Yelp Could Have Been 'Ridiculous,' Disappointed Instead

Minutes before Yelp Inc YELP reported its second quarter results, Sean Udall said the firm could have a "ridiculous" setup.

"Yelp could have a vibrant reaction to the upside," Udall, who serves as the CIO of Quantum Trading Strategies and is the author of The TechStrat Report, told Benzinga. "I would argue there is M&A value in the $45-$50 value. If Yelp says anything moderately well, the stock will probably go up 10-20 percent if it's just an okay quarter. As long as they don't miss or say something horrid, I wouldn't be surprised if Yelp had a big reversal."

Then Yelp announced its second quarter results, which included an EPS of $0.12 versus the Street estimate of $0.01. Revenue came in at $133.9 million, which was slightly above the $133.48 million estimate, providing the company with what appeared to be an impressive quarter.

Unfortunately, the firm guided lower than Wall Street anticipated, which brought the stock down more than 16 percent.

Global Equities Research analyst Trip Chowdhry said this is the kind of company that crashes and burns after going public.

"Euphoria surrounds it, but the industry shifts and the user base shifts," Chowdhry told Benzinga. "The companies that do this business model, which are pretty much predicated on ad dollars, are going to struggle. These companies come, exist and disappear. The cycle of these companies is very short. I think investors are missing that."

Chowdhry compared Yelp to Twitter Inc TWTR, which just reported strong earnings results.

"Twitter came, it rose very fast and then fatigue set in," he said.

Related Link: Yelp M&A Chatter: Good For Buyer, Bad For Small Businesses?

Takeover Target? Not So Fast

Chowdhry said that a "smart company" would not buy a "declining asset company."

"Twitter is a declining asset company and so is Yelp," said Chowdhry. "The market is moving away from both of these companies. I don't think it's prudent for companies to buy them. The problem is, the stock is ahead for the business fundamentals for both Twitter and Yelp. Twitter is not all things to all people. It is only for celebrities and political figures."

Disclosure: At the time of this writing, Louis Bedigian had no position in the equities mentioned in this report.