Here’s an interesting article on one of my stocks that has not been discussed much (at least not in 2016) on this board. Yelp is a Fool recommendation, according to the note at the bottom. The article points out that growth is slowing, but talks about their move to jettison the international expansion for now and focus on profitability. To me this sounds 100% like the right move.
At a PS ratio currently ~4.5, 26%+ growth for the upcoming quarter doesn’t sound too bad, and may be on the low side. For the Sep quarter, and for the year so far, it’s been 30%+.
I like the combination of great growth, reasonable valuation, and focus on profitability.
Thanks for bringing YELP to the board! I passed on Yelp! earlier, since I generally don’t buy companies with negative earnings. But the past two quarters, it has become profitable, and it has been generating positive free cash flow for a lot longer.
It is too soon to qualify as a classic “Saul stock”, but I like that it is a smaller-cap ($3B) that has been a perennial fast grower in sales. It just turned to corner and earned 1 cent per share (sort of… there might be some magic there) in the June quarter, but then earned a more solid (tongue-in-cheek!) 2 cents per share last quarter.
It does seem to be struggling to control expenses, especially SG&A, but if it can remain prudent, this might be the time to jump onto a winner. Here is the quarterly results from the past five quarters (income statement):
The balance sheet is ROCK SOLID, with tons of cash and little debt. There is $5.10 worth of cash per share… making the current share price “only” about $32. That cash gives the company options to expand, and even room to borrow without going out on a limb, if need be:
I have to say that whatever Yelp might be like as an investment, I have a hard time wanting to have anything to do with them for two reasons. One is that it is clear that they put the screws to small business to list, i.e. pay. I have personal experience of giving reviews to small business that don’t show up … the review is still there in my personal history, but doesn’t show up under the business because the business doesn’t think that it has the spare cash to pay Yelp. The other is that I have had several cases where I have researched a business and it has become clear that their reviews are flooded by fake reviews … repetitive language, vague positives, etc. while there are lots of other reviews which would make it clear one should steer clear of that business under all circumstances.
They might succeed as a business, but do I really want anything to do with that?
*they did 1.2m in options in the first 9 months which didn’t seem so bad
*they did a rather incredible 4.9m RSUs too.
And this is for just 9 months too - where they this abusive before (glanced quickly at the proxy - there were a LOT of goodies in 2013 shortly after they came public - they loaded up)? No wonder they generate a lot of cash - they pay via dilution.
Granted, short-term these things are less relevant (look at Linkedin which abused shareholders all the time but they still got taken out by Microsoft) but have they said anything about slowing this down?
I have such a hard time getting past something like this…thoughts?
On Yelp, does the share issuance bother you at all?
You know, it really doesn’t. Their gross profit swelled from 126M in the Sep 2015 quarter to 172M in the Sep 2016 quarter. SG&A only went up from 104M to 124M in the same period and R&D only went up from 29M to 36M. Adjusted EBITDA went from 20M to 33.7M, and it’s slated to be between 36M and 40M in the Dec quarter.
That’s the big picture. If they continue those trends, you won’t be worried about whether they have 77M or 82M shares outstanding. I really think they’re at an inflection point and could have significant EPS in the near future.
I really think they’re at an inflection point and could have significant EPS in the near future.
to be clear, they are plenty profitable NOW - I guess I have a different view - I think they are stealing it from you as a shareholder and giving it to their employees. Share based comp was 62m year-to-date. That adjusted EBITDA is nicely lining their pockets.
But sure, if they do fat top line growth, everything usually works out ok (assuming you don’t pay a crazy price), but it has to be responsible for the crazy gyrations in that stock price, right? Plus, they could turn off the RSUs in a heartbeat - at least reign them in. Have they given any indication of doing so?
I just think it stinks is all. In the end though, just make money.
but it has to be responsible for the crazy gyrations in that stock price, right?
Plus, they could turn off the RSUs in a heartbeat - at least reign them in. Have they given any indication of doing so?
just curious = any idea what Fool thinks of this issue?
