Yelp Inc (NYSE: YELP) stock fell 31 percent on Friday after the company reported a third-quarter revenue miss and cut its full-year guidance. The market severely punished Yelp stock for the bad report, and analysts say investors should stay away from the stock until the company shows signs that its non-term advertising model is gaining traction.
Yelp reported third-quarter adjusted earnings per share of 17 cents, better than consensus analyst estimates of 10 cents. However, third-quarter revenue of $241.1 million came up short of analyst expectations of $245.4 million. Revenue was up 7.9 percent from a year ago.
Yelp reported 194,000 paying advertiser accounts, up 25 percent.
“Although we achieved our adjusted EBITDA outlook for the third quarter, revenue was lower than we anticipated,” CEO Jeremy Stoppelman says in a statement.
“While the shift to non-term advertising has opened our sales funnel, it has also made our results more sensitive to short-term operational issues.”
Looking ahead, Yelp guided for fourth-quarter revenue of between $239 million and $243 million. Yelp lowered its full-year revenue guidance from a previous range of between $952 million and $967 million to a new range of between $938 million and $942 million. The company also cut full-year adjusted earnings before interest, taxes and amortization guidance from a previous range of between $186 million and $192 million to a new range of between $179 million and $180 million.
UBS analyst Eric Sheridan says the turbulent third quarter suggests a lack of financial clarity for Yelp investors.
“After a period of proving some demonstrable progress against a pivot in Yelp’s business model, its Q3 2018 earnings report put on display some of the downside effects — no paid advertiser growth, implied higher churn, continued pressure on revenue per advertiser and a lowered near-term outlook,” Sheridan says.
Sheridan says the fact that there was no net gain in paid advertisers compared to the second quarter was one of several discouraging parts of Yelp’s report.
“Unlike last quarter which hit all the upside high points in the transition, we think investors now will place YELP squarely back into the ‘show me’ camp,” he says.
UBS has a “sell” rating and $28 price target for Yelp stock.
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