Yelp: Can It Recover?

After almost a 51% decline in the online review platform Yelp’s (NYSE: YELP) stock since the beginning of this year, at the current price of $17 per share, we believe that Yelp’s stock is likely oversold and it has potential upside. The key is Yelp stock is still 51% lower than it was at the beginning of 2019,  and also 60% lower than it was at the start of 2018, a little over 2 years ago. Our dashboard Why Yelp Stock Moved 60% Between 2017 and Now? provides the key numbers behind our thinking, and we explain more below.

Much of the stock action was justified by a 78% decline in net income between 2017 and 2019, which translated into much lower (-71%) earnings per share.  Yelp’s revenues grew by 19% between 2017 and 2019, which helped to partially counterbalance the declining EPS.

In addition, Yelp’s P/E ratio grew from about 22x at the end of 2017 to 63x at the end of 2019. Yelp’s P/E is down to about 31x now, given the volatility of the current situation. However, we believe there is significant upside potential for Yelp’s multiple when compared to levels seen in the recent past.

How Is Coronavirus Impacting Yelp’s Stock?

Yelp’s business has been negatively impacted as a large number of local businesses and restaurants are struggling due to the pandemic. Between January 31st and March 31st, Yelp stock has lost 48% of its value (vs. about a 23% decline in the S&P 500). A bulk of the decline came after March 6th, when an increasing number of Coronavirus cases outside China fueled concerns of a global economic slowdown. Yelp derives a majority of its revenues from the U.S. which has become the new epicenter of the coronavirus outbreak, with the country recording the largest numbers of COVID-19 cases across the globe.

We believe Yelp’s Q1 results in May will confirm the hit to its revenue. It is also likely to accompany a lower Q2 as well as 2020 guidance. However, if there are signs of abatement of the crisis by the time Q1 results are announced, the company’s stock could see a modest upturn. Going by historical trends, we believe that the company’s stock could offer a potential upside return after the crisis.

Our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.

Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a more complete macro picture and complements our analyses of Coronavirus impact on diverse set companies. The complete set of coronavirus impact and timing analyses is available here.

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