Craig-Hallum lowers Yelp stock price target to $40, maintains Buy rating

Investing.com - Craig-Hallum has reduced its price target on Yelp (NYSE:YELP) to $40.00 from $48.00 while maintaining a Buy rating on the stock. The stock, currently trading near its 52-week low at $31.29, appears undervalued according to InvestingPro’s Fair Value analysis.

The firm cites diversification of growth opportunities as a key factor in its continued positive outlook, particularly highlighting artificial intelligence initiatives across the Yelp platform and with large language models (LLMs). This strategic focus is supported by Yelp’s strong financial foundation, with an impressive 90.88% gross profit margin and a "GREAT" overall financial health score, according to InvestingPro’s comprehensive analysis.

Craig-Hallum notes that in the last two months, Yelp has seen AI search API calls through integrations with platforms like Perplexity increase more than tenfold, suggesting an annual run rate exceeding $10 million currently as the company continues to onboard new partners.

The $40 price target is based on 14 times the firm’s fiscal year 2026 earnings per share estimate of $2.89, which reflects limited share buybacks. This target is further supported by 6 times the firm’s FY26 EBITDA estimate of $380 million.

Craig-Hallum also points to Yelp’s internal use of AI to generate business videos from user posts, deepening integration with RepairPal to accelerate auto services scaling, and new co-branded ad units that could diversify spending by tapping into co-op ad budgets from brands like Pepsi that haven’t previously advertised on Yelp.

In other recent news, Yelp Inc. reported strong financial results for the second quarter of 2025, exceeding both earnings per share (EPS) and revenue projections. The company achieved an EPS of $0.67, surpassing the expected $0.51, while revenue reached $370.34 million, slightly above the forecasted $365.69 million. Despite these positive financial outcomes, Yelp’s stock faced a slight decline in premarket trading, possibly due to broader economic uncertainties affecting investor sentiment. In another development, BofA Securities adjusted its outlook on Yelp by lowering the stock’s price target to $30.00 from $31.00, maintaining an Underperform rating. The decision was influenced by ongoing structural and competitive challenges, particularly a decline in user engagement. These recent developments highlight the mixed signals investors are receiving about Yelp’s performance and future prospects.

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