Why Yelp, Inc. Stock Plunged Today

What happened

Shares of Yelp Inc. (NYSE: YELP) were down 19.3% as of 1:00 p.m. EDT on Wednesday after the online local business review specialist followed seemingly solid first-quarter 2017 results with disappointing guidance.

So what

Quarterly revenue increased 24.4% year over year, to $197.3 million, within Yelp's guidance provided in Februaryfor $195 million to $199 million. Trending toward the bottom line, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) more than doubled year over year to $29.3 million, above guidance for $25 million to $28 million. Meanwhile, adjusted net income increased 171.7% year over year to $16.3 million, or $0.19 per share.


Now what

For the full year of 2017, however, Yelp now expects revenue of $850 million to $865 million (down from $880 million to $900 million previously) and adjusted EBITDA of $130 million to $145 million (down from $150 million to $165 million).

During the subsequent conference call, CFO Lanny Baker explained that the company experienced weaker-than-expected revenue retention in its local ad business in the first quarter.

"The account growth and revenue growth acceleration we saw at the start of 2016 created an echo of contract terminations in the recent quarter," Baker elaborated. "And an uptick in less well-established local businesses within our customer base brought greater account turnover as these business owners typically have a harder time competing with our more well-established advertisers."

But Yelp also believes the worst of this local revenue challenge is behind it, and its new guidance -- while cautious -- assumes local sales rep productivity will improve through the rest of the year.In the end, though, until investors see tangible signs of that improvement in the coming quarters, I suspect Yelp's stock price will remain under pressure.

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Steve Symington has no position in any stocks mentioned. The Motley Fool recommends Yelp. The Motley Fool has a disclosure policy.