Yelp Falls Most in a Year After ‘Lackluster’ Revenue Forecast

  • Review site faces competition from Facebook, Google, startups
  • Should be investing in technology, Piper Jaffray analyst says

Yelp Inc. fell the most in a year after the review site gave a disappointing forecast for revenue in the current quarter.

The company’s estimated revenue of $195 million to $199 million was below the average analyst prediction of $204.4 million. Yelp reported earnings per share excluding some costs of 27 cents in the fourth quarter, beating projections for 25 cents. Revenue in the period was slightly better than estimates at $194.8 million.

Piper Jaffray analyst Samuel Kemp called the first quarter outlook “lackluster” and said a “confluence of factors” will increasingly compete with Yelp for user traffic in the next two to three years.

Yelp, which started in 2004 as one of the first companies to build a business on customer reviews, has been buffeted by competition for users and advertising by technology giants such as Facebook Inc. and startups including Munch Ado. In an effort to spur growth, Yelp pulled back from national brands to focus on local advertising, which makes up the bulk of its revenue, and increasing its partnerships.

“Yelp’s position in the market is threatened by expanding business models at Amazon, Facebook and Google, as well as a host of startups and vertical specific offerings,” Kemp said. “Yelp is expanding margins to entice investors, but we believe Yelp should be investing heavily in technology in anticipation of this wave of oncoming competition.”

The shares fell as much as 14 percent in New York, the most since February 2016, to $35.80. They were the biggest decliner on the Russel 1000 Technology Index Friday.