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Can Yelp Stock Bounce Back From Last Week's 20% Drop?

By Rick Munarriz – May 15, 2017 at 9:06AM

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The reviews website operator moves lower after posting unsettling quarterly results and once again offering up weak guidance.

Shares of Yelp (YELP 0.33%) took a beating last week, plunging 19.6% after the company posted mixed financial results. The provider of local venue reviews would go on to offer up disappointing guidance -- again -- resulting in a couple of analyst downgrades.

Yelp is checking in with revenue of $197.3 million, 24% ahead of the prior year. The top-line showing is in the middle of the guidance it provided three months ago, targeting $195 million to $199 million in revenue. However, analysts were holding out for $198.6 million. Things look better on the bottom line, where it posted a loss of $0.06 a share or a profit of $0.19 on an adjusted basis. Wall Street pros were forecasting a deficit of $0.08 a share. 

Mixed results can typically send growth stocks slightly lower, but it's Yelp's outlook that turned a potentially negative day into a disastrous one. The former dot-com darling is initiating guidance of $202 million to $206 million for the current quarter, a lot less than the $215.4 million analysts were modeling. Yelp also lowered its forecast for all of 2017. It's now eyeing adjusted EBITDA of $130 million to $145 million on revenue of $850 million to $865 million this year. Just three months ago Yelp was projecting $150 million to $165 million in adjusted EBITDA on $880 million to $900 million in revenue.  

Yelp's new headquarters.

Image source: Yelp.  

Running out of chances

This isn't the first time Yelp's stock has experienced a double-digit percentage decline after the company offered up uninspiring guidance. We saw this same scenario play out three months ago, when the stock took a nearly 15% hit the week it posted disappointing guidance following its fourth-quarter results.

We've now seen back-to-back reports triggering double-digit percentage dives, and that's not going to turn the investment into a hotbed of bullish analysts. A few Wall Street pros soured on the stock following the soft outlook.

Rob Sanderson at MKM Partners  downgraded the shares from "buy" to "neutral." He thinks it will take several quarters before Yelp has a chance to win back investors and is slashing his price target from $48 to $27. Mark Mahaney at RBC Capital also lowered his rating from "outperform" to "sector perform." He joins Sanderson at a price target of $27, down from $49. Back-to-back quarters of advertising account issues are weighing on his confidence. 

A few analysts rushed to the stock's defense, taking advantage of the sell-off as a buying opportunity. However, even those upgrades were sweet and sour. Heath Terry at Goldman Sachs and Peter Stabler at Wells Fargo upgraded the stock but lowered their price targets.

Growth is slowing at Yelp, and that's not a surprise. Revenue growth has decelerated in nine of the past 10 quarters. This first quarter's 24% showing is the weakest by Yelp in its publicly traded tenure. 

Yelp is still growing, Reviews continue to build, and Yelp has seen a 17% increase in business owners willing to pay to advertise on its site. The pressure will be on in three months for Yelp to live up to its guidance, but it's clear enough people still believe in Yelp as an investment, even after last week's slide.  

Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Yelp. The Motley Fool has a disclosure policy.

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