Yelp Struggled In Q1; Expect Stock To Be Range Bound Until Company Proves It Can Execute

Commenting on Yelp Inc's YELP first-quarter results, Credit Suisse said the company struggled in the first quarter and that the stock is likely to be range bound until it proves it can execute.

Analysts Paul Beiber and Vikram Kesavabhotla noted the company's first quarter revenues of $197.3 million and EBITDA of $29.3 million compares to the consensus estimates, which called for revenues of $198.4 million and EBITDA of $27.1 million.

Among the other metrics, the analysts noted that advertiser additions totaled 5,200, mobile engagement accelerated, commentary on Request a Quote, or RaQ, was positive and advertiser traction continued.

Additionally, the analysts said, "Yelp indicated advertiser retention improved towards the end 1Q and into 2Q, but 1Q results are the 2nd consecutive guide down and investors are likely frustrated with the lack of visibility."

Lowering Estimates

Yelp issued disappointing second-quarter guidance and lowered its 2017 revenue guidance to $850 million to $865 million from $880 million to $900 million and EBITDA guidance to $130 million to $145 million from $150 million to $165 million.

In the wake of the revised guidance, Credit Suisse lowered its EBITDA estimate for 2017 to $142.8 million from $164 million and for 2018 to $177.3 million from $224.4 million.

The firm also reduced its 2017 revenue estimate to $857.5 million from $888.3 million and 2018 revenue estimate to $1.01 billion from $1.08 billion. The 2017 non-GAAP earnings per share estimate now stands at $0.73, down from $0.85 previously, and the 2018 estimate is lowered to $0.85 from $1.23.

Lowering Price Target

Credit Suisse stuck with its Outperform rating on shares, given that the stock would be sold off in reaction to the results, thus believing the damage is already done.

"We expect the stock to be range bound until Yelp executes for a few quarters, and we expect the focus to shift to RaQ option value in 2H and 2018 and Yelp strategic asset value," the firm added.

Citing the estimate reduction, the firm lowered the price target for the shares to $30 from $41.

At time of writing, Yelp shares slumped 21.73 percent to $27.16.

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