earlier, Yelp released its earnings results for the first quarter of 2023 earlier in May. Among the highlights, Yelp posted net revenue of $312.44 million, representing an increase of 12.9% on a year-over-year basis, according to Stocknews.com. Its adjusted EBITDA came in at $54.03 million, up 12.3% YOY. As well, its net cash from operating activities jumped 23.9% YOY to $74.24 million.
Also, the company’s trailing-12-month (TTM) gross profit margin of 91.19% is 83.2% higher than the industry average, which sits at 49.77%. Moreover, its TTM return on total assets (ROTA) is 3.53%, which is 155.6% higher than the industry average of 1.38%.
Notably, Yelp’s revenue expanded at a 6.1% compounded annual growth rate (CAGR) over the past three years. During the same period, its EBIT and EBITDA grew at 79.5% and 30.9% CAGR, respectively.
Adding to the enthusiasm, management raised its fiscal year 2023 net revenue outlook to land between $1.295 billion to $1.315 billion.
Following the Q1 results, Zacks Equity Research chimed in, stating three reasons why investors shouldn’t overlook YELP stock. Among them, earnings growth represents arguably the most important catalyst. Already, Yelp sports a historical earnings per share growth rate of 18%. However, the company’s EPS may grow 86.4% this year.
As Zacks pointed out, such a tally would absolutely crush the industry average, which calls for EPS growth of 22.5%.
Fundamental Narrative Apparently Encourages Options Traders
More enticingly for retail investors, YELP stock doesn’t just corral positive expert opinion. Rather, it’s also attracting strong interest among options traders.
Following the close of the May 18 session, YELP stock represented a positive highlight for Barchart’s screener for unusual stock options volume. Specifically, total volume reached 11,472 contracts against an open interest reading of 37,860. Further, the delta between the Wednesday session volume and the trailing one-month average metric came out to 472.17%.
Drilling into the details, call volume hit 10,412 contracts while put volume only mustered 1,060 contracts. This pairing yielded a put/call volume ratio of 0.10, on paper significantly favoring the bulls. Here, the masses may have the right idea.
Essentially, travel data remains robust. At the onset of the COVID-19 pandemic, the sector obviously suffered a devastating blow. Last year, when circumstances really started to normalize, people eagerly took their long-delayed vacations.
To be fair, Stocknews.com states that travel spending has somewhat plateaued. Nevertheless, the investment resource also mentioned that spending remains in positive territory and was above 4% of 2019 levels in March.
If this trend continues, consumers will likely use Yelp’s website and app for guidance on how to best make their dollars stretch, as well as to avoid potential tourist traps. With digital traffic set to increase, the company may enjoy greater revenue-generating opportunities.
What’s truly enticing about YELP stock is that even if the economy falls into recession, the underlying crowd-sourced review platform will remain relevant. After all, a recession doesn’t stop spending altogether. Instead, consumers will be even more incentivized to make smart decisions with their wallet. That’s very much positive news for Yelp.
Not a Completely Clean Road
In full disclosure, YELP stock doesn’t enjoy a clean road to potential upside. According to the Barchart Technical Opinion indicator, YELP ranks as an 8% sell. It’s a weak sell but a sell nonetheless. In addition, the stock’s 60-month beta pings at 1.45, which is significantly more volatile than the benchmark equities index. In the past five years, YELP lost over 21% of equity value.
Also, Wall Street analysts remain unconvinced about YELP stock. Currently, experts peg shares as a moderate sell. This assessment breaks down individually as four holds and three strong sells.
Despite some upside challenges, YELP remains intriguing. Should travel sentiment continue trending the way it is, the underlying platform becomes supremely relevant. And if a recession hits, well, the platform becomes supremely relevant. Therefore, it’s well worth a second look.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
