Can Yelp Continue To Grow?

Yelp stock (NYSE: YELP), an online site for discovering local businesses ranging from bars, restaurants, and cafes, to hairdressers, spas, and gas stations, became vulnerable during the pandemic as there was less of a need for Yelp’s platform. Consequently, the company’s stock lagged through much of 2020. However, Yelp’s stock is now up 16% year-to-date (in 2021) and currently stands at around $38. While Yelp’s stock benefited from the surprise profit in its fourth-quarter release, we believe that the company’s stock could likely see a downside in the near term.

This is taking into account Yelp’s revenues which declined 14% year-over-year (y-o-y) in fiscal 2020. It should also be noted that Yelp’s revenue growth has been decelerating since 2013. Even in 2019, annual growth slowed to 8% as compared to 11% y-o-y in 2018 – pointing toward a weak business model. By the look of things, enterprises started shifting away from Yelp as a lead generator – even before the pandemic hit the company. Our dashboard, ‘What Factors Drove 9% Growth in Yelp Stock Between 2018 And Now?‘ provides the key numbers behind our thinking, and we explain more below.

Yelp stock declined 7% from $35 in fiscal 2018 to around $33 in fiscal 2020, with much of this decline coming from the pandemic driven declines in all its business spaces including internet advertising, restaurant businesses, and small local businesses. During this period, Yelp’s revenues declined 7% from $943 million in FY2018 to $873 million in FY2020, and the shares outstanding declined 13%. Taken together, revenue per share grew by 6% from around $11.24 in FY2018 to $11.96 in FY2020.

Finally, Yelp’s stock declined largely due to the market assigning a lower P/S value – which contracted from around 3.1x in 2018 to about 2.7x in 2020. While the company’s P/S has increased again to about 3.2x now, there is a downside risk when the P/S multiple is compared to the level of previous years.

How Is Coronavirus Impacting Yelp Stock?

Yelp’s performance during 2020 was directly associated with the severity of the pandemic and with the resultant restrictions placed on businesses. In Q4 2020, the company’s revenue was down 13% y-o-y to about $233 million, although revenues improved 5% quarter-over-quarter from Q3 2020. It should also be noted that a one-time tax benefit led to a 23% y-o-y growth in its net income to $21 million. While the company does not expect traffic to return to pre-pandemic levels in the near future, it is still hoping for a gradual recovery as consumers are vaccinated. It is aiming to achieve mid-teens percentage annual revenue growth in 2022, as well as an adjusted EBITDA margin exceeding 20%.

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