Yelp Plunges to 52-Week Low

A BIA/Kelsey report forecast that US local ad spending via mobile would soar more than 54% in 2015, from $4.27 billion to $6.58 billion. However, the sector is also seeing increasing competition, that is affecting the consumer review site Yelp.

Yelp’s Financials

Yelp (NYSE: YELP) last month reported second quarter revenue of $133.9 million, up 51% over the year, slightly ahead of the market’s expectations of $133.5 million. Net loss in the second quarter of 2015 was $1.3 million, or $0.02 per share, missing analyst EPS forecast of $0.01.

Yelp now has 97,100 local advertising accounts, up 40% over the year and its local advertising revenue grew 43% to $107.9 million. Transactions revenue grew to $11.3 million from $1.2 million a year ago, mainly due to the recent Eat24 acquisition. Brand advertising revenue fell by 8% over the year to $8.3 million. Other revenue from partnership arrangements grew 128% over the year to $6.4 million.

Yelp will be phasing out its brand advertising product by the end of 2015 to continue its focus on the consumer experience and its native, local advertising products.

The majority of Yelp consumer engagement now occurs on their app. App Unique Devices grew 51% year over year to 18 million on a monthly average basis. Mobile unique visitors at 83 million surpassed desktop unique visitors for the first time in the company history. However, what is alarming is the slowing unique visitor growth from 27% last year to 17% this quarter.

Yelp had been witnessing a significant slowdown in traffic to its sites due to increased competition, especially with Google diverting traffic directly to merchants through its local products. It also faces stiff competition from Zomato, which has been on an acquisition spree to expand its reach to 22 countries.

The US government has recently partnered with Yelp to enable taxpayers to give their feedback about public services. Although the government will not pay Yelp to host government agencies, the partnership will help increase traffic on the site.

For the third quarter, Yelp projected revenues of $139 million-$142 million or about 37% growth. Analysts were expecting 49% growth or revenue of $152.7 million for the third quarter.

Yelp announced that their chairman, PayPal co-founder Max Levchin is moving on to Affirm, a consumer lending startup. The company also said that they are struggling to find new hires and now expect to grow their sales force by 30%, down from their earlier forecast of 40%.

Yelp has lowered their guidance for the full year. They now expect to end the year with revenues of $544 million-$550 million, up 45% from 2014 versus analyst estimate of $571 million at 51% growth.

Analyst Coverage on Yelp

Following the disappointing outlook, eight analysts have downgraded the stock. However, last week, B. Riley’s Sameet Sinha upgraded the rating for the company from Sell to Neutral, with a price target of $22. Analyst Sameet Sinha says that the upgrade was a result of Yelp’s stock being within 5% of the price target, near-term issues already reflected in the valuation, and improvement in traffic to the site after June. He adds,

“To be clear, we still do not think that YELP is out of the woods as competition is increasing in the core business as well as at Eat24, international is a drag and sales productivity is expected to be low for a while; however, we do think barring broad based stock market volatility that impacts the valuation for the space, the stock has limited downside and could find support at these levels.”

Yelp hit a 52-week low of $20.50 last week while they had hit a 52-week high of $86.88 last year. Their stock is currently trading at $23.96 with a market cap of $1.8 billion. That would make it more attractive for prospective buyers like Google, Facebook, Yahoo, and Priceline.