Yelp Stock’s Down 45%, But Sales up 20%, Why?

by Trefis Team
-6.53%
Downside
24.70
Market
23.09
Trefis
YELP
Yelp
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Yelp’s stock (NYSE: YELP), an online directory for discovering local businesses, has declined around 45% since the end of 2017. But what went wrong for the company to see such a drop in stock price, despite revenue growth of close to 20% over the same period? As it turns out, the company saw a 78% decline in its net income margin over recent years. Also, the investors have revised their expectations for future earnings growth from the company, given the impact of the Covid-19 crisis on the local search and business listing sector. Our dashboard on Yelp’s Revenues And Stock Price Change Mismatch provides the key numbers behind our thinking, and we explain more below.

What Brought About A Change In Margins & Multiple?

The combination of margins dropping substantially from 18.0% to 4.0%, with revenues growing modestly from $850 million to around $1 billion has meant that earnings per share dropped from about $1.87 per share in 2017 to 55 cents a share in 2019. It should be noted that the company’s 2017 net income included a pre-tax gain of $164.8 million on the sale of Eat24. This resulted in cost savings and higher margins for the company in 2017. The contraction in Yelp’s net margins of 5.9% from 2018 to 4.0% in 2019 – was brought about by a higher cost of revenue, which as a percentage of revenue, grew slightly from 6.1% to 6.2% during this period.

In addition, Yelp’s P/E multiple contracted from around 63x in 2019 to about 42x currently. Yelp’s business has been negatively impacted as a large number of local businesses and restaurants are struggling due to the pandemic. In fact, Yelp derives a majority of its revenues from the U.S. which has become the epicenter of the coronavirus outbreak, with the country recording the largest numbers of Covid-19 cases across the globe.

Also See – Yelp Revenues: How Does It Make Money?

In addition, our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.

Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture. Additionally, the complete set of coronavirus impact and timing analyses is available here.

See all Trefis Price Estimates and Download Trefis Data here

What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product, R&D, and Marketing Teams

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