Has Yelp Stock Finally Bottomed? Probably Not
Shares of Yelp Inc. (NYSE:YELP) stock continue to hover at $22.00 to $24.00 per share after starting out the year much closer at about $60.00, marking a 60% drop since the start of 2015. Yelp stock is not likely to recover any lost ground, given that the U.S.-based service and retail recommendations web site released worse-than-expected third-quarter results.
Yelp.com posted a loss of $8.1 million ($0.11 per share), against a profit of $3.6 million ($0.05 per share) a year earlier. Adjusted EPS totaled $0.03. Analysts on average expected a loss per share of $0.09 for the period. The loss comes even as revenues rose 40% to $143.6 million, against the $141 million consensus. In the current quarter, the group is targeting revenues between $149.5 and $154.5 million. (Source: John Divine, “Yelp Inc. (YELP) Stock: Impressive Q3, But Its Absurd Valuation Is Deadly,” Oct. 29, 2015.)
Yelp Stockholders Need to Stop Focusing on Revenue Growth
Over the year, revenues are expected between $545.5 million and $551.5 million. However, Yelp.com stock’s performance has shown higher revenues are not sufficient by themselves in boosting the company’s fortunes.
Yelp’s dramatic chute may reflect a growing disillusion between Wall Street and Silicon Valley. There is an air of crisis as Silicon Valley continues to focus on growth and the number of users, while the second looks at margins and profits. As the numbers have shown, Yelp, along with so many others, like Groupon or even Tesla Motors, Inc. (NASDAQ:TSLA) for that matter, have as long of a way to go.
Founded in 2004 in San Francisco, Yelp.com is a web site that connects users with local businesses. Present in many major cities across 32 countries, with over 80 million reviews, Yelp.com has established itself as one of the leading “word-of-mouth” services where consumers can read (and post) reviews about restaurants, hotels, vacations, dentists, and even hairdressers. One of its keys to revenue growth could be its recent addition of U.S. utilities in the portfolio of services Yelp users can review thanks to an agreement with the U.S. government.
Since August 18th, U.S. users have been able to evaluate national parks, monuments, administration offices, and even the politics of their mayors and the quality of public transportation. The DigitalGov team of the General Services Administration (GSA), the origin of this initiative, believes that this will allow U.S. utilities to improve their performance through to consumer feedback. (Source: Five-Star Customer Experience in Public Service with Yelp, last accessed Nov. 4, 2015.)
Federal agencies can now generate pages on Yelp, where they plan to absorb favorable or unfavorable comments with a view toward addressing inevitable criticism in real time. Since January, the Transportation Security Administration (TSA) has been open to face users’ comments, including those of 2016 U.S. Republican candidate for the presidential nomination, Carly Fiorina. Fiorina was one of its most famous users, awarding the service one lonely star, noting the TSA “spent $160.0 million of taxpayer money on body scanners that show a failure rate of 96%.”
Yelp is also going to offer a food delivery platform, which suggests locating restaurants and hotels for Internet users, acquiring Eat24 for a mere $134 million. Eat24 now has 20,000 customers, primarily restaurants, located in 1,500 cities in the United States. Yelp intends to develop it to reach one million restaurants on the platform.
Yelp’s New Initiatives Not Enough to Save the Stock
“With this acquisition, we gain more tools and expertise to increase the commitment of our users, from discovery to the transaction,” said Yelp cofounder, Jeremy Stoppelman. The group saw its number of users fall to 135 million visitors per month in the fourth quarter 2014, against 139 million the previous three months.
Moreover, Yelp faces increasing competition. Other web service giants have announced similar projects such as Facebook and its “Tips Place,” a new service that automatically provides information on services near and about the user’s location.
Already after a poor second quarter last summer, Yelp stockholders entertained doubts over Yelp’s chances to survive in its current state, at least as an independent company, despite optimistic scenarios from CEO Jeremy Stoppelman, who famously predicted the company could generate some $1.0 billion in revenue by 2017. (Source: “2Q Earnings Raise More Doubts About Yelp’s Future,” Inc.com, July 28, 2015.) However, the plummeting trend has continued uninterrupted. In fact, the one thing that could save Yelp might be its low stock price and a buyout from one of its more successful internet/sharing economy peers, like Facebook for instance.
Here’s the Bottom Line on Yelp Stock
Yelp has not been able to attract enough buyers of its advertising space. But even if it shifts its model to targeting more local businesses, it has to confront a reputation issue. Many reviewed establishments have become increasingly concerned that Yelp hides favorable reviews in order to persuade them to purchase advertising packages by leaving only negative reviews. In October, the popular TV show South Park ran a whole episode to mocking Yelp, highlighting a backlash campaign from many businesses claiming to have suffered losses because of unfair Yelp reviews.