Yelp Inc stock is set to open down by more than 20 percent on Wednesday morning after an earnings report caused Wall Street to reel in revolt. Mark Mahaney at RBC Capital markets was one of the more optimistic Wall Street voices in the wake of the release of the numbers. He says stock is worth $35 as the Unicorn Bubble takes its toll on the firm.
Mr. Mahaney says that stock in the firm is now worth just $36, much less than the $50 target he had on shares ahead of the earnings report. Mahaney isn’t the only Wall Street analyst with reduced faith in Yelp after its report for the three months through June.
Wall Street looks down on Yelp
Yelp Inc simply isn’t looking good on the back of its June quarter earnings. The firm announced that its chairman was leaving, it lowered forecasts, and its only silver lining is in a slow down in hiring growth. Brian Nowak of Morgan Stanley says that his bear thesis is playing out and lowered his price target on the firm from $53 to $25.
Nowak wrote that the churn in employees combined with the hiring slowdown will lead to a “structural challenge” for the sales team at Yelp. He says that “repeated mis-execution on the local business” makes him “incrementally cautious around management’s strategic outlook.” He now rates the firm at Equal-weight, down from Overweight before the earnings report emerged.
Overall seven Wall Street research firms downgraded Yelp this morning on the back of the firm’s earnings report. Shares have now lost more than half of their value since the start of the year, and it’s close to being removed from the “Unicorn” group altogether.
Yelp is a Unicorn
A Unicorn firm is one that gets its hands on more than $1B through private funding. The name, which was first used because of the rarity of that kind of firm, has lost most of its meaning and can now apply to any aspect of a perceived internet stock bubble from the last few years. Yelp is worth $1.8B after today’s crash in value.
Bob Peck of SunTrust reckons that the major hope for the firm’s shareholders is a buyout at around that price. He thinks the firm is an attractive buy at $1.8B, and could lure tech firms to the table. Yelp tried to sell itself earlier this year, but the firm’s CEO Jeremy Stoppelman said he had a change of heart on the deal.
Wall Street didn’t take that at face value, and the idea that Yelp simply couldn’t find a buyer was mooted more than once. With the firm’s Chairman Max Levchin out the door, and the price of stock much lower than it was in the early part of the year, it seems that a buyout could be more likely.
With the trouble in the firm’s sales team compounding, a buyout may be the only hope that longer-term holders of the shares have. Shares haven’t been this low in more than two years.