Yelp Inc (ticker: YELP) shares sank more than 20 percent on Wednesday morning after the company made large cuts to its full-year earnings and revenue guidance. While yet another guidance cut is certainly cause for concern, Yelp is still growing at an impressive rate and remains a compelling long-term investment option.
The market was clearly disappointed by Yelp’s guidance cut, but its first-quarter numbers were mostly in line with analyst expectations. Yelp reported first-quarter non-GAAP earnings per share of 19 cents on revenue of $197.3 million. Analysts were expecting an EPS loss of 8 cents on revenue of $198.6 million.
“While we are lowering our revenue … outlook for the year, sales productivity has rebounded, transactions revenue has accelerated and we’ve seen promising results from our newly expanded retention efforts, giving us confidence in our ability to grow and scale in 2017 and beyond,” CFO Lanny Baker says.
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Despite the slight revenue miss in in the quarter, total revenue was up 24 percent from the same quarter a year ago, with both advertising revenue and transaction revenue eclipsing the 20 percent growth mark.
Credit Suisse analyst Paul Bieber says shareholders have a right to be frustrated, but the damage has likely already been done to the stock following the post-earnings selloff.
“Yelp indicated advertiser retention improved toward the end [of] Q1 and into Q2, but Q1 results are the second consecutive guide-down and investors are likely frustrated with the lack of visibility,” Bieber says.
He expects Yelp stock to be range-bound until the company can string together several consecutive quarters of positive results.
“Despite the setback, we view this as a buying opportunity given Yelp’s exclusive focus on the substantial local advertising opportunity, incremental revenue growth from still-nascent national and self-serve channels and transactions, organic scale and network effect, and attractive valuation relative to [long-term] growth/profitability potential,” Cantor Fitzgerald analyst Kip Paulson says.
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Following the guidance adjustment, Credit Suisse cut its price target for Yelp stock from $49 to $30, while Cantor Fitzgerald cut its price target from $46 to $39. However, Credit Suisse maintains an “outperform” rating and Cantor Fitzgerald maintains an “overweight” rating based on Yelp’s long-term growth potential.
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Another Guidance Cut Sends Yelp Inc Stock Down originally appeared on usnews.com
