Yelp Inc. Plunges as Growth Slows

By Markets Fool.com

Yelp shares fell more than 10% in after-hours trading on Thursday following the release of its fourth-quarter earnings report. Although Yelp's quarterly earnings and revenue slightly exceeded analysts' expectations, growth in its monthly unique visitors slowed.

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Given Yelp's aggressive valuation -- its price-to-earnings ratio is several thousand -- it isn't surprising that evidence of slowing growth would be met with a sell-off in shares.

Yelp exceeded expectations
On an adjusted basis, Yelp earned $0.08 per share, slightly better than the $0.07 analysts had been expecting. Likewise, revenue came in at $109.9 million, just edging out the consensus estimate of around $108 million.

Yelp specifically cited growth in engagement to explain its results. In 2014, Yelp launched in five new countries, bringing its total reach to 29 countries. It also rolled out a new app specifically for business owners, helping them interact with customers on a deeper level. In the fourth quarter, consumers made roughly 350,000 transactions through its mobile app.

Outlook largely in line with expectations
Yelp's outlook was also largely in line with analyst estimates. For the first quarter of 2015, Yelp expects to bring in revenue of around $114 million-$116 million. Analysts had been looking for around $115 million.

For the full year, Yelp expects to generate $538 million-$543 million, on the high-end of estimates; the consensus called for about $538 million.

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But growth is slowing down
As a fast-growing, somewhat speculative stock, Yelp is judged more by its growth than its actual earnings. Although Yelp is still growing at a rapid rate, it isn't growing as fast as it has been in the past.

Yelp's revenue, for example, grew 56% year over year. That's impressive, but it's less than the 72% annual growth it posted in the same quarter last year. Cumulative reviews -- a measure of both engagement and the quality of Yelp's platform -- rose 35%, less than the 47% rate last year. But most disappointing may have been its monthly unique visitors -- that rose to 135 million, up 13% annually. In the same quarter last year, monthly unique visitors rose 37%.

Obviously, Yelp can't grow forever, and the larger it becomes, the more difficult it will be to maintain its rate of growth. Still, at such an aggressive valuation, any slowdown in these metrics is likely to be met with some selling pressure.

The Yelp story hasn't changed
Yelp has frequently been a volatile stock -- double-digit swings are nothing out of the ordinary -- and longtime shareholders should be used to the volatility. The year 2014 was a fairly bad one for Yelp shareholders, and 2015 doesn't appear to be off to a much better start. Yet those who bought in near the IPO almost two years ago have seen their investment more than double.

Fundamentally, however, the Yelp story hasn't really changed -- it remains a fast-growing, aggressively valued Internet stock. If you liked Yelp before the sell-off, you should probably like it even more now.

The article Yelp Inc. Plunges as Growth Slows originally appeared on Fool.com.

Sam Mattera has no position in any stocks mentioned. The Motley Fool recommends Yelp. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.