Are YELP Shares Worth a Five-Star Review?

Second-quarter earnings season has been lukewarm so far, with hits and misses. One such miss was Yelp Inc.(YELP), which just released its second-quarter earnings report yesterday. Shares plunged 25% following the report, adding to the company’s nearly yearlong downward spiral. Let’s take a closer look.

Yelp Inc. operates Yelp.com, which is a social networking site, a search site and a review site all rolled into one. Founded in 2004, Yelp.com is designed to help people search for local businesses, including everything from restaurants and bars to dentists and hairstylists. The site also allows users to rate and review establishments; those with a free account are called "Yelpers." The company incentivizes helpful reviews by offering special events to their most prolific and well-respected Yelpers. Business owners are also welcome to open a free account to post photos and promote their business.

Yelp Inc. released its second-quarter earnings report after the closing bell on Tuesday, and the results were actually mixed. The social networking site reported that revenues increased 51% year-over-year to $133.9 million. The company also posted a net loss of $1.3 million, or a $0.02 per share loss, down from net income of $2.7 million, or $0.04 per share last year. The analyst community expected the social networking company to post EPS of $0.01 on revenues of $133.48 million, so Yelp posted a big earnings miss and a slight sales surprise.

The earnings miss coupled with a lowered full-year 2015 net revenue forecast is what hit Yelp shares today. The company now expects revenues between $544 million and $550 million; analysts were expecting $571.04 million in net revenue. For the third quarter, YELP expects revenues between $139 million and $142 million; well below analysts’ current estimates of $152.63 million.

So, as you’ve probably guess, Yelp doesn’t score to well with Portfolio Grader. The stock earns an F-grade for its Quantitative Grade, and its fundamentals are also rather lackluster. The only areas with potential are sales growth, which earns an A-grade, and earnings momentum, earning a B-grade. All other metrics could us improvement. Operating margin growth, earnings growth and cash flow earn C-grades. The three metrics showing the most weakness are return on equity (D), earnings surprises (F) and analyst earnings revisions (F). YELP earns a C grade for its Fundamental Grade.

Overall, YELP is a D-rated Sell. This isn’t surprising since Yelp has been rated as a sell in Portfolio Grader for five months this year and has been a hold for six out of the past 11 months. So, it’s clear that YELP has not been able to pull itself back up; I would avoid buying shares or if you are invested, look for a good opportunity to sell.

Would you like to check the fundamentals backing up one of your stocks? For more stock grades, please visit my Portfolio Grader website!

Sincerely,

Louis Navellier

Louis Navellier

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