Dear Mr. Berko: I bought 1,000 shares of Yelp last year at $28. Should I continue to hold the stock? — PK, Erie, Pa.
Dear PK: “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; left-brained people couldn’t sell water in the Empty Quarter.
YELP is a company that connects consumers with businesses they might wish to patronize. People who write reviews on YELP, aka Yelpers — millions of folks like us, some older, some younger or better-looking, and others with six-figure incomes — have written multiple reviews for nearly every type of enterprise in your locale from which you might consider purchasing an item or service. Reviews cover every imaginable business, from weir keepers to pawnshops to chiropractors to costermongers to perukers to pot shops to egglers to tattoo parlors to catchpoles to chiropodists. Yelpers have chosen to share their daily local business experiences and bring word of mouth online. This information is important to both consumers and the businesses being Yelped. Businesses can use their YELP profiles to engage consumers when said consumers are deciding where to spend their money.
YELP’s business revolves around three pillars: those who write the reviews, or Yelpers, the many consumers who read the reviews who are wannabe Yelpers and the local businesses that have been Yelped. YELP communities have exploded in large metropolitan areas in the U.S., Canada, Europe, Asia and South America.
This is a great idea that should take off like wildflowers because it performs a supercalifragilistic service and gives the Yelper a feeling of empowerment. If you visit Iggy’s Pizza Parlor, you have the power to applaud or condemn. YELP’s social, user-friendly platform should be roaring; it has five-star potential but just a three-star rating. And the competition from smaller, aggressive competitors — such as Epinions, Dish.fm, AroundMe, Judy’s Book and Citysearch — is fierce. Meanwhile, Google, Angie’s List, Craigslist and Yahoo are larger competitors with more clout.
YELP’s best road to success is to become an acquisition target of Facebook, Google, Amazon or Verizon. It has strong brand recognition and experienced leadership in the online review arena. YELP has also accumulated an enormous amount of consumer data over the years, which has significant commercial value.
Sell YELP. Then, with the proceeds, purchase a 12-month option to buy YELP at $45.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, Fla. 33775, or email him at email@example.com.