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 -1.71%) stock ended the day looking redder than most -- down 9%.
You can probably "thank" investment bank R.W. Baird for that.
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.
