KEY POINTS
- THESIS REHASH: Despite the big pop in the stock in 2Q17, it's now clearer that story has taken a material turn for the worse since the two factors behind its net account growth are both moving in the wrong direction. First, mgmt commentary on the 2Q17 call confirmed a long-running suspicion of ours that its core salesforce-driven new account growth has started declining on a y/y basis. Second, YELP's new baseline for attrition may have stepped up following its CPC auto-bid algo stunt (price-gouging). Collectively that means declining Ad revenues and/or PAAs is a real possibility; especially since the offsets (Self-Serve & National) are effectively the same business serving the same client. While that may sound like a remote risk, YELP has come pretty close before. At a minimum, consensus Ad revenue estimates for 2018 are a longshot; 2H17 is a reach, particularly 4Q17 (see deck & note below for detail).
- 3Q17 = SMOKE & MIRRORS: There's going to be a lot of noise to this print that we expect to obfuscate the trends in its core business. First, the Eat24 sale is basically a segment divestiture (~95% of Transaction revenues), so YELP is naturally going to cut the top-line guide. However that creates air-cover to bury core weakness/guidance miss on lofty 4Q Ad Revenue estimates (similar how mgmt used the Brand Advertising sunset in 2H15). YELP also has an embedded excuse for light Ad revenues given the heightened hurricane activity late in the quarter. Collectively, that means there may not be much of a short catalyst on either 3Q17 revenues or the 4Q17 guide. Second, Eat24 has been EBITDA negative, so YELP is likely to raise its EBITDA guide. We suspect that could fuel sentiment around the L/T prospects for the Grubhub partnership, even though the primary source of that upside would just be shedding the Eat24 S&M spend that YELP couldn't lever vs. the revenue-share opportunity from the deal.
YELP | In the Crosshairs (Deck & Replay)
9/22/2017
[click here]
YELP | Addressing the Pushback
10/04/17 07:36 AM EDT
[click here]
Let us know if you have any questions or would like to discuss further.
