Analysts React To Yelp's Q3 Sales Miss, Guidance: Execution Missteps, Anemic Growth

Online restaurant and business review platform Yelp Inc. YELP reported Thursday its third-quarter results, highlighted by a revenue miss and concerning outlook. Here is a summary of how some of the Street's top analysts reacted to the print.

The Analysts

• Wells Fargo's Robert Coolbrith maintains an Overweight rating on Yelp with a price target lowered from $48 to $34.
• Credit Suisse's Stephen Ju maintains at Outperform, price target lowered from $60 to $56.
• JMP Securities' Ronald Josey maintains at Market Perform, no assigned price target.
• UBS' Eric Sheridan maintains at Sell, price target lowered from $39 to $28.
• Aegis Capital's Victor Anthony maintains at Sell, price target lowered from $36 to $29.
• Raymond James' Justin Patterson downgrades from Outperform to Market Perform, no assigned price target (prior price target $52).

Shares of Yelp hit a new 52-week low of $29.33 Friday morning and were down nearly 30 percent at time of publication.

Wells Fargo: Execution 'Missteps'

Yelp's third-quarter miss and concerning fourth-quarter guidance is due to multiple execution "missteps" in the quarter, Coolbrith said in a note. The company hired fewer than expected new sales employees, a now fixed technical issue in the sales lead assignment system and changes to sales promotions.

The quarter did contain a few positive takeaways, including revenue from national and multi-door accounts rising 29 percent and 750,000 local business owners accessed their Yelp Business Owner Accounts on a monthly basis.

Yelp's recent woes could persist for the near term, but management's diversification of its sales efforts is a positive step in the right direction for the long term.

Credit Suisse: 'Anemic' Growth

Despite a poor quarter and concerning guidance, Ju said the bullish case for Yelp's stock remains unchanged. The company's move towards signing up clients with no contract removes any "friction on signups" and creates an opportunity for advertisers to allocate new ad dollars in non-linear fashion.

Nevertheless, the company's outlook implies a "more anemic growth path" for net advertiser additions for the time being and will remain the case until management proves otherwise.

Related Link: Yelp's 'Weakening' Engagement Prompts KeyBanc Downgrade

JMP: Positives And Negatives

Yelp's quarter isn't void of positive developments as the RAQ (request a quote) feature and Home & Local business were encouraging, Josey said in a note. On the other hand, the third quarter marks the first time the company didn't add any net-new paid advertising accounts.

UBS: Back To The 'Show Me Camp'

Yelp's second-quarter earnings report was encouraging as the company managed to "hit all the upside high points," but the third quarter miss puts the stock "squarely back into the show me camp," Sheridan said in a note.

The multiple concerning takeaways, including no paid advertiser growth, higher churn, pressure on revenue per advertiser and a concerning guidance warrants an incremental bearish stance on the stock.

Aegis: Sell Thesis Confirmed

Aegis' bearish thesis on Yelp was based on the premise that the company's shift towards non-term contracts will create near-term volatility, Anthony said in a note. This played out in the third quarter, but Yelp will likely face ongoing challenges in growing the lifetime value of the account base while ARPU could continue falling near-term.

Yelp's management team deserves credit for " telegraphing the potential for volatility in the transition multiple times," Anthony said.

Raymond James Downgrade

The bullish case for Yelp's stock has come to an end, Patterson said in a note:

• Productivity problems were "more magnified" under the new non-term contract model.
• Management's preliminary 2019 guidance requires a stabilization of average revenue per account, which was 9 percent lower in the third quarter.
• Yelp's stock forward EV/EBITDA multiple of 12 to 15 times was warranted when revenue and EBITDA grew at 20 percent and 30 percent but this is no longer the case.

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