Yelp Soars 27%: Street Dazzled by ‘Eat24′ Sale, GrubHub Partnership; a ‘Win/Win’

Shares of Yelp
(YELP) are up $8.35, or almost 27%, at $39.72, extending last night’s gains, after the company beat quarterly expectations
, raised its year revenue outlook, set a $200 million share buyback authorization, and said it will sell its “Eat24” unit to GrubHub
(GRUB) for almost $300 million.

The stock is getting multiple ratings upgrades today, and several price target increases. The feeling is the Eat24 sale, and the five-year partnership with GrubHub, significantly changes the scale of restaurant ordering opportunity for both Yelp and GrubHub. And analysts were also encouraged by the metrics of the business reported in the quarter.

Rob Sandersonof MKM Partners
raises his rating on the stock to Buy from Neutral, and sets a $48 price target. He’s impressed with the Eat24 sale, writing that “Yelp is divesting a sub-scale business for more than 2x its original purchase price (over $3 per share to YELP), capturing better economics per transaction and nearly doubling its reach in the food delivery category.”

“We think the end result is a more profitable business (all margin) and much higher transaction volume than YELP could drive on its own, especially as GRUB further expands its reach over time.”

Raymond James’s Justin Patterson
reiterates his Outperform rating, while raising his price target to $42 from $37, writing that the results left him “more confident that execution is improving and margins/cash flow can inflect.”

“We believe the GrubHub partnership marks the best of both worlds for Yelp,” he writes, “it improves the customer experience, avoids investment/competition, and retains a customer acquisition funnel.”

Those who are still bearish on Yelp are sounding a little less so this morning, even if they haven’t yet come around.

John Egbertof Stifel Nicolaus
reiterates a Hold rating, while raising his price target to $35 from $32. He’s “encouraged by improving trends in Yelp’s core business,” he writes, and he thinks “the Grubhub deal is a rare ‘win / win’ scenario for both companies, as Yelp earned a strong return on the sale of Eat24 and can now focus more of its resources on its core platform rather than capital intensive adjacent businesses.”

However, “We remain Hold rated as we think Yelp still faces significant challenges to reinvigorating its growth over a sustained period, but the company’s improved focus / stronger balance sheet should boost its chances of success.”

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