Dear Mr. Berko: I bought 1,000 shares of Yelp last year at $28. Should I continue to hold the stock?
— P.K., Erie, Pa.
Dear P.K.: “Yelp” is defined by Oxford Dictionaries, not Wall Street, as “a short, sharp cry, especially of pain or alarm.”
Yelp (YELP-$42) came public in March 2012, offering 8.3 million shares at $15. The IPO was led by Goldman Sachs. At the “opening,” YELP leaped to $32. Four months later, YELP crashed back to $15. It closed the year at $38. Revenues from advertising were $137 million, but YELP failed to make a profit. That’s normal for tech IPOs, as investors make more money on hype than they do on substance. In 2013, advertising revenues improved to $233 million. YELP traded at $75 but lost money again. In 2014, revenues rose to $378 million, and something incredibly bizarre happened: YELP posted a profit of 48 cents a share. So YELP exploded to $102 but closed the year in the mid-$50s. In 2015, advertising revenues improved to $550 million, but YELP lost millions. The stock funked, closing at $24. Last year, advertising revenues climbed to $712 million, but YELP lost money again. This year, YELP hopes advertising will pass the billion-dollar bar — it may — and wonders of wonders, astonished management claimed a profit of 9 cents a share.
Now YELP is feeling resistance from advertisers who aren’t getting as much bang for the buck as they got a year or three ago. There are nearly uncountable websites and mobile apps competing with YELP for advertising, and their numbers are increasing daily. However, there are countable advertisers with fixed budgets, and advertisees are ferociously competing with one another for the advertisers’ money. YELP is an expealidocious idea, but the left-brained founders, who designed YELP’s platform to work like a Swiss watch, shouldn’t be the ones responsible for sales. That’s the right brain’s domain.
