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The review app Yelp (NASDAQ: YELP) has seen its stock fall 40% in 2016.
It stock is down more than 80% from its all-time high of $100 in 2014, and is now trading at close to all-time lows.
This is not unlike another social media stock, Twitter (NASDAQ: TWTR), which is down 20% year-to-date and at all-time lows. Both are facing similar issues: Monetizing their large user bases.
Things have fallen apart relatively quickly at Yelp, where it reportedly had interest from buyers when the stock was around $90 a share. The founder and CEO balked, and since then the stock has trended lower and lower.
Yelp has also faced allegations of fake reviews review and is feeling increased competitive pressure from social networks like Facebook (NASDAQ: FB) and Alphabet (NASDAQ: GOOG).
Yelp has found that attracting online ad dollars is proving to be tougher than expected. Facebook, which had a head start on many of the other major players, made it look easy.
Yelp did post solid fourth-quarter earnings last week; the earnings were accidentally released early. The company also expects earnings to jump by over 25% in 2016. However, its CFO is stepping down, suggesting there’s still tension at the management level.
Yelp Help on the Way?
Yelp could become the target of an activist investor in the near future, given the missteps by management. David Einhorn’s Greenlight Capital revealed that it took a new stake in Yelp during the fourth quarter of 2015. The fund now owns 0.5% of Yelp.
Another well-known hedge fund also owns a sizable stake in Yelp. Eminence Capital owns just under 5% of the company. Recall that Eminence has acted as an activist investor in the past, pushing Jos. A Bank and Men’s Wearhouse (NYSE: MW) to merge in 2014.
Yelp not only has to compete for ad dollars with companies like Facebook, it also has to compete with other restaurant-related companies. This includes delivery startups that are offering their own review systems.
A change in Google’s search algorithm has hurt search traffic for Yelp as well.
But is all this bad news baked in? There’s value somewhere in its user base. With 140 million monthly unique visitors, it’s just a matter of figuring out how to better monetize them. Then there is also the prospect of a buyout.
Yelp was said to be shopping itself last year, but turned away buyers. The user base and its mobile app are certainly appealing to a company in, or looking to get into, the food-related business – whether it is in delivery, ordering or review-oriented business.
The other aspect, which makes Yelp interesting for a data focused company like Google, is the amount of data and info on local companies that Yelp has. It also already has a large sales force in place with some insight on how to sell in the local web ad market.
With a market cap of around $1 billion, it’s easily digestible for a number of companies. But is it too small for a company like Google? It appears that no company is too small when it comes to having a lot of local data and having a history of selling in local markets. Just look at the stake that Alibaba (NYSE: BABA) took in local deals company Groupon (NASDAQ: GRPN). Alibaba is a $170 billion company, while Groupon is $2.3 billion; for the right data, no company is too small.
In the end, while Twitter is trading at 5.7 times sales, Yelp is down to 2.4 times sales. Yelp also has a strong balance sheet with no debt and $5 a share in cash. However, Yelp’s large presence in the review business – with nearly 100 million reviews – would likely be better off in a larger player’s hands.
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