Does Yelp Inc (YELP) Need Help?

Page 1 of 2

I think Yelp Inc (NYSE:YELP) may need some serious help. The San Francisco-based online business review website missed fourth quarter estimates as expenses took at bite out of revenue. Does Yelp need to be taught a few harsh lessons in frugality before it crashes, like so many Internet and social media stocks before it?

A Growing Niche Market

Yelp is a search engine for local businesses, but its key feature is the ability to review businesses for peers across a social network. With integration with GPS technology in smartphones, Yelp can also provide reviews on the go. Yelp’s market is considered a niche market, primarily focused on local online ads — a market that research firm BIA/Kelsey projects to rise from $21.2 billion in 2011 to $38.1 billion in 2016.

Yelp Inc (NYSE:YELP)Some Ugly Numbers

For its fourth quarter, Yelp reported a loss of 8 cents, or $5.32 million, missing estimates by 3 cents per share. Revenue topped estimates, surging 65% to $41.2 million. However, sales and marketing expenses soared 59% to $25.5 million, gobbling up 62% of Yelp’s total revenue.

Those numbers certainly look hazardous to Yelp’s financial health. Let’s review the fundamentals to see how the company is holding up, and how it measures up to another high growth social media commerce stock — Groupon Inc (NASDAQ:GRPN).

Company Forward P/E 5 yr. PEG P/S Ratio P/B Ratio Total Cash Total Debt
Yelp 93.25 60.49 11.68 9.74 $123.8 million None
Groupon 22.50 1.20 1.62 4.43 $1.2 billion None

Source: Yahoo Finance

Despite its recent troubles, Groupon is a better fundamental value, while Yelp’s lopsided fundamentals make it completely overvalued. Surprisingly, Yelp doesn’t shoulder any debt yet, but if its trend of posting losses continues, then this could change next year.

Let’s compare how Yelp’s stock has performed against its social media peers since its market debut last March.


YELP data by YCharts

Surprisingly, Yelp has held up relatively well, near its breakeven point, outperforming high profile social IPOs Zynga Inc (NASDAQ:ZNGA), Groupon and Facebook Inc (NASDAQ:FB).

The Classic Problem

Although comparing Yelp directly to other social media businesses isn’t absolutely fair, since they operate on different business models, they all exhibit the classic problem that their late 20th century Internet startup predecessors faced — soaring revenue being outpaced by out-of-control marketing and expansion expenses.

Crunch these year-on-year numbers for fiscal 2012.

  • Yelp generated $137.6 million in 2012 — a 39.5% increase.
  • Yelp lost $19.1 million in 2012 — a 13% increase.

Let’s see how Yelp has fared in terms of revenue and earnings growth, as well as cash reserves and operating margins.


YELP Revenue TTM data by YCharts

For now, Yelp is still generating revenue faster than it is losing money, but CEO Jeremy Stoppelman recently announced plans to expand into additional markets, which will increase expenses in 2013.

Can Yelp Thrive in Overseas Markets?

Stoppelman introduced Yelp to 26 new cities in 2012, and expanded into Poland and Turkey during the fourth quarter. Yelp is now available in 97 markets and 20 countries worldwide. While that kind of ambition is admirable, Stoppelman also noted that these new locations could take 18 to 36 months to start generating revenue and become earnings accretive.

While Yelp has enjoyed success in the United States, its potential in other markets is questionable. Many wired emerging markets, including China, already have their own restaurant review apps, which are synchronized to online reviews and Google Inc NASDAQ:GOOG) Maps. In addition, Google’s own star-based review system, which operates on the same principle, is also gaining popularity, and integrates more smoothly into Google’s own Android and desktop search systems.

Facebook’s ‘Check-In’ feature, which now allows photos and comments for local businesses, is also a growing threat.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

12 Most Expensive Countries for Foreign Students

Top 30 Most Influential Women in the World

Top 20 Most Expensive New Year Eve Shows

Top 5 Best Vocational Careers

Top 10 Jobs for 2014 by Salary Gain (Predictions)

Top 5 Digital Trends for 2014

Top 6 Things You Can Do To Increase Your Productivity

Top 9 Trending Smartphones in 2013

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!