At the ring of the closing bell on Wednesday, Yelp Inc (NYSE:YELP) stock had done pretty well for long-term shareholders. Since its IPO in 2012, shares were up more than 100% — more than doubling the returns of the S&P 500 — as revenue growth hummed along at more than 60% per year.
Sorry to be the bearer of bad news, but the golden days are over. The emperor wears no clothes. YELP stock is a dog.
All it took was a miserable first-quarter earnings report. Without so much as a moment’s deliberation, Wall Street had a eureka moment and sent YELP stock spiraling lower. Shares opened up down 18% on Thursday.
Somebody Yelp!
Not only did Yelp earnings per share disappoint, but the online user-review website also missed on revenue and second-quarter revenue guidance. Talk about a triple whammy.
YELP stock lost 2 cents per share in the first quarter, missing estimates by a penny. Revenue came in at $118.5 million versus an expected $119.8 million, and Yelp’s second-quarter revenue guidance was in the $131 million to $134 million range, missing Wall Street’s $137.4 million consensus.
It’s not the only overvalued stock in its industry seeing its stock price fall as markets come to their senses. Yesterday the online food-ordering service GrubHub Inc (NYSE:GRUB) fell 10% after giving disappointing second-quarter guidance of its own. YELP stock and GRUB stock are more analogous than they once were, especially after Yelp’s first-quarter acquisition of Eat24, a direct GrubHub competitor.
It’s bad enough that both YELP and GRUB disappointed on their outlooks. Add to that the fact that Yelp paid an absolute loony-bin premium for Eat24 to begin with and one wonders if the market is done with correcting the YELP stock price. Eat24 was acquired in February for $134 million. In return, Eat24 contributed a mere $5 million in first-quarter revenue.
But the obstacles don’t end there.
In January, I opined on how I thought a new service from Facebook Inc (NASDAQ:FB) could actually be a death knell for YELP stock. The initiative is called Facebook place tips, and it provides a remarkably similar and arguably superior service than does Yelp:
“The idea is this: When traversing the town, Facebook place tips will use your location to scan businesses nearby that you may be interested in. Then, a pink beacon will appear atop your News Feed, populating photos and posts by friends about those businesses.”
Although YELP stock is off 22% since that article, I don’t think the full effects of Facebook place tips have been felt yet. And when they eventually are, well … I expect the reviews of YELP stock to be unflattering at best.
As of this writing, John Divine held no positions in any of the aforementioned stocks. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
