Yelp drops 6.7% on NYSE after Q1 net loss of $9.8M

While Yelp bested revenue estimates by just over $2M, investors are luke-warm on Q1 report

Shares of Yelp were down more than 6% at $21.60 in early trading this morning. Despite the fact that the online business reviews company beat Wall Street revenue estimates, the company is seeing negative trading.

The company saw a fair bit of activity yesterday as it bumped up more than 4% during trading prior to the Q! report, but analysts remain ho-hum on the stock as it sits close to the concensus $24 target area.

Citigroup analyst Mark Mahaney maintained a neutral rating, saying: “We like Yelp’s market opportunity, strong user metrics, and value prop. However, Yelp’s not profitable, faces Google risk, and unknown international revenue.”

Yelp (NYSE: YELP) reported late Wednesday a first-quarter net loss of $9.8 million, or 31 cents per share, triple the $2.7 million loss from the same period a year ago and in line with exepectations. Sales in the first three months grew 66% to $27.4 million, slightly beating analysts' forecasts of $25 million.

Yelp closed the day on the NYSE up 2.6% to $23.16, as investors anticipated some good news. But in after-hours trading, shares have been relatively flat.

The company also offered an improved outlook for both the current quarter and all of 2012. Yelp projects sales of about $30 million in the second quarter and about $130 million for all of 2012, higher than analysts' estimates of $124 million. Analyst also expect Yelp to generate $177 million in revenue for next year.

For the full year in 2011, Yelp had a net loss of $16.7 million on sales of $83.3 million. In 2010, Yelp lost $9.6 million on $47.7 million in revenue.

Like in its initial IPO filing, Yelp broke down how its revenue is split between local and brand advertising. The company said it brought in $21.4 million in local advertising, $4 million in brand advertising revenue and $1.9 million in other services.

In a note released earlier this week, Mahaney stated that more than 60 million local businesses worldwide spend more than $200 billion on marketing and Yelp has “the leading position in local reviews” and a “compelling value proposition.”

Mahaney, however, kept a price target of $28, citing competition from the likes of Yahoo and Local.com as Yelp continues to struggle in proving its mobile monetization abilities. 

Since the company was founded eight years ago, Yelp has yet to report a profitable quarter -- and this quarter was certainly no different.

Analyst Youssef Squali, from Jefferies & Co., initiated coverage with a hold rating and a price target of $23.

"Given a high organic traffic rate, minimal content creation costs, high customer repeat rate, a centralized sales force and low capex, we expect Yelp to prove highly profitable over time," Squali wrote in a research note prior to the report.

Both Mahaney and Squali believe that Yelp's business model is very scalable over time and should be able to capitalize on international users, which now accounts for a mere 10% of traffic.

On-boarding new accounts spells good news

The eight-year-old public company that has built up a database of more than 28 million reviews of restaurants other businesses experienced 71 million unique visitors each month.

And the average monthly unique visitors grew 53% to 71.4 million. Also the number of active local business accounts grew 117% to 27,300.

Since Yelp has been looking to focus more on localized deals and advertisement, this is clearly a step in the right direction.

Also Yelp has been eyeing overseas expansions for the past year. The San Francisco company was telling investors over the last few months that it was working on improving its reach through North America, Western Europe and Australia. Over the last quarter, Yelp launched in 11 new locations including Antwerp, Sydney and Brussels, for a total of 82 active markets.

"Our initial public offering added $114 million to our balance sheet, adding strength to our financial foundation as we look to continue investing in our rapid growth and increase the value we deliver to our communities and local businesses," added Rob Krolik, Yelp's chief financial officer. "The number of active business accounts has more than doubled year over year, and we have seen engagement from local business owners increase proportionally as they realize the positive economic impact that results when business owners have a constructive dialogue with their customers."

Mobile

Yelp's mobile apps were used on approximately 6.3 million unique mobile devices on a monthly average during the last quarter and their development team released a total of nine updates for Yelp's iPhone and Android apps in the first quarter. 

The company stated in its report that it believes these enhancements to the user experience will encourage more local businesses to sign on and see the value in being early found by patrons nearby.

Mercedes, BMW and Lexus have also signed on to integrate Yelp into their in-vehicle systems to create an even more seamless connectivity for users on the go.

Investors and the company still seem assured that Yelp is in a growth mode with continued promise that mobile is where the company will continue to push its focus.

“From a monetization standpoint, we think mobile is better than what we have on the web,” said Yelp chief executive Jeremy Stoppelman on an earnings call.