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Thursday, April 30, 2015

Stock Alerts -Yelp -21.6%; downgrades arrives as Q1 sales blamed on reorg, brand ads- 4/30/15

Yelp -21.6%; downgrades arrives as Q1 sales blamed on reorg, brand ads
  • BofA/Merrill, RBC, Sterne Agee, and Northland have downgraded YELP after the company missed Q1 sales estimates (while beating on EPS) and offered soft Q2/full-year revenue guidance, and several other firms have cut their targets. Shares have tumbled to their lowest levels since mid-2013.
  • "[W]e implemented a territory change within our [ad] sales organization at the beginning of January in an effort to increase our reach to more local businesses. But the change had a negative impact on sales productivity," said CFO Rob Krolik on Yelp's Q1 CC (transcript), discussing the company's local ad performance (sales +51% Y/Y to $98.6M). He insists sales productivity has rebounded since the territory change was reversed in early March.
  • Krolik adds brand ad revenue (-11% Y/Y to $6.6M) was affected by "industry headwinds related to the shift to programmatic advertising and the industry's desire to have advertising products that are disruptive to the consumer experience," and the Yelp has refused to support "disruptive" ad formats. Other revenue rose 254% to $13.3M, with the Eat24 acquisition contributing $5M.
  • Also drawing concern: Yelp's average monthly unique visitors rose only 8% Y/Y to 142M, with a 29% increase in mobile uniques (to 79M) partly offset by a 3% drop in PC uniques (to 80M). International uniques were flat at 31M; Yelp notes Google algorithm changes are still taking a toll.
  • Some bright spots: Local ad accounts rose 43% Y/Y to 90.2K, and cumulative reviews rose 36% to 77M. 40% of local ad sales came from ads sold on a cost-per-click (NYSE:CPC) basis, up from 32% in Q4.
  • During the Q&A, RBC and MKM both pressed Yelp on its full-year sales guidance, which (though below consensus) implies a pickup in revenue growth from expected Q2 levels. Krolik argued improved sales productivity and a shift towards CPC ads will provide a lift. Cowen asked why Q1 adjusted EBITDA ($16.3M) missed guidance of $19M-$21M; Krolik says lower (high-margin) brand ad sales were to blame.

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