Mobile Trends And User Reviews Will Drive Local Discovery

Key Takeaways

• Expansion in mobile features and AI tools is strengthening user engagement, operational efficiency, and new monetization opportunities, positioning the platform for sustained growth.
  
• Strong base of user-generated reviews and disciplined capital allocation strategy should drive long-term advertiser demand and enhance shareholder value.
  
• AI-driven recommendations, market saturation, declining advertiser demand, and competition from integrated tech platforms and social media threaten Yelp’s growth, margins, and competitive positioning.

Catalysts

Operates a platform that connects consumers with local businesses in the United States and internationally.

• Yelp is set to benefit from the ongoing increase in mobile internet usage and smartphone adoption, as shown by the company’s investment in mobile-specific features and improvements to its mobile and desktop platforms; this expansion in the addressable user base and engagement will reinforce advertising revenue growth as traffic migrates to platforms where Yelp is a must-have for local discovery.
  
• As younger, digitally native consumers rely more on online platforms to find local services, Yelp’s large and expanding base of authentic, user-generated reviews—310 million cumulative reviews as of year-end—positions it as a trusted leader for local information, which should drive higher user stickiness, increased engagement, and long-term advertiser demand, supporting sustained top-line growth.
  
• Yelp’s continued push into transactions and bookings, especially via features like Request-a-Quote and the recently acquired RepairPal platform, opens new pathways for monetization beyond advertising, likely resulting in higher average revenue per user and diversified revenue streams.
  
• Advances in AI-powered tools—including ad matching, search/conversational experiences through Yelp Assistant, content moderation, and automation for advertisers—are improving operational efficiency, ad product effectiveness, and consumer experience, which should drive profitability gains through expanded net margins as well as increased monetization opportunities.
  
• Ongoing operational discipline, reflected in flat headcount, reduced stock-based compensation, robust share repurchases, and a clear capital allocation strategy, should support continued growth in diluted earnings per share, amplifying shareholder value through both organic profit expansion and share count reduction.

Yelp Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Yelp compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Yelp's revenue will grow by 4.9% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 9.4% today to 12.3% in 3 years time.
• The bullish analysts expect earnings to reach $199.8 million (and earnings per share of $3.19) by about May 2028, up from $132.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 16.9x on those 2028 earnings, up from 16.8x today. This future PE is greater than the current PE for the US Interactive Media and Services industry at 16.4x.
• Analysts expect the number of shares outstanding to decline by 3.6% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.34%, as per the Simply Wall St company report.

Yelp Future Earnings Per Share Growth

Risks

• The increasing adoption of generative AI and automated recommendation systems may reduce reliance on peer-written reviews, as evidenced by the company's own efforts to integrate features like Yelp Assistant and AI-powered search, potentially reducing user traffic and causing advertisers to shift budgets elsewhere which could negatively impact revenue growth.
  
• Yelp's core US local advertising market is showing clear signs of saturation, with minimal international expansion prospects and a 4 percent year-over-year decline in paying advertising locations, which threatens the company's primary source of revenue and reduces its long-term growth potential.
  
• Persistent declines in the restaurant, retail, and other (RR&O) category, which saw a 3 percent year-over-year revenue drop and continued pressure despite investments, suggest structural weaknesses that could lead to long-term vulnerabilities in advertiser demand and overall earnings stability.
  
• Yelp's business model faces ongoing risk from larger super apps and integrated digital ecosystems like Google, Apple, and Meta, which have the power to divert user attention, integrate local business information directly into their platforms, and thereby undermine Yelp’s discoverability and revenue streams.
  
• The ongoing commoditization of local business information and third-party reviews, combined with shifting consumer preferences toward video, influencer-driven, and social commerce content on platforms like TikTok and Instagram, threatens Yelp’s differentiation, pricing power, and ultimately its net margins and future earnings.

Valuation

• The assumed bullish price target for Yelp is $48.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Yelp's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $48.0, and the most bearish reporting a price target of just $30.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $1.6 billion, earnings will come to $199.8 million, and it would be trading on a PE ratio of 16.9x, assuming you use a discount rate of 7.3%.
• Given the current share price of $34.62, the bullish analyst price target of $48.0 is 27.9% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.