Yelp Inc (NYSE:YELP) already was struggling through 2017, with shares off by about 9%. But things are getting far, far worse following the company’s Q1 earnings report, which saw the company fail to meet already lowered expectations. As a result, YELP stock is off by about 28% in Tuesday’s after-hours trade, hitting lows not seen in about a year.
Management already provided tepid guidance for Yelp earnings earlier in the year, but it looks like it wasn’t negative enough.
Yelp did manage to beat bottom-line expectations, with adjusted earnings of 19 cents per share topping estimates by 4 cents. But that game on a GAAP net loss of $4.8 billion, or 6 cents per share.
Worse, that came amid revenues that were up 24% year-over-year to $197.3 million, which was below Wall Street’s consensus mark of $198 million.
And still worse, guidance was atrocious. Yelp is forecasting full-year revenues in a range of $850 million to $865 million, with even the top line missing analysts’ forecast for a more robust $888.7 million.
Some of the other notable highlights for the YELP earnings report:
- The cumulative reviews increased by 26% to 127 million on a year-over-year basis.
- The number of paying advertiser accounts rose by 17% to 139,000.
- There was a 22% increase in app unique devices to 26 million (on a monthly basis).
- YELP acquired Nowait (an online provider for restaurant reservations) and Turnstyle (a developer of Wi-Fi marketing).
UPDATES: YELP CEO Jeremy Stoppelman tried to sugarcoat things. In the press release, he noted:
“We had a solid first quarter, growing revenue by 24% and accelerating traffic growth across the app, desktop and mobile website. In addition, engagement per unique visitor continues to grow, accelerating on the app where we derive the majority of our activity.”
But all this is ignoring the elephant in the room: the competitive environment.
Yelp’s Many Would-Be Killers
Competitive forces are likely to be accelerated by the recent consolidation moves in the industry. Consider that IAC/InterActiveCorp (NASDAQ:IAC) has agreed to purchase Angie’s List Inc (NASDAQ:ANGI). Not only does IAC have substantial resources — along with strong online marketing chops ––but also owns the successful HomeAdvisor platform.
And if this was not enough, Facebook Inc (NASDAQ:FB) may actually be the most lethal threat. As seen at the F8 conference, the company wants to leverage its Messenger franchise – which has roughly 1.2 billion monthly active users — to get a piece of the local ad market. Facebook’s vice president had this to say:
“When you come to think of it, Messenger has become the de facto Yellow Pages without having any phone numbers. We have a shot of becoming the Yellow Pages of messaging too.”
This should be very scary for holders of YELP stock. Facebook can leverage its user base, which has extensive demographic data, to provide relevant reviews. But there is also a tremendous base of advertising clients as well as tremendous technical resources, such as with AI (Artificial Intelligence). Keep in mind that brands like Subway, Yum! Brands, Inc. (NYSE:YUM) and Domino’s Pizza, Inc. (NYSE:DPZ) have been using Messenger bots successfully, such as for handling customer orders.
It should be no surprise that YELP stock is feeling the pressure. And unfortunately, the company may be just in the beginning phases of a deceleration. If anything, the best play right now might be to do what ANGI has done, and seek out a buyout partner.
Tom Taulli runs the InvestorPlace blog IPO Playbook as well as OptionExercise.com, which provides interactive tools & services for employee stock options of pre/post IPO companies. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.