Topic: Yelp Adapted to the Pandemic

Yelp Adapted to the Pandemic



The widespread shutdown of indoor dining has weighed heavily on the online recommendation service. Yelp shares have lost 20% of their value this year, trading at a recent $26.53 and underperforming the Nasdaq Composite index by more than 60 percentage points.To get more yelp news, you can visit shine news official website.

Yet changes in its business model, combined with hopes for a reopening of the economy as Covid-19 vaccines arrive, give reason to think that Yelp (ticker: YELP) can reach for the stars.

Yelp is trading for a modest two times estimated forward sales, well below TripAdvisor (TRIP) at 3.5 times and Booking Holdings (BKNG) at eight times. And really, the stock is even cheaper: Yelp ended September with almost $600 million in cash. That’s close to 30% of its market cap of just $2 billion. The company has also vowed to buy back stock in the current quarter.Maybe you turn to Yelp for dining recommendations. But restaurants account for only a tenth of its revenue. Almost half comes from its home and local services segment: plumbers, gardeners, electricians, and the like.

Stuck at home during the pandemic, consumers began sprucing up their nests. Home and local service revenue rose 20% sequentially in the September quarter, growing in the mid-single digits from the same quarter a year ago. Yelp had a sequential increase of 130,000—almost 35%—in paying businesses. Searches increased 40% from the June quarter.
For years, Yelp relied on a big sales team to peddle ads to mom-and-pop businesses. Now, the model is shifting. Yelp has rolled out a self-service system that businesses can use to buy ads without salespeople. And it’s selling ads to businesses with multiple locations, including national chains.

The company monetizes only about 20% of the leads it generates in home services, CEO Jeremy Stoppelman, who co-founded Yelp in 2004, tells Barron’s. It is taking steps to increase that total. Yelp has added new lead-generation tools for contractors, including Request-a-Quote for seeking bids for home projects.

It has been a long climb back from this past spring, when Stoppelman says he worried that the pandemic threatened the company’s viability. “By mid-March, there was a massive slowdown,” he says. “Our ad revenue took a significant hit. Everyone was scrambling to survive. We had to reconfigure the business.”

In April, Yelp laid off 1,000 people and furloughed 1,100 more, reducing its workforce by more than a third while cutting salaries and work hours for the rest. The company grew March-quarter revenue 6%, but conditions unraveled in the June quarter as the virus spread. Revenue in the period fell 32% from the prior year, with a similar decline versus the March quarter. Yelp lost almost $24 million in the quarter.

“It was a very difficult chapter in Yelp’s history,” Stoppelman says. “It isn’t easy to say goodbye to people who are doing a perfectly good job. I went through 2008 as CEO of Yelp—we were pre-IPO—riding off venture capital rather than profitability and not expecting to make any money. It slowed us down, and we stopped hiring, but we didn’t lay people off.”After a difficult spring, conditions improved. “Things reconfigured,” he says. “By summer, we started seeing a recovery. Virus cases took a dive. Business activity started to pick up. In the initial fog of war, everything was bad. But we began to see a lot of demand for home services, with so many people spending so much time at home.”

In August, many restaurants reopened as Covid-19 cases fell, and Yelp’s business rebounded. The company brought back almost all of the furloughed staff and reversed salary cuts.

In the September quarter, revenue was down 16% from a year ago, but up 31% from the June quarter, crushing Wall Street estimates by almost $20 million. As restrictions eased, restaurant ad revenue doubled in the third quarter from the second quarter.

Those numbers prompted Shweta Khajuria, an analyst with RBC Capital Markets, to raise her rating on Yelp stock to Buy from Hold. The numbers, she says, show a company on the mend—and benefiting from adjustments to its business model. She has a $34 price target on the stock, about 33% above the current level. If those changes continue to pay off, the stock could head north of $40 for the first time since 2018.

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