Please ensure Javascript is enabled for purposes of website accessibility

Why Yelp Stock Got Bitten Today

By Rich Smith - Updated Apr 9, 2020 at 5:42PM

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

An analyst price target cut sliced Yelp's market cap by 9%.

What happened

On a generally "green" day for stock markets, with the S&P 500 rising 1.5% through market close, shares of Yelp (YELP 0.08%) stock ended the day looking redder than most -- down 9%.

You can probably "thank" investment bank R.W. Baird for that.

Glowing red stock-chart arrow trending downward

Image source: Getty Images.

So what

This morning, analysts at Baird announced they were cutting their price target on Yelp shares by 27%, from $30 a share to $22. Granted, even $22 is more money than Yelp shares ended up costing by close of trading Thursday. Regardless, Baird thinks the stock deserves no more than a neutral rating, and not a buy.

Why?

In an email to employees, Yelp CEO Jeremy Stoppelman warned that the company would have to lay off 1,000 employees and furlough 1,100 more, saying these "painful but necessary" layoffs are necessary in light of the ongoing recession and the damage it has done to Yelp's business.

"Interest in restaurants, our most popular category, has dropped 64% since March 10," explained Stoppelman, "and the nightlife category is down 81%. Gyms and similar businesses are down 73%, and salons and other beauty businesses are down 83%." Because "the duration and impact of this [coronavirus crisis] is unknown, but it will have a direct impact on our own revenues," Yelp is having to cut costs to survive.

Now what

Baird estimates that Yelp's page views and search traffic are down about 40% to 45% from pre-coronavirus levels, in line with reductions elsewhere in the advertising industry. Assuming these declines will translate into similarly lower revenue -- and probable operating losses -- Yelp stock simply isn't worth what it was before the crisis.

It's hard to argue with Baird's decision to cut the price target. Investors should just count their lucky stars Baird didn't take the next logical step, and recommend selling Yelp stock outright.

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

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
$38.29 (0.08%) $0.03

*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
377%
 
S&P 500 Returns
123%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/08/2022.

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.