Yelp Inc (NYSE:YELP) is one of the most embattled tech companies of the past few years. This is due mainly to the overwhelming number of complaints about the local business review site.

Nonetheless, for two years after its March 2012 initial public offering, YELP stock could do no wrong. It climbed almost 550% to an all-time high of $97.25 by early March 2014. Today, however, shares trade around $45, more than 50% below the level of one year ago.

Yelp released its fourth-quarter 2014 results last month. Despite year-over-year revenue growth of 56% and EBITDA (earnings before appreciation, taxes, depreciation and amortization) growth of 141%, YELP stock tanked more than 21.5% after the announcement.

That fire sale was fueled by weaker-than-expected website traffic reports for the quarter, combined with 2015 guidance that was below consensus expectations.

While investors remain skittish, analysts appear confident about the future of YELP stock. A number of firms have given Yelp an “outperform” or “strong buy” label with price targets ranging from the mid-$60s to the high $70’s. Of the 38 brokers providing data to MarketWatch.com, 25 call YELP stock a buy, 10 call it a hold, and only one calls it a sell.

Yelp Faces Steep Competition

In the primary space in which Yelp operates — local business reviews — there is significant competition from much larger, more established companies with more readily accessible tools for mobile users. The fiercest competition comes from Facebook Inc (NASDAQ:FB) and Google Inc (NASDAQ:GOOGL, NASDAQ:GOOG), as both companies facilitate user reviews of local businesses and are dominant mobile players.

In its most recent quarterly release, Facebook reported 745 million mobile daily active users. With the integration of its new proximity marketing initiative, Facebook is poised to be an even more dominant presence in the local business review space. The new “Place Tips” feature will display location-specific information and advertisements, attracting more small businesses to FB. Those ad dollars might otherwise have been spent with Yelp.

Similarly, Google’s Android operating system is used by more than 1 billion people and most of those smartphones have the Google Search app pre-installed. With Google+ and Google Maps, Android users are able to find, evaluate and review local businesses with minimal effort. Furthermore, local small business owners are able to increase exposure in search results with the new My Business service.

Last week, comScore released its Smartphone Subscriber Market Share report for Jan. 2015. It lists, among other metrics, the top 15 smartphone apps among adult users. Yelp is not on that list.

Considering that Facebook and Google Search are ranked Nos. 1 and 4, respectively, the likelihood of Yelp successfully challenging those two mobile app behemoths and stealing away market share just doesn’t seem possible.

 YELP Stock is Overvalued

The steep valuation of YELP stock doesn’t help. it has an earnings per share for the past 12 months of 48 cents and a P/E ratio of 95. Considering that the analysts’ consensus for YELP stock’s EPS for the current quarter is one penny, and for the current year is 13 cents, significant profit for shareholders just doesn’t seem likely.

Even if Yelp meets analyst expectations as far as revenue and earnings, it’s simply not feasible for YELP stock to reach the $65-$75 price target range of analysts. Employing Benjamin Graham’s Formula, the target price for YELP stock comes out within the range reported by covering analysts. However, that also assumes YELP stock will maintain the 61.5% annual growth rate consensus estimate, which is extremely unlikely.

Year-over-year revenue, for example, grew 56% last quarter, but that was 16 percentage points less than the annual growth in the year-ago period. Yelp’s cumulative reviews grew 35%. Again, that’s below last year’s growth by 12 percentage points.

Perhaps the most significant example of YELP stock’s slowing growth was in its monthly unique visitors metric, which rose 13% last quarter. That was 24 percentage points below the year-ago growth figure.

Yelp is Spending a Significant Amount

There’s no doubt that Yelp will continue to grow. The question is by how much. The company announced last month its $134 million acquisition of Eat24, a service that facilitates consolidated take-out ordering via its website or smartphone app. The money spent to acquire Eat24 will reduce 2015 earnings, contributing to further declining growth rates.

Yelp also announced plans to triple marketing spend in an attempt to sell more ads and increase visibility. What’s more, management announced intentions to expand the company’s salesforce by 40% this year, hoping that face-to-face interactions with small business owners will produce better results than the current automated system of buying ad space.

Final Thoughts

With the cost of the Eat24 acquisition combined with increased spending on marketing, this year’s earnings are unlikely to grow at the breakneck pace required to justify a target price between $65 and$75. Add in its steep competition and it’s clear that YELP stock is significantly overvalued.

As of this writing, Greg Gambone did not hold a position in any of the aforementioned securities.