Sell Yelp On Valuation And Amazon Competition, Roth Analyst Warns

• Yelp Inc YELP shares have been volatile over the last six months, and have lost 35 percent since July 13.
• Roth Capital Partners’ Darren Aftahi maintained a Sell rating for the company, with a price target of $17.50.
• Amazon’s expansion of its restaurant delivery service through 2016 adds to the concerns surrounding Yelp, Aftahi stated.

Channel checks indicate that through 2016, Amazon.com, Inc. AMZN could roll out its restaurant delivery service “to most or all markets” where Amazon Prime Now is currently available, analyst Darren Aftahi said. He added that although this service may not kill Eat24, it does “add to our growing list of competitive and fundamental concerns” for Yelp.

Amazon’s larger user base could be a significant headwind for Eat24. Aftahi mentioned that an analysis of the venue overlap suggested that Amazon’s restaurant delivery overlapped with other services at around 20-30 percent, on average.

“Collectively, this adds to our overall concerns for YELP beyond slowing user and local advertising growth, and competition for local. Eat24 represented ~8% of YELP’s total revenue in 3Q15,” Aftahi wrote.

Yelp’s shares are currently trading at a significant premium to its peers, which the analyst believes is unwarranted, citing the increasing competitive landscape, reduced levels of operating leverage in its model, and lack of profitability.