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Goldman Sachs Upgrades Yelp Stock as Digital Ad Industry Shows Promise
Optimistic Outlook for Yelp
Goldman Sachs analyst Eric Sheridan recently upgraded Yelp's stock from neutral to buy, with a $9 increase in price target to $47. This upgrade reflects a potential 23.3% rally in the shares. Sheridan's optimism is fueled by stable and rising trends in local advertising, as well as the potential for increased shareholder returns in the coming years.
Promising Digital Advertising Trends
Sheridan believes that the overall digital advertising industry will experience stable or slightly improved trends in the second quarter of 2023 compared to the first. Factors contributing to this positive outlook include easier comparison periods, sustained advertising strength from industries such as travel, local and omnichannel retail, and a rebound in brand advertising after significant cuts in late 2022.
Yelp's Favorable Position
Yelp stands out as a stock with a favorable risk-reward profile in the digital advertising space. Sheridan cites a stable or slightly improving local advertising environment, advancements in ad technology, and new initiatives as key drivers for Yelp's revenue growth potential in the medium to high single-digit percent range between 2024 and 2027. In addition, the company is expected to achieve stable margin expansion over the next five years, fueled by high incremental margins.
Potential for Shareholder Returns
Yelp's free cash flow is likely to be utilized for stock buybacks, with the potential to purchase around 50% of its market capitalization over the next five years. Despite the stock's previous rally, Sheridan notes that Yelp shares are still considered cheap when comparing price and earnings.
The Impact of Yelp's Stock Upgrade on New Businesses
New Businesses Can Ride the Wave of Digital Advertising
Goldman Sachs' recent upgrade of Yelp's stock highlights the promising future of digital advertising companies. This positive outlook can have a significant impact on new businesses entering the market. With stable and rising trends in local advertising and a rebound in brand advertising, there is ample opportunity for startups to leverage digital advertising platforms like Yelp to reach their target audience effectively.
Yelp's Favorable Position: A Boon for New Businesses
Yelp, in particular, stands out as a platform that offers new businesses a favorable risk-reward profile. The stable or slightly improving local advertising environment, coupled with advancements in ad technology and new initiatives, positions Yelp as a viable avenue for revenue growth. As new businesses strive to establish their presence and attract customers, leveraging Yelp's platform can provide a competitive edge and help drive growth in the medium to high single-digit percent range.
Potential for Increased Shareholder Returns
Another aspect to consider for new businesses is the potential for increased shareholder returns. Yelp's planned utilization of free cash flow for stock buybacks signals a commitment to enhancing shareholder value. This allocation of resources can provide investors with confidence in the company's future prospects, ultimately benefiting new businesses seeking to align with a stable and supportive partner.
In a landscape where digital advertising plays a pivotal role in reaching and engaging consumers, the promising outlook for the industry and Yelp's upgraded stock position open doors for new businesses to thrive. By harnessing the power of digital advertising platforms and capitalizing on the growth potential highlighted by Goldman Sachs, startups can drive awareness, expand their customer base, and establish a strong foothold in their respective markets.
Article First Published at: https://www.cnbc.com/2023/07/17/goldman-sachs-says-yelp-shares-are-worth-buying-can-rally-more-than-20percent.html
