Yelp (NYSE:YELP) released quarterly results and disappointed the market. Admittedly it’s not hard to disappoint the market these days if you are a social media proposition. Management keeps pointing out they are opening up in new markets. Madison Wisconsin being one of them. Well that’s nice but Madison Wisconsin will not create shareholder wealth. Apologies to Madison nothing personal.
They are opening up in markets such as Finland, Norway and Sweden bringing markets up to 90. The rapid market expansion sounds exciting but how do we measure growth in existing markets? How do we measure costs and investment in new markets. global domination is nice but it must be achieved at an acceptable price.
The analysis needs to mimic how retail and restaurants are tracked. Same store sales are critical. Yelp will need to dramatically improve its narrative and explain same markets over one year. There may be more profit in concentrating on key rich markets such as say restaurants in New York and Las Vegas. There may be more profit in attracting specific spend categories which are high margin as say travelling business people.
Local business has a very short hand to mouth where is the cash mentality. Yelp needs to demonstrate how it can deliver new spending clients. A restaurant with an established reputation and difficult to get reservations does not need Yelp. Yelp needs to find a way to drive customers to new customer experiences who still have excess capacity.
Not sure that taking a step back and letting the social media energy just swirl around will benefit Yelp. Yet this is exactly what they are doing. Social Media needs to be harnessed to cash flow. Otherwise why bother? Otherwise why bother buying the stock?
This all makes sense with a 67% revenue growth rate. The 67% masks a lot of hard cold business realities.
George Gutowski writes from a caveat emptor perspective
- Yelp’s Stock Looks Rich But These Drivers Might Support Its Outlook (forbes.com)
- Japadog most reviewed ‘restaurant’ by Canadian Yelpers (blogs.vancouversun.com)