Almost Everyone Is Downgrading Yelp Today


Shares of Yelp Inc YELP plunged more than 25 percent after the company reported its second quarter results that included a full year fiscal 2015 guidance coming in below expectations.

Oppenheimer: Yelp's Competition To Blame

Jason Helfstein of Oppenheimer commented in a note that Yelp's revised guidance reflects "difficulty" in hiring new salespeople, sales productivity, and the discontinuation of brand advertising, all caused by competition from programmatic ad platforms.

Helfstein added the company's guidance suggests a "reduced salesforce productivity" from plus 12 percent year-over-year in the first half of 2015 to plus 5 percent in the bottom half. The analyst also noted that Yelp's plan to spend $10 million a quarter in the bottom half of the year to drive user engagement adds risks to the company's long-term margins.

Related Link: Yelp Crashes On Bad Guidance, Downgrades

Bottom line, Helfstein stated that he believes in the underlying value of Yelp's reviews to consumers. However, until the company can prove S&M leverage in its results, investors will assume 20 percent terminal margins, down from a previous 40 percent.

Shares were downgraded to Perform from Outperform with a removed $60 price target.

Morgan Stanley: The Bear Case Is ‘Playing Out'

Brian Nowak of Morgan Stanley commented in a note that Yelp's second straight quarter of "mis-execution," lower sales hiring and sales productivity, coupled with the "surprising" elimination of the branded ad business and rising sources of margin pressure has resulted in a "more cautious outlook" and evidence that the bear case "playing out."

Nowak said his "more cautious view" is further supported by the simple fact that "fewer sales people + lower productivity = fewer local ad dollars." In fact, the analyst's previous bullish thesis was based on Yelp's ability to continue hiring more local sales people and the company's target of 30 percent growth in hiring is below his 35 percent expectations.

Bottom line, Yelp's elimination of its brand advertising will be a headwind to EBITDA margins while the company's struggles to fill its salesforce creates a "structural challenge" to its long-term sales force productivity.

Shares were downgraded to Equal-Weight from Overweight with a price "significantly reduced" to $25 from a previous $53.

JMP: Stepping To The Sidelines Until Trends Improve

Ronald Josey of JMP Securities commented in a note that Yelp's 83 million reviews and 18 million mobile app users are "highly proprietary" and "not easily replicable." However, the company's decision to exit its high-margin brand advertising business and slower planned hiring for its sales force "alters" the company's growth trajectory and profitability.

Josey continued that investors should move to the sidelines until the company can show improving trends in overall traffic and engagement as well as stabilization across its core local advertising business.

Shares were downgraded to Market Perform from Market Outperform with no assigned price target versus a previous price target of $56 which was assigned on April 30.

Cantor: Expectations Reset, Opportunity Remains ‘Substantial'

Youssef Squali of Cantor Fitzgerald commented in a note that Yelp's opportunity in the local online ad market remains "substantial."

The analyst noted that the number of companies with the scale, brand and network effect to capitalize in the local online ad market is "limited" and Yelp's positioning makes it a "prime beneficiary" as an operator and acquisition target.

Commenting on Yelp's decision to eliminate its brand advertising segment will result in a near-term hit to its top line and profitability, but the decision could actually enhance user engagement and the company's value proposition over the medium and long-term.

Shares remain Buy rated with a price target lowered to $50 from a previous $68.

Related Link: Yelp Could Have Been 'Ridiculous,' Disappointed Instead

SunTrust: Risk/Reward Profile ‘More Favorable Here'

Bob Peck of SunTrust Robinson Humphrey commented in a note that perhaps Yelp's risk-to-reward profile is now "more favorable" with forecasts being "slashed" which allows a better setup to meet or beat moving forward.

Peck pointed out that Yelp's Core Local is still a greater than $400 million run-rate business growing greater than 40 percent into "ever easing comps" while Eat24 is a greater than $35 million run-rate business growing greater than 70 percent. In addition, the analyst suggested that short covering could also "lend support."

Share remain Buy rated with a price target raised to $37 from a previous $52.

Elsewhere On The Street

Analysts at Bank of America downgraded shares to Underperform from Neutral with a price target lowered to $25 from a previous $55.

Analysts at Cowen downgraded shares to Market Perform from Outperform with a price target lowered to $25 from a previous $55.

Analysts at Raymond James downgraded shares to Market Perform from Outperform.

Analysts at Topeka downgraded shares to Hold from Buy.

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Posted In: Analyst ColorTop StoriesAnalyst RatingsTrading IdeasBrian NowakCantor FitzgeraldEat24Jason HelfsteinJMP SecuritiesLocal AdMorgan StanleyOppenheimerRonald JoseySunTrust Robinson HumphreyyelpYoussef Squali
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