- CAN'T FIND A BUYER: Last Friday, news broke that YELP's CEO/co-founder isn't looking to sell anymore, but YELP may have interest if an acquirer could help leverage its reviewers toward e-commerce. Translation: YELP couldn't find a buyer, so it's pitching ways to promote its user base in order to drum up interest among potential acquirers. YELP is still very much for sale, but we still don't believe it will find a buyer. Broken Business Model + High Price = Tough Sell; especially if YELP disappoints again on its next print as we expect.
- 2Q15 PRINT WILL BE A DISASTER: We all thought that it was odd that management chose to maintain full-year revenue guidance after missing 1Q results and guiding light for 2Q15. We suspect the reason why was because YELP was shopping itself, and it's much easier to do so when chalking up its recent weakness as temporary. That is going to come back to bite them on this print. YELP will need a massive acceleration in new account growth to hit consensus Local Advertising estimates, particularly in 2H15. We're expecting YELP to miss 2Q Local Advertising estimates, guide light for 3Q15, and cut 2015 guidance.
- THIS ISN'T TEMPORARY: YELP's model is predicated on hiring enough new sales reps in order to drive new account growth in excess of its rampant attrition, which is the overwhelming majority of its customers annually. The issue is that its TAM isn't large enough to support its model. That has manifested into a persistent decline in salesforce productivity, which is now devolving into a mounting exodus of its sales reps (see note below). That last point means that its model is unraveling, and this story is going to get much uglier than we initially expected.
See our most recent note below for supporting detail. Let us know if you have any questions, or would like to discuss further.
Hesham Shaaban, CFA
YELP: The New Major Red Flag (1Q15)
04/30/15 08:53 AM EDT