Bloomberg News

Yelp Falls as Sales Forecast Misses Estimates on Ad Slump

November 02, 2012

Yelp Falls as Sales Forecast Misses Estimates on Brand Ad Slump

Yelp Inc. shares retreated 11 percent to $21.49 at 10:50 a.m. in New York, the biggest decline since May. Photographer: Scott Eells/Bloomberg

Yelp Inc. (YELP:US), a website that lets users review businesses ranging from lounges to locksmiths, posted a record plunge after the company forecast revenue that missed estimates amid slumping ad sales to national retailers.

Fourth-quarter revenue will be $40 million to $40.5 million, San Francisco-based Yelp said yesterday in a statement. That’s less than the analysts’s average estimate of $40.8 million, according to data compiled by Bloomberg.

Chief Financial Officer Robert Krolik said on a conference call yesterday that revenue from display ads, primarly purchased by national brands, would be “flat-to-down” in the current period due to “execution challenges in that part of the business.” Brian Fitzgerald, an analyst at Jefferies & Co., cut his price estimate on Yelp, citing the uncertain timeline for management to revive those sales as one concern.

“Guidance for the fourth quarter was surprising, particularly with branded ads,” Fitzgerald wrote in a research report today. He lowered his target price to $32 from $33. “The timing of the fix is still a hanging issue.”

The shares retreated 15 percent to $20.51 at the close in New York, the biggest decline since the company’s initial public offering in March. The stock pared its gain since the IPO to 37 percent.

Yelp also said that the $50 million purchase of Qype GmbH, Europe’s biggest local review website, wouldn’t contribute to earnings until after next year.

‘Weaker Advertising’

“Weaker national advertising and the negative margin impact of the Qype acquistion” both contributed to the lower- than-expected sales forecast, Jason Helfstein, an analyst at Oppenheimer & Co., wrote in a note to clients today.

Chief Executive Officer Jeremy Stoppelman has expanded Yelp’s user base by pushing into 96 markets worldwide and focusing on advertising from the local companies reviewed on its site, which made up 78 percent of revenue in the latest quarter.

Third-quarter sales rose 63 percent to $36.4 million last quarter, matched estimates as the company benefited from overseas expansion. Yelp had tipped its hand last week, reporting preliminary results that exceeded its prior forecast as it announced the Qype deal.

Qype, which is in 13 countries, has more than 2 million reviews and 15 million unique visitors to its site a month, Yelp said Oct. 24.

Yelp, seeking to capitalize on growth in mobile usage, will start displaying ads on its application for handheld devices in the current quarter, Chief Operating Officer Geoff Donaker said on the call yesterday. Pricing will be similar to what advertisers currently pay, he said.

Mobile App

“Pricing is the same to the end advertiser,” he said. “We expect that to continue when we roll our ads onto the mobile app.”

Yelp’s third-quarter net loss was $2.01 million, or 3 cents a share, compared with a loss of $3.8 million, or 24 cents, a year earlier.

As Yelp expands, its costs are on the rise. Sales and marketing, the company’s largest expense, increased 43 percent to $21.3 million last quarter. Yelp expanded into Helsinki and Singapore in the period.

At the same time, more users are coming to the site and evaluating businesses more often. Reviews increased 49 percent to more than 33 million, while average monthly unique visitors grew 37 percent to about 84 million, Yelp said. The company’s mobile applications were used on 8 million unique devices a month on average.

Apple Inc. (AAPL:US)’s iPhone map application, which was released in September, includes Yelp’s “check-in” feature to let users broadcast their whereabouts to friends. Such partnerships are helping mobile traffic, Stoppelman said on the call.

To contact the reporter on this story: Danielle Kucera in San Francisco at dkucera6@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net


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