Yelp Downgraded At Deutsche Bank; Firm Sees Competition, Google Dependency, Higher Churn As Risks Going Forward

In a report published Tuesday, Deutsche Bank analyst Lloyd Walmsley downgraded the rating on

from Buy to Hold, while reducing the price target from $56 to $31. Analyst Lloyd Walmsley pointed out that while Yelp was a leader in local vertical search and although mobile continued to be "a bright spot," the company's performance lagged in terms of S&M leverage and the number of advertisers. "Local online advertising has turned out to be harder to monetize that we anticipated. We think this is fixable but could require a shift in strategy, a heavy investment in ad product and/or cooperation with / ownership by a scale player," Walmsley added. In the report Deutsche Bank noted, "Yelp has seen what appears to be deteriorating salesforce productivity and/or rising churn over the past several quarters, with limited growth in net new Local Advertising Accounts (LAA)." The company's failure to restructure its salesforce in 1Q15 and the absence of any strategic alternatives remained areas of concern. Yelp's deteriorating operating metrics and the company backing out of a sale option raise concerns about the company's performance in the future, the report said. Moreover, the company has also not been able to expand its international traffic and revenues. Potential risks to Yelp's future performance include increased competition, high dependency on Google for traffic, higher churn local SMB rates and failure to ramp transactional business, Walmsley stated.