Widen your lens a little. According to Morningstar they had 12M shares in Dec 2009 and 77M in Dec 2015. Yikes – 6.5x as many in 5 years! But they had 14.5x as much revenue. Now it’s gone from 77M to 83M in 2 years. Is that really egregious? They also practically doubled revenue!
Here’s my final word on this: unless you have reason to believe management is doing something completely irresponsible or fraudulent with share compensation, don’t spend more time worrying about it than it’s worth. Compare it to other companies and note if it’s high, low, middle, whatever, and unless it’s insanely high, move on. Companies issue shares and buy back shares…unless they are complete outliers, the market doesn’t seem to care.
My guess is, that’s the Fool’s take about it too, because as far as I know they haven’t said peep (although I don’t subscribe to the service that recommended them).
" I have personal experience of giving reviews to small business that don’t show up … the review is still there in my personal history, but doesn’t show up under the business because the business doesn’t think that it has the spare cash to pay Yelp."
Tamhas, I am a Yelp Elite reviewer, and I humbnly disagree with what you say. Yes there are problems where there might be some fake reviews, but Yelp really makes it easy for business owners to get rid of fake reviews if they want to. The problem that you mention pertains to any review site for that matter - Amazon, Google maps, Tripadvisor, Facebook and so on. That doesn’t mean these businesses would be louse investments.
Also literally 100s of new restuarants have received my food dollars because I discovered them through Yelp. So i think it’s quite okay if Yelp asks businesses to consider paying them for advertisement because guess what, a lot of customers read and depend on Yelp reviews before they go out and check out a local place to eat.
Future: GRUB’s business should at some point of time, be eaten up by Yelp. Maybe Groupon as well. Lastly, Yelp has tons of growth left, since the only other real competitors are Zomato and to a lesser extent, Tripadvisor. Lastly, I think Yelp is going to be a fantastic acquisition candidate for PCLN, TRIP, GOOG or FB.
I was lucky to have added to Yelp at it’s nadir, and my overall Yelp position is sitting at a 50%+ gain in less than half a year.
Minor thing - you actually don’t need Morn (and pre-IPO you are going to get a lot of distortions - what counts is what happens when they go public) - you can pull this from the last EPS release - notice the share count a year ago: 75019. Notice it now: 82917. That’s what I saw on first glance. Up 10.5%. That’t not insanely high, that’s skyscraper high!
Course, I realize now that the count from a year ago doesn’t include anything dilutive since the year ago net income figure was negative (all the dilutive stuff is excluded). But the Basic count is up 6.7% in a single year.
The fake review issue I noted with Yelp was not negative reviews, but a case of a business which was receiving a large number of negative reviews and “someone” posted a large number of nearly identical positive reviews to counter balance. That company is hardly going to complain to get the fake reviews deleted.
The reviews that don’t show up is illustrated here https://www.yelp.com/biz/nina-homisak-hair-design-berkeley
I have reviewed this business as have others, but you can’t see the reviews. The owner was told that she would have to pay for the reviews to “stick”.
Yes, every online portal that hosts reviews will have some kind of problems with fake reviews, etc. The problem with Yelp is that it seems the company itself is on the racket.
Most likely which makes it hard for some to want to invest in them regardless of who well they do as an investment. Maybe one day things will backfire, who knows. This guy has an interesting story:
If it helps the business owner, he/ she should ‘claim’ the business. It’s currently unclaimed.
I don’t know if being unclaimed has something to do with reviews not showing up, although it shouldn’t. I know businesses whose review I have written the first review for showed up quite alright, and the business owner (dentist) thanked me during the next visit.
The video made me feel as if their sales staff needs a refresher on Yelp’s code of conduct! Sadly, it is not unusual for sales staff to make inaccurate claims to meet their sales target. Every organization deals with it, big or small. The more mature companies simply have better internal controls to manage such aberrant and undesirable behaviors, but even then, as we saw with WFC, there can be failures.
And yes, these accusations does come with the territory.
Look at the accelerating free cash flow (last line) – a thing of beauty!