Yelp, I Need Help

 | Oct 03, 2013 | 4:30 PM EDT
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Did you know that shares of Yelp (YELP) are up 275% year-to-date? In June 2012, I thought Yelp needed help. I was concerned that Yelp didn't have very much in the way of revenue. At the time, Yelp had just 27,000 paying customers. I was worried that Yelp needed to find more revenue to drive the shares higher. But that was 140% ago. Talk about being wrong. Investors love the Yelp story and have backed up the truck. Maybe I'm the one who needs need help, not Yelp.

With the stock up so much, I have wondered if there's any room for me to get on board. After all, the job is to make money, not sit on the sidelines and fret.

Since June 2012, Yelp has added 41% more reviews to the site, and unique visitors have grown 38%, to 108 million. The company ended June 2013 with 51,400 paying customers, up 62% year over year.

In terms of revenue, the company ended June with $55 million in revenue, up 68.5%. For the September quarter, analysts are expecting $59.3 million in revenue with a 93% gross margin. For the year-end, Yelp is expected to deliver revenue of $225 million, up 64%. Since the company doesn't make any money, nobody is too upset when it comes to EPS.

Investors are chasing the stock for two reasons:

  1. Yelp has a very compelling product that is ideal for use on a mobile device.
  2. Yelp is going international. The company is attacking 50 international markets and plans to add a total of six new international markets in 2013. International reviews are up 71%, to 2.3 million, and unique visitors are up 75% year over year. So, it looks like the Europeans are on board with Yelp, too.

The stock is moving higher on pure adrenaline. For those looking for things such as profits, you have to look out to fiscal 2014. Wall Street is estimating $19.6 million in net income and $0.24 a share by year-end. It's pretty thin gruel, but it's probably enough to demonstrate that the company can make money. (I mean how can you not make money with 93% gross margins, right?)

So, you either sit on the sidelines and complain or wait for a correction and set your sights on $80 a share. The mean price target on the Street is $54 a share, so if you are willing to speculate, it might be worthwhile to dip your toes in down in the mid-$50s. At least down there you have some analytical support for the shares. If the stock market has a big correction in the next few days due to the mess in Washington, you won't have to make back any losses.

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