Yelp stock plummeted after last night’s earnings report, and analysts from multiple firms cut their price targets or even downgraded it, and then there’s Goldman Sachs. The firm’s analysts feel that the reaction to last night’s earnings report was greatly overdone and thus see a buying opportunity in Yelp stock now, but it doesn’t look like many investors are really going for it.
Yelp cuts guidance
Yelp stock tanked by as much as 28%, although it did hit bounce finally. The shares are down by 19.06% at $28.06 as closing bell on Wednesday nears.
The online review firm posted $197 million in revenue and adjusted EBTIDA of $29 million, compared to the consensus estimates of $198 million in revenue and $27 million in adjusted EBITDA. What really caused investors to unload Yelp stock was the weak guidance. Management cut their revenue outlook to between $859 million and $865 million from $880 million to $900 million previously. Their EBITDA outlook was revised down to between $130 million and $145 million from the previous outlook of $150 million to $165 million. The reduced guidance was the result of advertiser churn during the first quarter.
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Goldman upgrades Yelp stock to Buy
Goldman Sachs analyst Heath Terry upgraded Yelp stock from Neutral to Buy, although he cut his price target from $42 to $34 per share. He feels the sell-off was overdone because he believes any advertiser churn that occurred during the first quarter is now fully reflected. As such, he sees room for upside to revised estimates, especially if the company is able to build on the user growth it observed during the first quarter.
He noted that Yelp reported a 9.1% increase in desktop unique visitors, marking the first positive year over year growth since the third quarter of 2014. Meanwhile, mobile web uniques accelerated to a 6.8% increase from the 0.8% decline in the fourth quarter and consistent sequential growth deceleration over the last three years. Terry believes Yelp benefited from algorithm changes made by Google.
Raymond James analysts already had Yelp stock rated at Outperform, but they cut their price target from $47 to $37. Like Goldman, Deutsche Bank analysts feel that the selloff was overdone, so they reiterated their Buy rating but slashed their price target from $52 to $36.
MKM downgrades Yelp stock to Neutral
MKM Partners analyst downgraded Yelp stock from Buy to Neutral and slashed his price target from $48 to $27 per share following last night’s earnings report. He notes that customer churn is a key part of the bear case and expects investors to remain skeptical until the company has established a consistent pattern demonstrating that the problems have been addressed, as management says they have.
He expected investors to overdo the sell-off on Yelp stock and noted that at the time of the last “conviction challenge” in February 2016, Yelp stock touched a multiple of 1.3 times sales for about three days before moving to a multiple of 1.6 times for two weeks and then moving higher. He said at the midpoint of management’s revised guidance, 1.6 times sales implies a trough of about $24 per share for Yelp stock.
Other price target cuts for Yelp stock
Also following last night’s earnings report, Stifel analysts cut their price target on Yelp stock from $40 to $32 and reiterated their Hold rating. Wedbush slashed its target from $37 to $29, while Cantor Fitzgerald analysts cut their target from $46 to $39 and maintained their Overweight rating.