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Kerrisdale Capital's Long Thesis for Yelp

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msmithgold   Saturday, 06/03/17 09:38:06 AM
Re: None
Post # of 257 
Kerrisdale Capital's Long Thesis for Yelp

Full Summary of Long Thesis on YELP

Yelp

Recently retained a long position in Yelp
With over 127 million reviews and nearly 200 million unique monthly visitors, Yelp is a leading and unique local search and review site
Due to higher than expected customer churn, management reset expectations for 2017 on its latest earnings call – sent shares down 28% after-hours to below $25/share (34% decline in enterprise value)
Considered the price action a gross overreaction to the lowered guidance
Revised forecast gave us the opportunity to buy shares at 2x LTM revenue, 13x LTM EBITDA and 16x LTM FCF
Very unique asset and believe its brand, breadth of content and popularity would be extremely difficult to replicate
While there’s a perception of Yelp as being a restaurant/bars only review site, that category represents only 18% of reviews and even less so in terms of revenue
For other businesses, such as a local dental office or a fitness center, understanding the value proposition of advertising on Yelp is easier for a variety of reasons
Nearby competitors are fewer, each customer review is more valuable for the client since less reviews are provided for non-restaurant businesses, etc
Being at the top of Yelp searches is similar to the need to be on the first page of Google results
In recent years, Yelp has introduced other features on the site such as Eat24 (competes with Grubhub) and Yelp Reservations, an alternative to OpenTable that allows customers to make reservations directly on the Yelp site and app
Popularity is undoubtedly growing as transaction related revenues grew 28% in the last 12 months
Further engaging user base, increasing the value of the platform to both the local businesses and users
Has the potential to grow well beyond its current base of 143,000 customers
Will grow top-line by 20% in 2017 and sell-side calls for ~$1.2B of revenue by 2019, representing a CAGR of 18%
Applying a 3x revenue or 20x FCF multiple on 2019 revenue/FCF yields nearly $45/share, implying more than 60% upside
Also believe that Yelp has significant strategic value and in that scenario, shares would be worth meaningfully more

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