Will Yelp Inc (YELP) Become the Next $10 Billion Social Media Company?

Even at the much higher revenue base, the company is still growing 54% and trades at nearly 15 times current year revenue expectations. That actually places LinkedIn Corp (NYSE:LNKD) at a higher multiple than the much smaller Yelp.

This example also highlights how Yelp is likely to reach an inflection point to where revenue growth accelerates as more users jump on board and advertisers flock to the service

TripAdvisor example

While Tripadvisor Inc (NASDAQ:TRIP) hasn’t quite reached a $10 billion valuation, the travel review site is getting closer that milestone with no signs of slowing down. TripAdvisor is only skimming along with 22% revenue growth, yet it is able to maintain a 10 times current year revenue valuation. The company, though, is very profitable at nearly 30 times forward earnings expectations. Both valuation metrics appear lofty for 20% growth providing assurance that a fellow review site could maintain lofty multiples even as growth slows considerably from the current over 50% rate.

Bottom line

Anybody that has used the local reviews on Yelp to locate good restaurants realizes the power of the service. When comparing it to public examples such as LinkedIn or Tripadvisor Inc (NASDAQ:TRIP), one quickly sees that the $10 billion valuation is not only plausible, but the stock could reach that level quicker than most think. Even private examples such as Twitter back up these expectations. In accordance, Yelp shouldn’t be expected to pullback from the existing levels though investors might want to wait for one for a great entry point. Buying a stock that goes from $40 to $200 is awesome, but buying it for $30 is even better.

Mark Holder and Stone Fox Capital Advisors, LLC have no positions in any stocks mentioned. The Motley Fool recommends LinkedIn and TripAdvisor. The Motley Fool owns shares of LinkedIn and TripAdvisor. Mark is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Will Yelp Become the Next $10 Billion Social Media Company? originally appeared on Fool.com is written by Mark Holder.

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