Surprise, Surprise, the YELP Sale Is Bellyflopping!

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The consumer-reviews website Yelp (YELP) will stop looking for a savior to swoop in and acquire it, according to Bloomberg. YELP stock immediately plunged on the news, losing as much as 13% in a matter of minutes.

YelpYelp had Goldman Sachs (GS) scouring the earth for a company with tons of cash and no brains — in other words a company anxious to acquire Yelp, whose stock still trades for 77 times forward earnings even after today’s steep selloff.

Wall Street seemed to be taken aback by this news, but I’m not quite sure why. As I just mentioned, YELP stock is horribly overvalued already, so why would anyone want to pay a premium on top of that to absorb it?

I know it’s sort of obnoxious to toot one’s own horn, but I’m just going to say it: I predicted the YELP sale would never come to fruition two months ago, hours after The Wall Street Journal reported it was exploring a sale.

Nobody ‘Dumb Enough to buy Yelp’

The Bloomberg report cites inside sources who allege that co-founder and YELP CEO Jeremy Stoppelman decided to stop the sale process, but what it doesn’t address is the “why.”

Allow me to take a wild guess: The search was failing miserably. Although it was doomed from the beginning, I understand why management would want to pawn YELP stock off on someone else; they gave it the old college try. As I wrote in May:

“I don’t blame Yelp for trying to find a buyer. Lord knows a YELP buyout is in the best interest of its shareholders. After all, if you were a Dutch tulip magnate in 1637, you’d be wise to ring up the Medicis and sell them on the prospect of diversifying their portfolio.”

The week prior to Yelp’s decision to pursue a sale, the company posted a terrible first-quarter earnings report that sent YELP stock 18% lower. Unique visitors to Yelp’s site was (and is) rapidly decelerating, and both Facebook (FB) and Google (GOOG, GOOGL) are wooing away local ad dollars by honing their ability to target visitors.

The Bloomberg article implied that Yelp was looking for a buyer who could help the company convert its visitors from surfers to buyers. The company has had difficulty turning all those eyeballs into sales, you see. The thing is, if YELP isn’t able to do that on its own, why assume a YELP sale would change things?

With some analysts predicting food-ordering website GrubHub (GRUB) is losing market share and will miss on revenues in the second quarter, GRUB stock fell sharply yesterday and is off another 4% today as well. One wonders: If GrubHub isn’t doing so hot either, what is Yelp really striving for?

Again, I think it’s grasping at straws. I’m not surprised no one wants to buy Yelp, and I think YELP stock still has plenty of room to go lower. Stay far away from this stock, your portfolio will thank you.

As of this writing, John Divine had no interest in any of the above securities. You can follow him on Twitter at @divinebizkid.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/07/surprise-surprise-the-yelp-sale-is-bellyflopping/.

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