Better Buy: Yelp vs. Pinterest

Yelp Inc. (YELP) and Pinterest, Inc. (PINS) are prominent players in the Internet Content & Information industry. YELP provides a platform that enables businesses to advertise their products and drive conversions for their services.

PINS operates as a visual discovery engine offering recipes, style and home inspiration, DIY, and others. It shows visual machine learning recommendations based on pinners' tastes and interests.  

Given the impressive growth of the social media user base over the years, businesses are increasingly using these platforms to advertise their products and services. This has helped internet content and information companies to generate significant revenues.

Social media companies should benefit from increasing advertising demand despite the tech market's bearish sentiment. The global internet advertising market is projected to grow at a 10.2% CAGR to $475.87 billion by 2026. Therefore, both YELP and PINS should benefit. But which of these stocks is a better buy now?  

PINS is a winner with 5.6% gains over the past week versus YELP’s 5% returns. But which of these stocks is a better pick now? Let’s find out.

Recent Financial Results

YELP’s net revenue for its fiscal 2022 first quarter ended March 31, 2022, increased 19.2% year-over-year to $276.63 million. The company’s loss from operations came in at $4.46 million, representing a 48.4% rise from the prior-year period.

While its net loss decreased 84.2% year-over-year to $915 million, its loss per share decreased 87.5% to $0.01. As of March 31, 2022, the company had $465.12 million in cash and cash equivalents.

For the fiscal 2022 first quarter ended March 31, 2022, PINS’ revenue increased 18.5% year-over-year to $574.89 million. The company’s loss from operations came in at $3.67 million for the quarter, decreasing 84% from the prior-year period.

PINS’ non-GAAP net income came in at $68.99 million, down 12.2% from the year-ago period. Its non-GAAP EPS came in at $0.10, indicating a 9.1% year-over-year decline. As of March 31, 2022, the company had $1.68 billion in cash and cash equivalents.

Past and Expected Financial Performance

Over the past three years, YELP’s revenue has increased at a CAGR of 4.1%. YELP’s EPS is expected to increase 20% year-over-year in fiscal 2022, ending December 31, 2022, and 63.3% in fiscal 2023. Its revenue is expected to grow 13.9% in fiscal 2022 and 9.8% in fiscal 2023.

Over the past three years, PINS’ revenue has grown at 47.8% CAGR. Analysts expect PM’s EPS to decrease 15.9% year-over-year in fiscal 2022, ending December 31, 2022, and rise 21.1% in fiscal 2023. Its revenue is expected to grow 17.2% year-over-year in fiscal 2022 and 22.4% in fiscal 2023.  

Valuation

In terms of non-GAAP forward P/E, PINS is currently trading at 20.7x, 90.8% higher than YELP’s 10.85x. In terms of forward EV/Sales, YELP’s 1.45x compares with PINS’ 3.20x.

Profitability

PINS’ trailing-12-month revenue is 1.5 times that of YELP’s. Moreover, PINS is more profitable, with a 15.8% EBITDA margin versus YELP’s 6.5%.

Furthermore, PINS’ ROE, ROA, and ROTC of 12.3%, 7.9%, and 8.6% compare with YELP’s 5.7%, 2.7% and 3.1%.

POWR Ratings

While YELP has an overall A grade, which translates to Strong Buy in our proprietary POWR Ratings system, PINS has an overall C grade, equating to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.

Both YELP and PINS have been graded an A for Quality, consistent with their higher-than-industry profitability ratios. YELP’s 18.9% trailing-12-month levered free cash flow margin is 92.1% higher than the 9.8% industry average. PINS has a 21.5% trailing-12-month levered free cash flow margin, 118.9% higher than the 9.8% industry average.

YELP has an A grade for Value, which is in sync with its lower-than-industry valuation ratios. YELP’s 6.30x forward EV/EBITDA is 23.1% lower than the 8.19x industry average. PINS’ C grade for Value reflects its slightly higher-than-industry valuation. Its 14.82x forward EV/EBITDA is 81% higher than the 8.19x industry average.

Of the 66 stocks in the Internet industry, YELP is ranked #1, while PINS is ranked #12.

Beyond what we have stated above, our POWR Ratings system has graded YELP and PINS for Growth, Momentum, Stability, and Sentiment. Get all YELP ratings here. Also, click here to see the additional POWR Ratings for PINS.

The Winner

Although companies have limited their digital advertising costs to cope with high inflation pressure, efficient services provided by internet content and information companies YELP and PINS should help drive sales in the coming months. However, a relatively lower valuation makes YELP a better buy here.

Our research shows that the odds of success increase if one invests in stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Internet industry.

YELP shares were trading at $28.38 per share on Wednesday afternoon, down $0.21 (-0.73%). Year-to-date, YELP has declined -21.69%, versus a -20.80% rise in the benchmark S&P 500 index during the same period.

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.

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