NEW YORK (TheStreet) -- Yelp (YELP) led social media stocks' declines on Monday, dropping 6.7% to $58.20 by late afternoon. Also experiencing losses were Facebook (FB), which fell 3.2% to $44.73, while LinkedIn (LNKD) shed 1.8% to $216.23, and Pandora (P) plunged 4.2% to $28.
Influencing investors' lack of appetite for Yelp was a report from Topeka Capital Markets, suggesting Facebook is cannibalizing Yelp's user review business.
"Facebook is clearly moving in the direction of connecting users to local businesses, an area currently dominated by Yelp," wrote analyst Victor Anthony in the report. "While Yelp's scale in this area is undisputed, with greater than 45 million user reviews, given Facebook's massive user base and millions of local businesses with pages, Facebook could be potentially disruptive."
Yelp has had to contend with the social network in the past. In December last year, the reviews site lost 2.7% after Facebook revamped its "Nearby" search feature. And in January, shares fell 6.9% on Facebook's launch of Graph Search, a feature where users could search for friend-recommended businesses, which CEO Mark Zuckerberg called a third pillar to Facebook.
TheStreet Ratings team rates Yelp Inc as a Sell with a ratings score of D+. The team has this to say about their recommendation:
"We rate Yelp Inc (YELP) a SELL. This is driven by some concerns, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in net income and feeble growth in its earnings per share."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Internet Software & Services industry. The net income has decreased by 15.5% when compared to the same quarter one year ago, dropping from -$2.01 million to -$2.32 million.
- Yelp Inc's earnings per share declined by 33.3% in the most recent quarter compared to the same quarter a year ago. The company has reported a trend of declining earnings per share over the past year. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, Yelp Inc reported poor results of -30 cents a share vs. -15 cents a share in the prior year. This year, the market expects an improvement in earnings (-14 cents vs. -30 cents).
- Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Internet Software & Services industry and the overall market, Yelp Inc's return on equity significantly trails that of both the industry average and the S&P 500.
- The gross profit margin for Yelp Inc is currently very high, coming in at 93.01%. 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 -3.79% significantly underperformed when compared to the industry average.
- Net operating cash flow has significantly increased by 882.30% to $6.99 million when compared to the same quarter last year. In addition, Yelp Inc has also vastly surpassed the industry average cash flow growth rate of 23.77%.
- You can view the full analysis from the report here: YELP Ratings Report