Yelp (YELP) Slumps: Will It Bounce Back?

February 13, 2017 - By: Chris Lau


Yelp Selloff Overdone

Yelp (YELP) fell 13.6 percent on February 10 after reporting quarterly results that included a lower forecast for the current quarter. Revenue jumped a respectable 26.7% Y/Y, driven mostly by local revenue growth. The stock’s sudden drop on a slightly reduced outlook appears overdone.

Yelp’s customer transactions grew a healthy 19% Y/Y to $16.6 million. For the year, consumers made over 20 million transactions and bookings. The bad news is that EBITDA guidance is ~15 percent lower than consensus estimates. Yelp ended the year with $127 million in positive cash flow from operations, up from $57 million last year. It has $497 million in cash.

Yelp recovered after a few bad reviewers unfairly targeted legitimately good restaurants. So long as the company continues having users that give fair, honest reviews, usage will grow steadily.

Tepid Outlook

Yelp expects revenue growing 25% in the first quarter. EBITDA of $25 million - $28 million is below consensus. The company still expects downloads for its app growing, thanks to organically-driven reasons. On its conference call, Yelp pointed out Q4 was a seasonal peak, so a slower first quarter is not unusual:

“what we typically see is towards the end of the year there's a seasonal affect, and so earlier in the year's generally where we peak out as far as traffic. And so that's something we've seen virtually every year. “

Takeaway

Bearishness, or short float at 7.71%, is not high. Watch for selling pressure to lighten up before considering Yelp stock.

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