Tiger Cub Robert Karr Added To Joho Capital’s Yelp Position

Facebook has rallied but is still short of its IPO price, currently trading at about $31 per share. Earnings multiples are high there as well- 47 times consensus for 2013- and we weren’t particularly impressed with the potential of Social Graph (note that Yelp’s market cap is only a little over $1 billion, and that may be overvalued; even replacing Yelp entirely would be a drop in the bucket of Facebook’s valuation).

We can also compare Yelp to Google Inc (NASDAQ:GOOG) as the owner of Zagat, Groupon Inc (NASDAQ:GRPN) as a different marketing channel for local businesses (bulk-buyer discounts as opposed to reviews), and restaurant reservation site OpenTable Inc (NASDAQ:OPEN). OpenTable has been growing rapidly, but it is valued at 55 times trailing earnings and we think that we’d avoid it. Groupon has been having profitability issues of its own and is down 76% in the last year as the company has disappointed investors. For some time we had wondered if it was a value play but at its current price it trades at 20 times consensus for 2013 and we’d have to pass. Google’s P/E based on expected 2013 numbers is 15, as analysts expect it to improve based on both its core business and improved integration of Motorola Mobility. We are waiting to see what the company’s results were like last quarter.

Yelp is certainly a speculative investment right now, and we don’t think that it’s a good one. Even if Facebook doesn’t successfully move into its space, the company would struggle to earn significant profits.

Disclosure: I own no shares of any stocks mentioned in this article.