What’s Happening With Yelp’s Stock?

by Trefis Team
-2.13%
Downside
38.83
Market
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Trefis
YELP
Yelp
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Yelp stock (NYSE: YELP), an online site for discovering local businesses ranging from bars, restaurants, and cafes, to hairdressers, spas, and gas stations, became vulnerable during the pandemic as there was less of a need for Yelp’s platform. The company’s stock mostly lagged for much of 2020 due to declines in all its business spaces including internet advertising, restaurant businesses, and small local businesses. While Yelp’s stock grew almost 60% in November due to stronger-than-expected Q3 results and vaccine news, it is still down 5% from last year and currently stands at around $33. And, we believe that it could continue to see further downside in the near term. This is taking into account Yelp’s revenues which have declined 14% year-over-year (y-o-y) in the first three-quarters of fiscal 2020. It should also be noted that Yelp’s revenue growth was decelerating since 2013 – particularly slipping to around 8% annual growth in 2019 from close to 11% y-o-y in 2018. Even before the pandemic hit the company, it seems that enterprises were already shifting away from Yelp as a lead generator – leaning towards a weakness in the company’s business model. Our dashboard,What Factors Drove 22% Decline in Yelp Stock Between 2018 And Now? provides the key numbers behind our thinking, and we explain more below.

A roughly 19% rise in Yelp’s revenues from $847 million in fiscal 2017 to almost $1 billion in fiscal 2019 was driven by growth in the sale of its advertising products. However, the company’s stock declined 17% during this period from around $42 in 2017 to about $35 in 2019, partly due to a 78% decline in its net income margin. The combination of margins dropping substantially from 18.0% to 4.0%, with revenues growing modestly meant that earnings per share dropped from about $1.87 per share in 2017 to 55 cents per share in 2019. The company’s 2017 net income appears higher due to a pre-tax gain of $164.8 million on the sale of Eat24.

Finally, Yelp’s stock declined largely due to the market assigning a lower P/S value – which contracted from around 4.0x in 2017 to about 2.6x in 2019. While the company’s P/S is about 2.4x now, it could decline modestly, given the volatility of the current situation.

How Is Coronavirus Impacting Yelp Stock?

2020 has been a tough year for Yelp. In Q3, the company’s revenue was down 16% y-o-y to about $221 million, although revenues improved 35% quarter-over-quarter from Q2 2020. In addition, the company recorded a net loss of $40.5 million through three quarters of 2020. However, this too is improving as Q3 net loss was just $1 million. Going forward, Yelp’s management is guiding for $220 million to $230 million in revenue in Q4 (the company reported $236 million in Q4 2019).

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