Tech

Tara Lachapelle is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.

It's snowing on the East Coast, but over in San Francisco, Yelp is the one riding a sled downhill. 

Yelp's Yowl
In one year, the stock has plunged 65 percent, one of the worst returns for an Internet media company.
Source: Bloomberg

Because of a vendor error, Yelp released fourth-quarter earnings a few hours early on Wednesday. And while the results were slightly better than expected and the shares briefly pared losses, Yelp soon resumed its slide. At $16 and change, the stock is no where near the $40-plus it fetched as recently as June, around the time it was fielding takeover offers with help from Goldman Sachs.

It was in July that Yelp's co-founder and CEO Jeremy Stoppelman was said to have pulled a Marissa Mayer and decided against selling the company, which then had a market value of $3 billion, versus $1.2 billion now. Some speculate Stoppelman pumped the brakes because Yelp wasn't receiving enough interest from buyers, or at least not at a price he and the board were willing to accept. (The class B shareholder base -- which includes Stoppelman and other executives -- controlled 59 percent of the voting power as of September.)

With shares now testing the $15 level they debuted at in 2012, pencil Yelp in on the list of tech companies kicking themselves for not getting out when the getting was good. And last year certainly was good: 2015 is regarded as the year of M&A. Transaction prices were up, acquirers' stocks were surging right along with the target companies, and almost every industry joined the party, while bankers poured the champagne glasses. Now, the stock market is mostly red and has dealmakers feeling skittish. 

But as the saying goes, when one door closes, another has an activist investor holding his finger on the doorbell. Yelp is shaping up to be exactly the sort of situation in which a Carl Icahn type could show up, envisioning an opportunity to revive shareholders' fortunes. That's not to say an activist necessarily has some bright idea that Stoppelman, a computer engineer and tech man, hasn't already thought of. (We established last week that activism has become a chicken-or-egg argument lately.) But something's wrong when 20 million mobile devices are accessing the Yelp app each month, the database has 95 million reviews, both figures are growing, and yet the stock has collapsed.

Analysts don't even know what to make of the stock. If you listen to them, it could go lower to $15, or up to $25, or way up to $45. That's about as helpful as those Yelp reviews where there are as many 1 and 2 star-ratings as 5-star ones. How does one make a decision?

The company's struggles are also somewhat akin to those at Twitter, though Yelp's valuation is far lower. That's the kind of disconnect an activist could seek to fix. Yelp already has at least one shareholder that's led an activist campaign elsewhere: Eminence Capital, the hedge fund that pushed for the merger of  Men's Wearhouse and Jos. A. Bank in 2014, still has a 6 percent passive stake in Yelp, which it reported in May of last year. 

Reviewing Yelp
When Priceline bought OpenTable, it paid 18 times the Ebitda analysts estimated OpenTable would generate in 2016. Yelp's current valuation is less than half that, and it skirted a chance for a takeover premium when the stock was much higher than it is now.
Source: Bloomberg

There's also the matter of the chief financial officer position, which Yelp is looking to fill; the company said on Wednesday that Rob Krolik would be departing once a replacement is named. Given Yelp's management transition, relatively low valuation and solid user base, you could see a hedge fund at least running the numbers here. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Tara Lachapelle in New York at tlachapelle@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net