By Chelsey Dulaney
Yelp Inc. shares fell to their lowest level in two years on
Wednesday after the reviews site cut its revenue guidance for the
year, fueling concerns about its ability to grow.
The slash to top-line guidance comes as the online-reviews
company has seen competition heat up--not just for dollars, but for
eyes and talent--as search giant Google Inc. has ramped up its own
listings and visitor growth has slowed. The stock now is worth
about a quarter of its all-time high, reached just last year.
On Tuesday, Yelp delivered a roughly 5% cut to revenue guidance,
forecasting a range of $544 million to $550 million. The company
also said it would cut its branded-advertising product, which has
been struggling as people shift away from traditional digital
display ads to performance-based advertising products.
Shares of Yelp fell as much as 29% in morning trading Wednesday,
erasing more than $700 million from its market value. Recently,
shares were down 28% to $24.13 a share. Yelp's stock peaked at
$101.75 a share in March 2014.
San Francisco-based Yelp, started in 2004 when former PayPal
executives created a website to replace word-of-mouth
recommendations, is seeing its growth slow three years since going
public.
Though the company continues to see more visitors, especially
for its mobile app, the rate of growth has decelerated. It is also
struggling to grow its sales force, while tension between the
company and search giant Google Inc. has intensified. Google has
pushed further into its own listings for restaurants and other
local points of interest, while Yelp executives have complained
that Google has altered its search results, directing users to
Google's own local listings.
Yelp attributed its revenue outlook cut on Tuesday to slower
growth in sales force hiring and the phasing out of brand
advertising, which made up about 6% of revenue in the latest
quarter. Yelp said cutting the disruptive display ads, which can
launch intrusive video or audio and take a long time to load,
should improve the customer experience, especially within the app.
The company now plans to focus on local advertising.
Meanwhile, some analysts were discouraged by Yelp's traffic in
its second quarter.
Traffic growth has been a concern for investors lately, and the
company said in April that it would stop providing total monthly
unique visitors, focusing instead on desktop and mobile monthly
unique visitors.
The company said Tuesday that monthly mobile unique visitors
rose 22% from the prior year, to about 83 million, on a monthly
average basis. Still, that represented a slowdown from the 29%
year-over-year increase in users it posted in the first quarter and
its 37% increase from the fourth quarter.
Local advertising revenue grew 43% to $107.9 million in the
quarter, also a slowdown from the 51% year-over-year growth in the
first quarter and the 60% growth in the fourth quarter.
In a research note, Northland Capital Markets analysts said
decelerating user growth could drive the company to spend more on
marketing. Yelp said on a call with analysts Tuesday that it is
planning to ramp up marketing in the second half of the year,
including through TV ads.
Another challenge: Yelp appears to be losing out in the
ultracompetitive scramble for talent in Silicon Valley. Yelp on
Tuesday cut its expectation for sales head count growth to 30% this
year from 40%.
"Coupled with the strength in the tech sector, particularly in
San Francisco, we have not grown the sales team as quickly as
planned," said Chief Financial Officer Robert Krolik on the Tuesday
call.
Analysts at Cantor Fitzgerald expect the lower head count to
damp revenue growth. But Cantor Fitzgerald still sees opportunity
for Yelp.
"The local online ad opportunity remains substantial and the
number of players with scale, brand and network effect is limited,
in our view, positioning Yelp as a prime beneficiary both as an
operator and an acquisition target," Cantor wrote.
The Wall Street Journal r eported in May that Yelp was exploring
a sale, but amid more recent reports of a stalled sales process, B.
Riley & Co. analyst Sameet Sinha downgraded Yelp, saying the
paused effort put "deteriorating" fundamentals in focus. Mr. Sinha
has said that "fickle" small businesses pose a risk to the
company.
Write to Chelsey Dulaney at Chelsey.Dulaney@wsj.com
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