Advertisers fled Yelp Inc., and now investors are doing the same.
Yelp said Tuesday it saw a wave of local advertiser departures in January and February, and shares plummeted a shocking 28% as the online-reviews site again lowered its full year outlook. While 2017 was once seen as the year Yelp reached $1 billion in annual revenue, it now looks like even $900 million will be hard to reach after a second consecutive quarter of weak advertiser growth and declining forecasts.
Yelp YELP, -22.74% said that small emerging businesses had trouble competing in its ad system with some of the more established businesses. The company said it was able to stem the tide of advertiser revolts against its system of late, but not soon enough to prevent a dent.
“It was all hands on deck obviously at that point, and we put a team in place to focus on that particular cohort and that particular profile,” said Jed Nachman, Yelp’s chief operating officer. “And we’re able to really course-correct in a pretty short period of time and saw progressively better results as we got into March and particularly in April.”
Company executives said on Tuesday that because of the challenges with local advertisers, it expects revenue in the range of $850 million to $865 million for the full year. In early February, Yelp lowered its 2017 revenue to a range of $880 million to $900 million, down from its previous forecast of $1 billion, as new account growth slowed.
Investors have already been concerned about the sequential slowing of new advertising accounts, as it sees more competition from both Alphabet Inc.’s Google GOOGL, -0.25% GOOG, -0.23% and Facebook Inc. FB, -0.19% for smaller local advertisers, where Yelp makes the bulk of its revenue. Yelp added 4,500 new accounts in the most recent quarter, up from an extremely disappointing 2,800 in the holiday quarter, but still below expectations. The company had added 6,600 in the third quarter last year and 7,400 in the second quarter, raising hopes for advertising growth.
Yelp’s stock has suffered since its disappointing holiday-quarter report, falling 16.4% in the past three months as the S&P 500 index SPX, -0.10% has gained 3.9%. That decline appears to be headed for a sharp acceleration after Tuesday’s report.
Beyond a declining share price, Yelp could have other worries. Already on Tuesday, Holzer & Holzer LLC, a law firm in Atlanta which specializes in shareholder litigation, said it was investigating Yelp’s statements on its outlook.
Lawsuits will matter little, however, if Yelp can’t convince local businesses to advertise alongside its reviews. If advertisers won’t join or stick around, neither will investors.