Did Yelp Burn Too Many Analysts With Advertising Losses?

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Yelp Inc. (NYSE: YELP) has managed to yet again destroy much trust and confidence from investors. This time around, Yelp also has managed to destroy confidence of the Wall Street analysts who cover the online reviews site.

When Yelp revealed its first-quarter 2017 results, the company posted a net loss of $0.06 per share on $197.3 million in revenue. The consensus estimates were −$0.08 per share and $198.1 million in revenue. However, the problem with this quarter was more with guidance. The company said that it expects to see revenue in the range of $202 million to $206 million for the July quarter, while analysts were calling for $215.21 million.

24/7 Wall St. has outlined multiple analyst calls on Yelp, and even the firms that tried to maintain a Buy or Outperform bias had to lower their price targets. As you will see, some of those price targets have been cut more than just a marginal amount.

Credit Suisse maintained its Outperform rating, but the firm slashed its price target to $30 from $49. As a reminder, Credit Suisse’s official ratings are relative to other companies in the sector rather than absolute market-based views. The firm said that Yelp’s advertising customer retention issues drove the weak guidance. It cut its earnings estimates to $0.73 per share from $0.85 for 2017, and the 2018 targets were cut to $0.85 per share from $1.23. That would still value Yelp at 33 times expected 2018 adjusted earnings per share, even after Wednesday’s big price drop in the stock.

Merrill Lynch maintained its Neutral rating, but the firm cut Yelp’s price objective to $35 from $43. The firm pointed to Yelp’s ad-client retention rates as driven by a change in advertiser profile last year when Yelp transitioned from cost per thousand (CPM) to cost per click (CPC) pricing. Still, Merrill Lynch noted:

Management indicated that account retention has improved in March and April, and that sales force productivity has returned to normal. However, impact of lost accounts will impact guidance credibility near-term, and revenue growth for the remainder of 2017.

JPMorgan maintained its Overweight rating but cut its Yelp target price to $37 from $48.

RBC Capital markets cut its rating on Yelp to Sector Perform from Outperform, and the price target was slashed to $27 from $49.

Wedbush Securities maintained its Neutral rating on Yelp but lowered its price target to $29 from $37.

Maxim Group maintained its Buy rating, but the firm lowered its target price to $41 from $45.

Other analyst target changes were seen as follows:

  • Cowen lowered its target price to $33 from $39.
  • Raymond James lowered its target price to $37 from $47.
  • UBS lowered its price target from $32 to $28.

There was at least one analyst that decided enough was enough on the negativity here. Wells Fargo actually upgraded Yelp — but only to Market Perform from Underperform.

Yelp shares were down 2.8% at $34.70 ahead of earnings, but they were down almost 25% at $26.10 after earnings in the premarket. After almost two hours of trading on Wednesday, the stock had recovered up to a “mere” loss of 17% to $28.77. Yelp’s 52-week range is $23.92 to $43.41.