Why Yelp Inc (YELP) Stock Won’t Escape the Storm Anytime Soon

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For the year so far, Yelp Inc (NYSE:YELP) has not received positive reviews from Wall Street. In fact, YELP stock is off about 13% to $33.22. But might Yelp be a value right now?

Why Yelp Inc (YELP) Stock Won't Escape the Storm Anytime Soon

Yelp earnings — released on Thursday — will give us a clearer picture, but it looks like investors are somewhat enthusiastic despite the YTD loss.

YELP stock has gained about 11% during the past month.

With that in mind, let’s take a look at the expectations for the quarter. The consensus is calling for revenues to come to $204.93 million, up about 18% on a year-over-year basis. Although, the forecast also includes a loss of 3 cents. Keep in mind that — a year ago — the company reported a profit of 16 cents a share.

What to Expect From Yelp Earnings

All in all, the bar has been set fairly low. However, it is important to keep in mind that the Q1 report was downright awful — and could portend further deterioration in YELP stock.

Here’s what happened: While the company beat on the bottom-line, the revenues were another matter. They hit $197.3 million, which was below the Wall Street consensus of $198 million.

But the worst part for YELP stock was the guidance. The company put out a projection for full-year revenues to range from $850 million to $865 million. The consensus, on the other hand, was for a much more robust $888.7 million.

Consider that — back in February — the company had lowered its guidance to $880 million to $900, down from $1 billion.

So why the deceleration? For the most part, Yelp has been struggling in gaining new advertisers, which came to about 4,500 in Q1. Yet as for last year, the company was adding anywhere from 6,600 to 7,400 new accounts.

In other words, it appears that the competition is taking a toll on the company. Some of the rivals have the advantages of leveraging massive footprints, such as with Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) and Priceline Group Inc (NASDAQ:PCLN).

Then there is IAC/InterActiveCorp (NASDAQ:IAC), which has had lots of success with its HomeAdvisor platform. And yes, this will get even stronger with the acquisition of Angie’s List Inc (NASDAQ:ANGI).

Yet perhaps the biggest wildcard is Facebook Inc (NASDAQ:FB). Keep in mind that the company has plans to leverage its Messenger app to provide a review service. Some of the early adopters include operators like Subway, Yum! Brands, Inc. (NYSE:YUM) and Domino’s Pizza, Inc. (NYSE:DPZ). With 1.2 billion users, Messenger could be a big-time threat to Yelp.

Bottom Line on YELP Stock

Now Yelp has been making efforts to diversify its business. To this end, the company has added a variety of new services, such as for reservations, deliveries and even transaction processing for restaurants.

And while all these are synergistic, they still represent a small part of the overall business. For example, during the latest quarter, about 90% of total revenues came from advertising.

Thus, if the competition continues to be a problem and there remain issues with getting new customers, then it will be tough to maintain the growth story for YELP stock. Besides, the valuation is far from cheap, with the forward price-to-earnings multiple at a steep 166X.

Actually, Wall Street analysts are fairly glum as well, with the consensus price target at a 5% to the current value.

So in light of the risks as well as the potential for a deceleration in the growth ramp, it is probably best to avoid YELP stock ahead of the earnings report.

Tom Taulli runs the InvestorPlace blog IPO Playbook and operates PathwayTax.com, which provides year-round tax services. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

Tom Taulli is the author of various books. They include Artificial Intelligence Basics and the Robotic Process Automation Handbook. His upcoming book is called Generative AI: How ChatGPT and other AI Tools Will Revolutionize Business.


Article printed from InvestorPlace Media, https://investorplace.com/2017/08/yelp-inc-yelp-stock-wont-escape/.

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