It’s hard to be net short these days when we are staring at an imminent recovery and by this, I mean not a recovery like the past 6 months where extreme optimism was surrounded by the ceaseless spreading of the virus.
Multiple companies such as Moderna and Pfizer have announced the successful creation of Covid-19 vaccine meaning that consumer behavior and the global economy will come back to normal earlier than first thought.
This is great news for a digital ad company like Yelp (YELP) because they rely on the high volume of businesses open.
Their model is based on consumers offering free reviews and they sell digital ad space on their platform.
With one fell swoop, the virus crushed their business model which was why shares halved during the worst bits of the pandemic.
Sentiment has revered and Yelp stock has been on a remarkable tear, gaining ground for nine straight days and rallying 53% in the process.
The rally started a few days ahead of the company’s better-than-expected third-quarter earnings report, gained momentum when the numbers were released.
Yelp is one of the tech sector’s most outsized profit chances on the reopening of the economy—and investors have jumped aboard.
In my estimation, Yelp is a $40 stock masquerading at $30 today.
Travel-related internet stocks given the potential for a Covid-19 vaccine will feel the same tailwinds and stocks that come to mind are Expedia Group, Inc. (EXPE) and TripAdvisor, Inc. (TRIP).
The beaten-up cyclicals have re-rated over the last several days, Yelp is a standout as a name that should have a clear path towards both multiple and estimate upside from here.
In fact, Yelp’s revenue decline hasn’t been as bad as that of the travel sector, thanks in part to stronger-than-expected restaurant demand.
Even though we have experienced stringent lockdowns, Europeans largely traveled in the summer inside of Europe and Americans still found a way to domestically travel even if more localized.
If the market supports a return post-vaccine for the travel industry, it is clearly confirmation that Yelp’s business will recover fast even if not to the peak of summer 2019.
At these price levels, Yelp has a relatively attractive valuation and improving fundamentals.
When a Covid-19 vaccine is developed and comes available, the company should benefit substantially in terms of foot traffic for businesses on its platform as well as its app volume.
Yelp recently reported a net loss of $1 million, or 1 cent a share, compared with profit of $1 million, or 14 cents a share, in the year-earlier period, and although down, it could have been much worse.
Revenue dropped 16% to $220.8 million from $262.4 million.
"Yelp’s third-quarter results demonstrate our business’s considerable resilience, highlighted by positive year-over-year revenue growth in two key areas of our long-term strategy: home and local services and our self-serve sales channel," Co-Founder and Chief Executive Jeremy Stoppelman said in a statement.
Even though travel and retail outlets were affected, Stoppelman indicated new businesses are being created to serve this new type of economy where the home is the center of businesses.
No doubt there will a surge of new services that will support technological infrastructure for the home and home maintenance.
Yelp’s strong balance sheet and increased sales efficiency will allow Yelp to return to sustainable growth in the new year while still managing the impacts of the pandemic.
The company has clearly shown they are on top of the ball, they use their agility to morph with their times and at this price level, Yelp is an unequivocal buy.
