Facebook and Google Can Finish Yelp

Yelp (YELP) has rallied as of late as the company jumped almost 25% in a single trading session after the company released better-than-expected earnings report. Many analysts poured in with price target hikes after the release with further added fuel to the rally. While I was neutral on Yelp before the rally, I think the stock is a definite sell now and here’s why.

Rising Competition

Yelp has been a strong player in the restaurant review space, but the company is now facing escalating inevitable risks from other massive platforms like Facebook and Google.
It is not dubious to say while the company has successfully managed to continuously increase top-line, which is a good thing from a stockholders point of view, but it does not alleviate the fact that Yelp has had to get on a huge expenditure splurge to achieve this deed.

On the other hand, Yelp’s expenditure has beaten its revenue growth by an extensive margin. The company’s shares were under pressure for a long time before the earnings and I expect it to move back towards the $20 mark in the near future. Furthermore, credibility issues are crawling up and subscriber growth is beginning to fade. The prospects for investors may not be as optimistic as the company’s guidance says.

Though the application has backed the company to achieve more traction over the years, a rapid look at its mobile application alongside with a Google search throws light on a serious issue. Yelp is a tangled application that lacks authenticity as well as credibility, whereas Google instantaneously offers users various numbers of supportive starting points like maps, prices, reviews, a direct link to the website, and an option to call the business. Apart from this, it is highly unlikely that Yelp will be successfully able to pull through from another form of rivalry that has infinitely deep pockets.

Keeping in mind the way that Yelp functions, there is significant room for mishandling and manipulation. The company has been blamed of posting fake reviews, escalating the concerns of credibility. While users refer to the internet for supportive feedback, they are progressively going back to word of mouth promotion, where Facebook outplays Yelp.

Conclusion

The big players will probably snatch a considerable portion of Yelp’s market share in the long run. Hence, investors should use the recent rally to get out of the stock. The rally has provided a very good exit point for Yelp longs and I think investors shouldn’t expect more upside and sell the stock.
Published on May 12, 2016
By Akshansh Gandhi

Copyrighted 2016. Content published with author's permission.

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