Stock pick: The reviews are in for Yelp Inc. and the results look good

Plenty of room to grow average revenue per user

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Chart showing trailing 12-month returns for Yelp Inc.

It hasn’t been a good year for most of the high-flying technology companies. Twitter is down 44% year-to-date, LinkedIn has fallen 24% and Groupon is down 47%.

However, there is one Internet stock that’s had a good run and that remains an analyst buy even as its peers suffer: Yelp Inc. (NYSE: YELP).

The stock is up just 7% year-to-date, but it’s climbed 138% over the last 12 months and a number of people think it still has room to grow.

While the San Francisco-based online review site—people write reviews on everything from restaurants to home services—has been around since 2004, the business is still in the early monetization stages, wrote Kevin Kopelman, an analyst with Cowen and Company, in a May 16 report.

At the moment, Yelp’s dollar per-user is lower than many of its cohorts. Right now it’s only making $2 a user, though that’s up 20% year-over-year. He thinks that will grow as its advertiser base increases.

The site has about 100 million users, 46,000 advertisers and 39 million reviews. Kopelman thinks the advertiser base can increase by around 150,000 over the next five years, while revenues will expand at a 39% five-year compound annual growth rate. Put that into dollars and revenues will rise from $138 million in 2012 to $726 million in 2017.

Its sponsored listing ad placement—ads placed at the top of search results—has grown by 80% year-over-year over the last six quarters, which leads Kopelman to believe that the company can increase its EBITDA margins from 3% in 2012 to 35% long-term.

Youssef Squali, an analyst with Cantor Fitzgerald, also has a buy rating on the stock. He’s excited by the company’s international expansion plans. In March and April, the site rolled out to Mexico and Japan and now operates in 26 countries. In the last quarter, international traffic climbed 95% year-over-year and represents 23% of total traffic.

Overseas visits only bring in 3% of total revenue today, but that will certainly grow over time. Management has said that it expects its non-U.S. operations to account for up to 40% of total revenue by 2024 at the latest.

Yelp has other things going for it too, such as an increasing user base and more mobile adoption, and while its returns have slowed this year, a number of analysts think it will get a lot higher than the $73 per share price it’s at today.

According to S&P Capital IQ, the median 12-month price target is $92, while the most optimistic analyst target is $121.

This could be a good buy for people looking to add a potentially high-growth social stock to their portfolios.

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