Does Yelp Need Help?
Stocks on Wall Street | Nov 14, 2012 03:44AM ET
Yelp continues to struggle and has performed as we predicted back in June.
Yelp (YELP) was heralded as a social media darling and shares had been up over 60% since their March 2012 IPO. Yelp appeared to be performing better than other social media plays such as Groupon (GRPN) and Zynga (ZNGA).
After a roller coaster summer, Yelp peaked on October 4, 2012 at $28.89. However, it has since plummeted over 40%.
(Above is a chart of Yelp’s performance since October 4th, 2012)
Stocks on Wall Street advised readers to SELL and/or not buy Yelp in our June 25, 2012 article titled “Why Yelp Is Not A Good Investment: 3 Reasons To Sell The Stock Now”. Since then shares are down 21.59%. We cited three reasons for our negative position on Yelp:
1) Flawed business model
2) End of their lockup. Lockups also plagued other social media stocks such as Zynga and Groupon.
3) Yelp does not fit two key criteria in Stocks on Wall Street’s Rules of Investing: (a) buy best-of-breed companies and (b) buy damaged stocks, not damaged companies. We consider Yelp a damaged company and it is certainly not a best-of-breed stock.
(Above is a chart of Yelp’s performance since June 25th, 2012)
Why is Yelp struggling? The first major concern for investors has been Yelp’s advertising revenue, or lack thereof. Third-quarter earnings beat analyst estimates and revealed that sales rose 63% to $36.4 million. However, fourth-quarter guidance did not meet expectations. Amid lagging ad sales, Yelp forecast next quarter’s revenue at $40-$40.5 million. Bloomberg’s average analyst estimates were $40.8 million. Shares fell almost 11%, reversing the stock’s upward trend. Yelp’s Chief Financial Officer, Robert Krolik, reported fourth-quarter revenue from display ads would be “flat-to-down” because of “execution challenges in that part of the business.”
Mobile advertising is another looming challenge for Yelp. Their mobile app generated no revenue in the last quarter. This slow move into mobile ad revenue is cause for investor concern, particularly as users increasingly turn to mobile devices for access to social media sites.
Where does Yelp go from here? Analysts continue to lower price estimates and downgrade Yelp. Nine analysts recently issued a ‘HOLD’ rating, up from five ‘HOLD’ analysts just three months ago. 82% of analysts covering Yelp now have a HOLD rating on the stock. Investors have cause to be concerned about Yelp’s business model and ad revenue growth and its mobile advertising strategy. Stocks on Wall Street reiterates its negative view on Yelp.
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.