Why I Love Yelp

3. In the meantime, the ad revenue is stable:

Until the next generation of ad revenue kicks in, Yelp investors have to rely on their local ads, brand ads and other sources. Luckily, as per Point 1, that's a growing business. I assume we will see minimum 22 markets open each year from now on, and probably higher than that, to ensure future growth.

4. Yelp will do a good job exceeding revenue expectations in the next 18 months:

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This also goes back to Point 1. If you go by its cohort growth data, Yelp's table is set for them to exceed analysts' expectations by a country mile. Generally, good things happen to stock prices when that occurs, although one risk is that the rapid shift by users to mobile changes the monetization dynamics of the growth process Yelp described. That's fairly reasonable. Luckily, the revenue estimates in Point 1 are so far ahead of expectations there appears to be ample wiggle room.

5. They've got a fat price-to-revenue multiple tied to that revenue growth.

It's 16 times trailing. That's high, although it might get higher as Yelp's revenues scale up and investors see even more value in the network it's building. LinkedIn(LNKD) has a trailing price-to-sales of 21 times. Applying a trailing 16 times sales multiple to my estimated 2012 revenue (of $160 million) gets you to a market cap of $2.6 billion, or $42 per share, by the end of the year. This would represent an increase of 88% from its current levels.

6. They're an attractive M&A takeout candidate.

At the moment, Yelp has a $1.3 billion market cap. If it did get to $320 million in revenues for 2013 and a LinkedIn-type price-to-sales ratio, you're talking about a company with a $6.7 billion market cap. Now, $1.3 billion -- even with a hefty premium slapped on it -- is a much more digestible takeout target. And there would be many willing buyers -- including Yahoo!(YHOO) , Google(GOOG) , Apple(AAPL) , Microsoft(MSFT) or -- wait for it -- the PayPal unit of eBay(EBAY) .