Yelp (NYSE: YELP) stock price has gone nowhere since 2015 as concerns about its growth and role in the tech industry has remained. In this period, it has remained inside the range of $14.17 and $52 while popular indices like the S&P 500 and Nasdaq 100 indices have soared to a record high. It remains 66% below its highest point on record.
Struggling for relevance
Started over 20 years ago, Yelp is one of the top survivors of the dot com bubble burst. Its goal has been to improve local businesses by ensuring that users leave reviews and ratings after using their services.
Over the years, the website has accumulated over 287 million reviews and ratings, making it one of the top players in the industry. It also has over 7.1 million local businesses in its ecosystem.
However, it has come under intense pressure in the past few years as competition in the sector has grown. Most people today leave their feedback in platforms like Google, Facebook, Amazon, and even X, formerly known as Twitter.
As a result, Yelp’s revenue has grown, albeit at a slower pace in the past few years. Its annual revenue has risen from about $872 million in 2020 ro over $1.2 billion in the last financial year.
Yelp makes its money in various ways, including advertising and transactions. Local businesses have an incentive to keep advertising on Yelp because it is still a large brand in the US. Most of the businesses in its ecosystem, with restaurants and retail accounting for about 40% of its revenue.
Data by SimilarWeb shows that Yelp had over 148 million visitors in August, down by 1.69% from the previous month. Most of these visitors, or about 78%, came from organic search, especially Google.
Yelp’s financial results
Yelp’s business has been growing, albeit gradually in the past few years. Its annual revenue stood at over $1.33 billion in 2023 and $1.37 billion in the trailing twelve months (TTM).
However, its profits have remained quite small over the years. After making a net loss of $19.4 million in 2020, its annual profit has recovered to $99.2 million in 2023 and $137 million in the trailing twelve months.
The most recent financial results showed that Yelp’s revenue rose by 6% in the last quarter to over $357 million. Its net income jumped by 158% to $38 million while its adjusted EBITDA came in at $91 million.
The management hopes that its full-year business will continue doing well, with its full-year revenue expected to come in at between $1.41 billion and $1..4 billion.
Yelp also has a solid balance sheet, with over $392 million in cash and short-term investments and almost no debt. Its short-term debt and capital leases are less than $70 million.
Looking at its valuation, we see that the company has a non-GAAP P/E ratio of 8.39 and 9.67, respectively. Its GAAP multiples are 18 and 20, respectively, which are lower than the industry median.
Analysts are relatively neutral on the Yelp stock price. The average target among analysts is $39.43, higher than the current $34.28, a 20% increase.
Bank of America analysts have an underperform rating while Morgan Stanley has an underweight rating. JPMorgan has a neutral view while Craig-Hallum has a buy rating.
The neutral view is mostly because analysts don’t expect the business to see the double-digit growth metrics they were used to before. It is facing substantial competition from the likes of Google and Facebook and demand for its advertising solutions seems to be waning.
Yelp has also been reducing its costs to grow its profitability. Its sales and marketing spending has dropped from between 51% amd 57% between 2013 and 2018 to about 42%. Its adjusted EBITDA margin is expected to grow from 13% in 2013 to 25% in 2023.
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Yelp stock price analysis
Yelp chart by TradingView
Fundamentally, I believe that Yelp’s business faces substantial challenges in the coming years. However, the company has continued to do well, constantly growing its revenue and profitability.
Turning to the weekly chart, we see that the Yelp share price peaked at $49 earlier this year and has now retreated to below $35. It has slipped below the key support level at $43.85, its highest swing in May 2021.
Most importantly, the stock is about to form a death cross as the 200-week and 50-week moving averages near their crossover. It also lost the key support level at $35.56, its lowest point in February this year.
Therefore, the path of the least resistance for Yelp stock is downwards, with the next point to watch being at $25.32, its lowest swing in 2023 and 26% below the current level.
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