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Why Yelp Stock Plunged Today

By Steve Symington – May 10, 2019 at 12:45PM

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Near-term guidance left investors in the business-review site wanting more.

What happened

Shares of Yelp (YELP -0.76%) were down 13.7% as of 12:30 p.m. EDT Friday after the local business review platform announced strong first-quarter 2019 results but followed with disappointing forward guidance.

On the former, Yelp's quarterly revenue climbed 5.7% year over year, to $235.9 million -- near the high end of guidance for 4% to 6% growth -- helping net income swing to $1.4 million, or $0.02 per share, compared to a loss of $0.03 per share in the same year-ago period.

Welcome/Open sign in window of a shop.

IMAGE SOURCE: GETTY IMAGES.

So what

Within Yelp's top line, advertising revenue climbed 6% to $227 million as the company expanded its ad salesforce and transitioned to selling nonterm ad contracts to local advertisers. Transactions revenue fell 14% to 3% due to Yelp's sale of Eat24 to Grubhub in 2018, and other services revenue grew 8% to $6 million, driven by Yelp Reservations and Waitlist.

"This year, we are focused on a handful of important initiatives including diversifying our go-to-market strategy, delivering new business products, driving greater monetization, and offering more value to clients," elaborated Yelp co-founder and CEO Jeremy Stoppelman. "We believe these efforts will establish a foundation to create long-term shareholder value."

Now what

For the second quarter, however, Yelp expects revenue to increase 4% to 6%, while most analysts were modeling growth slightly above the high end of that range.

But Yelp also reiterated its full-year 2019 outlook for 8% to 10% revenue growth, suggesting that recent improvements in ad clicks and cost-per-click metrics should help drive advertiser retention and spending rates higher in the second half.

For now, however, the market doesn't seem too keen on waiting to see whether Yelp can deliver on its full-year promises. And the stock is pulling back hard in response.

Steve Symington has no position in any of the stocks mentioned. The Motley Fool recommends Yelp. The Motley Fool has a disclosure policy.

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