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Why Yelp Stock Tumbled Friday

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

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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.

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