KEY POINTS
- 4Q16 = THAT WAS EARLY: We didn’t see this coming this early but we’re not complaining either. YELP reported inline revenues pretty much across the board but guided light for 1Q17, which took us by surprise (see point 3). The underlying detail behind Local showed a marked deterioration. YELP’s quarterly attrition rate spiked to a two-year high, while new LAA growth (y/y) decelerated by 10 percentage; its sharpest deceleration since 4Q14. Excluding self-serve, it’s pretty much safe to say that salesforce-driven new LAA has started declining on a y/y basis; if not it’s basically a foregone conclusion in 2017. Remember the model is predicated on driving new account growth in excess of its rampant attrition, which we estimate is the overwhelming majority of its accts on an annual basis. So when new accts start declining, the model unravels.
- "TRANSPARENT”? Mgmt threw out some new sound bites to try to steer the story toward something a little more palatable, much of which was focused on backward-looking salesforce productivity metrics that are a gross misrepresentation of the state of business. But more importantly, YELP is once again reclassifying its segments; this time under the guise of transparency. But instead of offering more disclosure, it’s just shifting product lines across segments by lumping the majority of Other revenues into Advertising (previously Local Advertising). If mgmt really wanted to be more “transparent”, it could just disclose its National revenues, which by our estimates is not only larger than its Transaction segment, but may be large enough to technically qualify as its own segment…Thanks Lanny.
- SMELLS LIKE 1Q15: The 1Q guide translates to 24% y/y growth. The full-year guide translates to 25%. Maybe the 1Q guide was sandbagged, but that doesn’t mean the sell-side will get that message. In short, mgmt inadvertently told the sell-side to raise 2H17 estimates, which they appear to be doing so far as of this morning. The funny thing is that 2H17 was the original focal point of our short call given consensus estimates that were already way too lofty. Does anyone remember 1Q15 when YELP guided light for 2Q15 but maintained the FY guide? This is basically the same setup, albeit with better storytelling this time around on the part of mgmt. In short, YELP may be walking into a comparable blowup on the 2Q17 print, if not sooner.
Let us know if you have any questions or would like to discuss in more detail.
