Shares of Yelp are dropping 2.49% to $32.92 in pre-market trading on Tuesday.
While Yelp is the leading player in local vertical search, in several areas, most notably around S&M leverage and increasing the number of advertisers, Yelp's performance is getting worse, the firm noted.
Local online advertising has turned out to be harder to monetize. This is fixable but could require a shift in strategy, a heavy investment in advertisement product or cooperation with ownership by a scale player, according to the analyst note.
"With press reports noting Yelp has backed away from considering a sale, asset value provides less of a safety net for deteriorating fundamentals," Deutsche Bank analysts said.
Yelp is expected to announce its second quarter earnings results after the market close today.
Separately, TheStreet Ratings team rates YELP INC as a Hold with a ratings score of C-. TheStreet Ratings Team has this to say about their recommendation:
"We rate YELP INC (YELP) a HOLD. The primary factors that have impacted our rating are mixed some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and compelling growth in net income. However, as a counter to these strengths, we find that the stock has had a generally disappointing performance in the past year."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- YELP's very impressive revenue growth greatly exceeded the industry average of 5.4%. Since the same quarter one year prior, revenues leaped by 55.1%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- YELP has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 7.81, which clearly demonstrates the ability to cover short-term cash needs.
- The gross profit margin for YELP INC is currently very high, coming in at 92.58%. Regardless of YELP's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, YELP's net profit margin of -1.08% significantly underperformed when compared to the industry average.
- Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. When compared to other companies in the Internet Software & Services industry and the overall market, YELP INC's return on equity is below that of both the industry average and the S&P 500.
- YELP's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 49.00%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Despite the heavy decline in its share price, this stock is still more expensive (when compared to its current earnings) than most other companies in its industry.
- You can view the full analysis from the report here: YELP Ratings Report