Yelp Inc.’s (NYSE/YELP) stock price tanked more than 29% on Wednesday, July 29th after the company lowered its 2015 revenue guidance, signaling the entire social media business model could be in trouble.
During the second quarter, revenue grew 51% year-over-year coming in at $133.9 million. Earnings per share (EPS) landed at $0.04, beating analysts’ expectations by $0.03 per share. (Source: Yelp. July 29, 2015.)
Despite the good growth numbers, management sees problems ahead. Executives lowered their full-year 2015 outlook based on slower sales headcount growth and the elimination of its brand advertising product. For the third quarter, revenue is expected to be in the range of $139 million to $142 million, up 37% year-over-year.
“Consumers are increasingly turning to apps when using their mobile phones, and we are excited about the growth we’ve seen in app usage which accelerated to 51% year over year. We believe our rich content married with our highly-differentiated local advertising product will position us well to capture a meaningful share of the large local market.”
During the subsequent conference call, company Chief Financial Officer Rob Krolik highlighted the reasons for lowering the outlook. According to him, roughly two-thirds of lower expectations for full-year 2015 revenue is due to lower-than-expected headcount while approximately one-third is related to the phase-out of the company’s brand advertising product.
All told, as long as the online business review site is lowering its outlook far below analysts’ expectations, there would be no surprise if the stock declined further.