Yelp (YELP) Challenged by Google (GOOG) & Facebook (FB) but Brand Not Easily Replicated

February 7, 2013 10:45 AM EST
Get Alerts YELP Hot Sheet
Price: $32.74 -2.24%

Rating Summary:
    19 Buy, 22 Hold, 5 Sell

Rating Trend: Up Up

Today's Overall Ratings:
    Up: 25 | Down: 28 | New: 8
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Yesterday Yelp (NYSE: YELP) reported Q4 results. At ($0.08), EPS missed estimates by 4 cents, but revenue topped estimates coming in at $41.2 million compared to the consensus of $40.29. Yelp provided Q1 revenue guidance of $44 to $44.5 million, topping the average analyst estimate of $43.83 million. Despite this, shares of Yelp opened lower by 8 percent on Thursday.

Analyst Youssef Squali of Cantor Fitzgeral was unfazed by today's selloff, and he thinks Yelp's Q4 was strong. He is especially optimistic about the company's prospects internationally.

"Management believes 2013 will be a tipping point for the brand internationally," said Squali. "Management reported that international was ~4.5% of revenue in 4Q (two-thirds from Qype), and we expect this percentage to increase in coming quarters as the U.K. sales office becomes more productive and Qype is integrated."

Squali also noted good traction in mobile.

"Yelp reported that 25% of local ads were shown on mobile devices in 4Q and that ~30% of unique visitors come through mobile platforms. We believe the Yelp model lends itself well to the mobile opportunity," he said.

Increased competition from Google (Nasdaq: GOOG) and Facebook (Nasdaq: FB) is the largest risk for Yelp.

"This segment is evolving quickly, with large contenders such as Google and Facebook eying it very closely as well. Innovation and speed of execution remain key to success, in our view."

That said, Squali stressed that Yelp's brand, scale, network effect, and first-mover advantage are strong differentiators that should prove hard to replicate.

Cantor Fitzgerald reiterated a Buy rating on Yelp and increased its price target to $27.00 (from $24.00).

For an analyst ratings summary and ratings history on Yelp (NYSE: YELP) click here. For more ratings news on Yelp click here.

Shares of Yelp closed at $22.38 yesterday.

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