RBC Capital Downgrades Yelp (YELP) to Sector Perform; 'Very Negative' Q1 Results

RBC Capital downgraded Yelp (NYSE: YELP) from Outperform to Sector Perform with a price target of $50.00 (from $82.00) on "very negative" Q1 results, with an outlook for Q2 that implies ongoing deceleration.

Analyst Mark Mahaney commented, "YELP was off 15% in the aftermarket following the call. YELP shares had been rallying recently, which partly explains the magnitude. But this was also a negative inflection point qtr. We upgraded the shares almost a year ago @ $58 on a major pullback, and our call hasn’t worked. And we don’t have confidence that it will from here either. We still view YELP as a top-of-funnel, strong-brand unique asset with downstream transaction capability. But that transaction capability could take a long time to play out. Further, the two growth gap-up scenarios we have been counting on have yet to play out: 1) Yelp’s younger cohort markets are generating revenue dramatically below the level of Yelp’s older markets, but we’re now seeing substantial decel in all cohorts’ revenue growth – the CPC ad model transition isn’t having a positive impact; & 2) Yelp’s Int’l markets have yet to break out of the 3% contribution range, and now Int’l Unique Visitor numbers have flat-lined. The root cause, we believe, is likely less competitive factors (tho Google is an issue overseas) and likely more Tough TAM issues (it’s very hard to sustain high-growth momentum against a high-churn SMB base, especially when execution isn’t flawless). We still see strategic value to YELP, but that by itself isn’t enough to keep us from moving to the sidelines."

The firm's '16 Revenue reduced 3% to $786MM while EBITDA decreased 20% to $167MM.

For an analyst ratings summary and ratings history on Yelp click here. For more ratings news on Yelp click here.

Shares of Yelp closed at $51.28 yesterday.

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