YELP INC (YELP) stock intrinsic value fair value estimate & owner earnings analysis

Yelp runs the Yelp review and local-search platform and earns almost all of its revenue from advertising sold to local businesses. In 2025 revenue was $1.465 billion, 99% of it in the United States. The business has two halves that are moving in opposite directions. Services (home and local services such as plumbers, movers and auto repair) brought in $948 million, up 7.8%, with about two points of Yelp's total advertising growth coming from the RepairPal acquisition. Restaurants, Retail & Other brought in $444 million, down 5.6% after falling 2.8% the year before. Across the whole platform, ad clicks fell 3% in 2025, and price per click rose 9%. The company carries no borrowings. How we measure earnings. We start from operating cash flow. We then subtract stock-based compensation, because it is a real cost to shareholders, and the capital spending needed to keep the platform running. We do not add back bad-debt charges or the amortization of capitalized sales commissions. Both recur every year, so both stay in as costs. Payments on vacated offices also stay in as real rent. On that basis, owner earnings were roughly $109 million in 2023, $93 million in 2024 and $167 million in 2025. Tax timing distorts those numbers. From 2022 to 2024, a tax rule forced Yelp to spread out its research-and-development deductions, which pushed cash taxes above reported taxes by $22 to $57 million a year. The July 2025 federal tax law reversed that rule, and the unwind lowered cash taxes by about $25 million in 2025. It lowered them by another $20 million in the first half of 2026. Once we strip out those timing effects, owner earnings were about $131 million in 2023, $118 million in 2024 and $141 million in 2025. We use the middle figure, $131 million, as the starting point. We use only these three years because stock compensation was far heavier before 2023 (over 13% of revenue) and falling in 2023-2025 (from 13% to 9%), so earlier years describe a costlier business. The share count has fallen from about 74 million diluted shares in 2023 to about 55.5 million today, because Yelp has spent $200 to $290 million a year on buybacks. Per share, that works out to about $2.36. Recent results. Normalized owner earnings grew about 20% in 2025. The first half of 2026 was weaker. Revenue rose only 1.1% and operating income fell 14%. After removing the tax-timing benefit, owner earnings were down roughly 10% from a year earlier. Two things helped: stock compensation fell 22% and payments on unused leases have nearly run off. Neither was enough to offset flat revenue. The company's own annual report says it expects traffic to remain challenged in 2026. It names AI answers in search engines, such as Google's AI Overviews, and AI chatbots as tools that de-emphasize links to Yelp. So we start the base case below the 2025 growth rate, not at it. Base case, about $27 per share. Owner earnings fall 4% in the first year, in line with the first half of 2026. They then grow about 1% a year through year 10. That growth comes from Services growing at mid-single-digit rates organically while Restaurants, Retail & Other keeps shrinking at roughly its recent pace, so total revenue grows about 1% a year. Continued declines in stock compensation hold margins steady. Earnings hold level for five more years on the strength of Yelp's 20-year content base and its position with local advertisers. After that, we fade them to zero over ten years, because nothing we can point to today protects the platform's traffic beyond that point. Bear case, about $14 per share. AI-driven search takes a growing share of the traffic that feeds Yelp's ad clicks. The decline in Restaurants, Retail & Other spreads to Services. Owner earnings fall 8% in year one and 6% a year after that, reaching about $69 million by year 10. They then fade to zero within five years. The balance sheet has no debt, so the downside is shrinking earnings, not financial distress. Bull case, about $40 per share. Earnings are flat in 2026. After that, Services keeps growing and stock compensation keeps falling, as it did from 2023 through the first half of 2026. That lifts owner earnings about 6% a year for four years, then 3% a year, reaching about $190 million by year 10, roughly a 12% margin on modestly higher revenue. The level holds for ten years and then fades over ten. Accounting judgements. Amortization of acquired intangibles has risen, from $2.8 million in 2024 to $9.9 million in 2025 and $12.0 million in just the first half of 2026, as Yelp has bought businesses such as RepairPal. Our earnings measure adds this back. We have not assumed that acquired revenue grows on its own, and our starting point comes mostly from years before these deals. Future spending on acquisitions is a use of cash that the cases do not credit with any return. We did not add Yelp's cash and investments on top of these values. We also did not credit the ongoing buybacks, which add value only if shares are bought below what they are worth. What would make this wrong. On the downside, a faster collapse in search referrals than the recent 3% decline in clicks, or a reversal of the Services growth that has carried the business since 2023. On the upside, if the first-half 2026 weakness turns out to be temporary and Services growth plus lower stock compensation push earnings back toward the 2025 level of about $141 million, the value moves toward the bull case. Given how uncertain the traffic outlook is, the margin-of-safety price sits close to the bear-case value.