The online customer review portal Yelp Inc (YELP) has seen better days. Actually, if you wrote down the closing price of YELP stock every day since it went public four years ago, then put those prices in a hat and drew blindly … well, it might take you a while to draw a price below yesterday.
Why? Well, as it turns out, Yelp just isn’t that great at making money. Growing revenue? No problem. Growing profits? There aren’t any.
In fact, between 2011 and 2015, the only year that Yelp turned a profit was 2014. That year, YELP stock peaked at $101.75, as investors were encouraged by revenue growth upwards of 60%, a strong mobile presence and the delusional belief that Yelp had entered a permanent era of profitability.
Two years later, YELP languishes near $20 a share, down 30% year-to-date and 57% in the last 12 months. Revenue growth, which decelerated from 62% in 2014 to 45% in 2015, is expected to substantially taper off to 25% in 2016.
So, given its predicament, and the fact that analysts think YELP stock will have negative earnings per share for the next two years, what’s the company to do?
Can Gimmicky TV Shows Help Yelp Stock?
Yelp seems to genuinely believe that it can help make its own luck by putting out a gimmicky one-off food show called “12 Hungry Yelpers.”
The unfortunately named show will air on Food Network, a property of E. W. Scripps Co (SSP), and is a partnership between the two companies, according to Eater.com. Little is known about the program, but it’ll be hosted by a former MasterChef finalist and will feature restaurateurs using eccentric Yelp reviews to improve their business.
For shareholders’ sake, I really hope Yelp isn’t spending much money on this. Buying what amounts to essentially a 30-minute-long poorly disguised commercial is an extremely questionable decision given the aforementioned profitability issues. Naming that promotion-poorly-disguised-as-show after the classic 1957 film 12 Angry Men, when Yelp has had major issues with angry and allegedly unfair reviews of its own, is frankly stupid.
For years Yelp’s image has also been plagued by businesses who claim Yelp is a modern-day professional extortionist, offering to suppress negative reviews if the business agreed to advertise on Yelp. YELP stock certainly won’t benefit if that concept continues to resonate with businesses.
Putting Yelp’s longtime challenges and the upcoming cheesy TV show aside, Yelp, to its credit, is rolling out a cool new feature on its site that should make it more useful for consumers.
Specifically, Yelp is putting up health inspection grades alongside restaurant reviews, helping potential customers gauge the cleanliness and sanitary quality of a place before they decide to go or order. That’s great, and I think it’s a smart feature, but there’s only one problem: It isn’t a site-wide feature.
The health inspection grades are going online in San Diego, and according to the San Diego Union-Tribune, are also visible in “a dozen more cities and counties,” though the only ones mentioned in the article are in California.
While Yelp is “hopeful” it’ll expand this feature across the country, it has been a while since inspection grades were first featured on its site in 2013.
YELP Needs Help, Doc
All said — there’s simply no reason to buy YELP stock today. Its high-growth days are behind it, and the only thing it has proven recently is that it’s great at losing money.
While posting restaurant health grades on the site is a good idea, it has proven unwilling or unable to expand that program beyond a handful of markets since 2013. Is Yelp afraid of compromising ad revenue at the expense of a better user experience?
Lastly, its laughable foray into TV programming with “12 Hungry Yelpers” smacks of desperation, and I’m extremely skeptical it’ll result in anything other than a total waste of resources for Yelp.
Rating: One Star.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
