Yelp Smashed By Bad Guidance, Downgrades

Yelp Inc YELP, the local business review specialist, reported quarterly earnings after Tuesday’s close.

The company reported quarterly revenues of $133.9 million, a 51 percent year-over-year increase, and announced earnings of $0.12 per share ($9.4 million). Analysts were projecting revenues of $133.5 million, in-line with what Yelp reported, but expected a much lower earnings per share of $0.01. Yelp’s CEO Jeremy Stoppelman announced that mobile app usage increased 51 percent year-over-year.

So why did the stock tank 26 percent on Wednesday morning? Yelp followed up the strong quarterly results with iffy guidance for the future; For Q3, Yelp expects to rake in $139-$142 million in sales, lower than Wall Street’s expectations of $152.7 million and earnings of $0.04 per share. For the full fiscal year, Yelp visions revenues ranging from $544-$550 million; down from Yelp’s April 1 announcement of a $574-$579 million revenue expectation.

Related Link: Yelp Could Have Been 'Ridiculous,' Disappointed Instead

Yelp CFO Rob Krolik specified that the drop in revenues was mainly due to lower-than-expected growth in the company’s sales headcount, and partially due to the phase-out brand advertising products. Krolik concluded that local advertisement will continue to be the primary growth driver, as the company works to achieve a one billion dollar revenue goal in 2017.

Many Wall Street analysts had something to share about Yelp’s earnings report:

• Bank of America: Downgraded Yelp from Neutral to Underperform alongside a price target from $55 down to $25.
• Morgan Stanley: Downgraded from Overweight to Equal-Weight rating; PT from $53 to $25.
• Credit Suisse: Maintained Outperform; PT lowered from $70 to $44.
• Cowen & Company: Downgraded from Outperform to Market Perform; PT from $55 to $25.
• Raymond James: Downgraded from Outperform to Market Perform.
• SunTrust Robinson Humphrey: Maintained a Buy; PT lowered from $52 to $37.
• Cantor Fitzgerald: Maintained Buy; PT lowered from $68 to $50.
• Brean Capital: Reiterated Buy; PT lowered from $58 to $40.
• JMP Securities: Downgraded from Market Outperform to Market Perform.
• Oppenheimer: Downgraded from Outperform to Perform.
• Topeka Capital: Downgraded from Buy to Hold.

SUMMARY: 7 Downgrade, 3 Maintain and 1 Reiterate Rating Changes. Seven price targets lowered; new price target range of $25-$50.