Analysts Betting Yelp Can Overcome Google Dependence

By Samantha Sharf

Positive reviews from Wall Street are rolling in for Yelp YELP -2.71% after the site known for its restaurant ratings announced last week that it has entered a strategic deal with YP , the largest local ad platform in the United States. Under the agreement YP — formerly Yellow Pages — will add content to Yelp listings for its small business customers. In exchange Yelp will gain access to YP’s 575,000 strong local customer base.

“This partnership allows Yelp to tap into YP’s, large, local sales force and advertiser base,” said Yelp CEO Jeremy Stoppelman in a statement. “Yelp’s significant consumer engagement combined with YP’s scale and advertiser reach will help both companies grow and take local advertising to the next level.”

YP CEO David Krantz added that, through the deal, businesses will have access to 95% of the internet market.

Remember these? YP has upped its digital presence by partnering with customer review giant Yelp. The news is pulling up analysts’ price targets for Yelp.

Monday JMP Securities’ Ronald Josey upgraded Yelp from neutral to buy with a $113 price target. He wrote in a note Monday, “With 53 million reviews, 120 million unique users globally, less than a 1% share of the domestic online local ad market, and with international monetization just beginning to ramp, we believe Yelp is well positioned to continue to see strong revenue growth combined with significant margin expansion, a rare combination across the Internet sector.”

Josey noted that, despite a stellar 2013, Yelp stands to see continues share price gains thanks to a strong lead in number of reviews, as well as significant room to grow in local advertising. He believes the YP deal could help drive further penetration.

He added, “We believe Yelp can expand its lead in local relative to competitors like Google GOOG -1.98% and Facebook as mobile evolves as the main entry point to the Web. And given Yelp reviews are now embedded in Yahoo!’s search results, we believe this should drive even more usage and ultimately content across multiple verticals.”

The internet research team at investment bank Jefferies maintained a buy rating for Yelp Monday and bumped its price target from $87 to $100. The partnership “will provide [YP's] local customers a means to access a highly engaged targeted audience that is already engaging with the advertisers’ Yelp page,” wrote Jefferies in a note. “Yelp in turn will have the chance to have more enhanced content about local advertisers, as well as sell solutions via the YP sales force.”

Jefferies’ notes that Yelp’s growth trend in reviews has been positive, but not everyone following the stock feels the same. Last month, SunTrust’s Robert Peck initiated coverage of Yelp at neutral with a $100 price target. As FORBES’ Maggie McGrath reported, Peck is concerned about mobile engagement. Maggie wrote,

On a laptop or desktop-based web browser, Google is Yelp’s biggest competitor, Peck explains. After all, if a consumer googles a business name and the first result that comes up is the business’ GooglePlus profile, or the business website itself, Yelp is less likely to get a click. Searches conducted via the Yelp mobile app avoids this competition – however, recent data released by Yelp reveal a weakening in both adoption and engagement of the Yelp mobile app.”

Jefferies did point out that risks to their valuation include Google dependence.

Yelp shares were down about 3% as low as $80.22 in mid morning trading Monday. This came after the stock initially climbed as high as $86.54. While Yelp’s share price has been down in recent weeks, the stock is up more that 255% year-over-year.