IB Net Payout Yields Model

Yelp: Dips Are Easy

Despite the weakness today, Yelp (YELP) is still above the lows following the disastrous Q3 report. The stock is down to $34 following a downgrade to Underweight from Morgan Stanley. The analyst sees issues with paying accounts, but the consumer review site already took steps to rectify the issue in the last quarter.

The key metric to watch in the Q4 report is the paying advertiser accounts. Earlier this year, the company shifted to no-contract accounts that saw big jumps in Q1 and Q2 followed by weak Q3 numbers. The paying accounts were still up 25% to 194K.

The market was originally excited by Yelp adding a record 14K net paying ad account additions in Q1 and 17K in Q2. As usual, the company allowed the Salesforce to drop the ball to where the company had no new additions due to tons of cancellations in the last quarter. Remember though, the company started the year at 163K paying ad accounts.

One should expect Yelp to grow ad accounts in Q4. In addition, the company ended the last quarter with $837 million in cash. The market cap is now about $3.0 billion placing the EV close to $2.2 billion.

The stock is a major Buy with revenue targets above $1 billion in 2019. This dip is another easy buy.

Disclosure: Long YELP. Please review the disclaimer page for more details. 


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