Yelp Inc (YELP): What Analysts Have To Say About Recent Earnings Results


Shares of Yelp Inc (NYSE:YELP) were hammered last week following the release of the company’s first-quarter earnings results. The results, which fell way below consensus, were especially disappointing due to the deceleration of user growth and local advertising. In response to these poor results, analysts from Cantor Fitzgerald, Piper Jaffray, and RBC Capital shared their thoughts and expectations of the stock. Yelp shares are currently trading at $38.96, down $0.80 or 2.01%.

Cantor Fitzgerald analyst Youssef Squali maintained a Buy rating on Yelp and reduced the price target to $68 (from $78). The analyst explained the price target reduction, stating “Yelp missed consensus estimates for 1Q:15, with local ad revenue impacted by a territory change made to the sales organization, and disappointing brand ad revenue caused by the industry shift to programmatic advertising.”

Squali also justified his Buy rating by explaining, “That said, mgt seems to have remedied the sales territory issue and has since seen sequential improvement; it has also seen amelioration in the Brand pipeline, prompting it to reaffirm FY:15 guidance.”

Additionally, Piper Jaffray analyst Gene Munster reiterated a Buy rating on the stock with a price target of $70, representing a potential upside of 76% from where the Yelp is currently trading. Munster expounded upon his positive rating stating,”We believe shares of YELP will be range bound over the next quarter given investors will be concerned about guidance calling for accelerating revenue in the back half of the year, reducing the urgency to own YELP for the next three months. That said, we believe investors with a 6-12 month time horizon should buy shares as Yelp is part of the fabric of the Internet and is not going away.”

According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Gene Munster has a total average return of 27.1% and a 70.3% success rate. Munster has a -22.4% average return when recommending YELP, and is ranked #1 out of 3590 analysts.

 

RBC Capital analyst Mark Mahaney took the other route, downgrading YELP to Sector Perform (from Outperform) and slashed the price target from $82 to $50. The analyst defended his negative stance on thew stock by observing, “YELP posted a materially weak Q1, with an outlook for Q2 that implies ongoing deceleration. Metrics deteriorated too.”

Mahaney also noted, “A Miss & Lower Q1 – Rev of $119MM came in below RBC/Street @ $120MM and at low end of the Guide for 1st time. The key Local Ad segment came in light, with Yelp citing a temporary salesforce issue. Hw, the Q2 Guide doesn’t imply a temporary problem, suggesting competitive challenges or Tough TAM factors or both. EBITDA also came in dramatically below expectations at $16MM, or 21% below Street, with a shortfall in high-margin Brand rev a key factor. Although ‘15 Guide was maintained, the Q2 Guide was well below Street, implying heightened risk to H2 estimates.”

 

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  • DavieLand

    In 2013, Yelp purchased Qype for $50 million dollars to open up international markets. As of 2015, international markets account for only 3% of Yelp’s revenues.

    Overall unique visitors growth is flattening (desktop down my 3%). This is a concern because of the rapid expansion overseas (22 countries). Since overall growth is level and the largest increases are coming from overseas, it would stand to reason that domestic traffic is actually decreasing. This is unfortunate because Yelp derives 97% of its revenues from the domestic market. Conversely, new markets are also less affluent and will be costly to establish a profitable presence.

    Next, Yelp does not offer a unique service. The profitable AroundMeApp, a restaurant directory with 4 employees has 25 million monthly users in 200 countries. Yelp services 22 countries but it takes 1,700 employees to do this.

    Zomato, a $1B restaurant directory bought UrbanSpoon to expand into the US and recently signed a contract with Uber for arranging transportation through it’s app. Zomato does not have a bad reputation with restaurant owners and has a successful hold on overseas business.

    Last of all, Apple maps has removed Yelp reviews from entire countries and in the US, has diluted Yelp’s exclusive share by adding reviews from TravelAdvisor and Booking.

    All these challenges have not been reflected in Yelp’s current financials and may contribute to its downward spiral. There is a reason this stock is down 60% from it’s high.

    In it’s evolution to a for profit company, Yelp is destroying itself. It rallied reviewers to provide recognition for small, independent businesses. There was bias in reviews against corporate, chain restaurants. When Yelp went public, it pursued the mom and pop restaurants aggressively and created outrage. In this last report, Yelp indicated it would begin catering to chain accounts (where the money is). This is creating concern among the reviewers/supporters as well as the small businesses.

    Yelp is seeing a crises of identity similar to Ebay and Etsy when they became accountable to Wallstreet. Both Ebay and Etsy seem to be moving away from the client base that brought them to where they are and changing their services to accommodate corporate clients. Along the way for Yelp, Ebay and Etsy, the little guy is left in the dust.

    Unfortunately, in changing it’s identity, Yelp has generated a lot of negative publicity and a negative reputation, which ironically is a death knoll in social media.