Please ensure Javascript is enabled for purposes of website accessibility

Why Yelp Stock Tumbled Friday

By Daniel Sparks - Nov 9, 2018 at 1:38PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

A shift in the way Yelp does business is weighing on sales. But management believes this headwind is temporary.

What happened

Shares of Yelp (YELP 4.80%) were slammed on Friday. Shares tanked as much as 32.6%. But the stock was down 28.6% as of 12:30 p.m. EST.

The stock's decline followed the company's third-quarter results, which included third-quarter sales and fourth-quarter guidance that were both below consensus analyst estimates.

A chalkboard sketch of a chart showing a stock price moving lower.

Image source: Getty Images.

So what

The business-reviewing platform reported revenue of $241 million. This was up from $223 million in the year-ago quarter, but it was below both management's guidance and analysts' consensus forecast. On average, analysts were expecting revenue of $245 million. 

"While the shift to non-term advertising has opened our sales funnel, it has also made our results more sensitive to short-term operational issues," said Yelp CEO Jeremy Stoppelman in the company's third-quarter earnings release. 

Now what

Stoppelman said Yelp has already begun addressing issues impacting its underwhelming sales growth, but he noted that it's going to take more than a quarter for these changes to be reflected in the company's results. To this end, Yelp lowered its outlook for full-year revenue by $20 million (based on the midpoint of its guidance range) and provided a fourth-quarter revenue guidance below expectations. Management forecast fourth-quarter revenue between $239 million and $243 million. Analysts, on average, were expecting revenue for the period to be $260 million. 

Looking beyond Q4, management believes its shift to "more flexible and dynamic advertising terms" will "greatly increase[s] our long-term sales opportunity and opens up additional levers to expand Yelp's sales reach and profit margins," said Stoppelman.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Yelp Inc. Stock Quote
Yelp Inc.
YELP
$30.33 (4.80%) $1.39

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
321%
 
S&P 500 Returns
111%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/25/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.