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Yelp, Inc. May Have an Employee Problem

By Sam Mattera - Mar 8, 2016 at 10:00AM

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Two former employees have taken to Medium to decry the local reviews giant. Investors should care.


Source: yelp.com

Not every Yelp (YELP -0.39%) employee is happy.

The company, whose shares have dramatically under-performed the broader S&P 500 over the past 12 months, has come under fire from two former employees. Writing on Medium, Talia Jane and Jaymee Senigaglia faulted the local reviews giant for poor working conditions.

It's not clear that Yelp has done anything improper. "[There are] two HR sides to every story," wrote CEO Jeremy Stoppleman in response, but the issue raises important questions for investors. Yelp's struggle to grow its workforce has played a key role in its recent underperformance.

Low pay and a hostile environment
In February, Jane penned an open letter to Stoppleman, in which she criticized the company's compensation structure. "Every single one of my coworkers is struggling," she wrote. "I haven't bought groceries since I started this job. Not because I'm lazy...[but] because I can't afford [them]. Bread is a luxury to me."

It may have been possible to write off Jane's criticism as the ramblings of a lone disgruntled worker, but just days later, a second employee came forward. Senigaglia, a single mother, alleged that she was let go in the midst of serious personal trauma. Her boyfriend was involved in a mountain biking accident and suffered a brain bleed. She chose to go to the hospital rather than come into work, and suffered the consequences. "While in the ICU today [I] got a phone call from my manager, director, and HR who said I could either come in now or resign."

"Yelp employs thousands of people and provides new job opportunities to hundreds each year," Yelp said in response. "Unfortunately, we had to part ways with Ms. Senigaglia due to repeated absences (10 of her 59 workdays with Yelp) despite many exceptions to accommodate her needs."

The company garners a 3.5 out of 5 stars on workplace review site Glassdoor, which isn't particularly impressive, but is far from horrific. For comparison, GrubHub and Groupon (two similar firms of near equivalent size) hold a 3.1 and 3.4, respectively.

Failing to hit revenue targets
Still, their criticism is worth noting, as Yelp's ability to expand and retain its workforce is vital for its success. Yelp depends on its salesforce for its revenue, as tens of thousands of local merchants must often be courted individually. Its inability to hit employment targets last year played a key role in its disappointing guidance, which helped fuel the company's sell-off.

Last July, Yelp shares fell more than 16% after the company posted a second-quarter earnings report that featured disappointing guidance. In particular, Yelp's revenue just wasn't growing as fast as analysts had anticipated. According to management, the issue wasn't with the company's business model or the market in general, but rather a salesforce that simply wasn't growing fast enough.

"For the full-year 2015 we are lowering our outlook...Approximately two thirds of our lower expectations for full-year 2015 revenue is due to lower than expected headcount," said CFO Rob Krolik on the company's July earnings call (via Thomson Reuters).

Krolik offered additional color, blaming the company's inability to hire as quickly as needed on broader strength in the San Francisco economy. "With the strength in the tech sector particularly in San Francisco, we have not grown the sales team as quickly as planned," he explained. Jane and Senigaglia's accounts lend credence Krolik's remarks, as both cited the high cost of living in the Bay area as a fundamental aspect of their grievances.

Yelp's management is well aware of its dependency on its workforce, but seems confident that employees view the company favorably. Last month, Stoppleman bragged that 91% of respondents to a companywide engagement survey said they'd recommend Yelp as a great place to work.

Yelp had about 3,800 employees at the end of 2015. Two out of several thousand, then, amounts to a mere rounding error. Still, it's one aspect of Yelp's business investors should be mindful of.

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Stocks Mentioned

Yelp Inc. Stock Quote
Yelp Inc.
YELP
$28.47 (-0.39%) $0.11
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
^GSPC
$3,818.83 (-0.07%) $-2.72
Groupon, Inc. Stock Quote
Groupon, Inc.
GRPN
$11.90 (-10.26%) $-1.36
GrubHub Inc. Stock Quote
GrubHub Inc.
GRUB

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