Yelp Shares Surge 23% on Divestment Rumor - Analyst Blog
Business ratings and reviews platform Yelp Inc. YELP saw its shares soar 23% ($8.79) on Thursday, May 7, before closing at $47.01. Reportedly, the company is planning to divest itself, which possibly led to the spike in stock price.
According to media reports, Yelp might consider a divestment amid hovering concerns regarding its online business review service's ability to compete against larger Internet companies in digital advertising. However, despite the rally on Thursday, shares remain below the stock price reached before earnings and almost 50% below its 52-week high level of $86.88.
The rumors of a sale surfaced a week after Yelp reported disappointing first-quarter results wherein the loss of 2 cents compared unfavorably with the Zacks Consensus Estimate of breakeven. However, revenues of $119 million came in line with the consensus..
There have been similar rumors regarding Yelp in the past. In 2009, the company was in talks with Google GOOG for a potential acquisition. According to Business Insider, Google was interested in acquiring the company for $500 million, though the deal fell through.
Following this, Yelp filed for an Initial Public Offering (IPO) with the Securities Exchange Commission in Nov 2011 and began trading publicly on the New York Stock Exchange. Back then, its market valuation was around $898 million.
While the company continued to expand in Europe and Asia, with average monthly unique visitors of 142 million, the business turned profitable only after 2012. While the company managed to grow its market valuation to over $2 billion in a couple of years, intense competition from behemoths, like Google, in the digital advertising business has been a constant headwind.
Recently, in an interview with Yelp’s CEO, Jeremy Stoppelman, told Business Insider that one of the key reasons behind rejecting Google’s offer was his hope of taking the company further ahead and establishing it as a leading player in the digital advertising business. Further, the influence of former Apple AAPL CEO, Steve Job, was instrumental in preventing the deal given his angst against the tech giant.
However, in the current scenario, the company is working with investment bankers and reportedly reaching out to potential buyers. Apart from Google and Apple, we believe that Facebook FB and Amazon AMZN, which are rapidly expanding in the digital advertising market, to be interested too. Another unusual name that featured on the prospective buyers’ list is TripAdvisor TRIP, given the similar business of reviews and ratings.
In addition, The Priceline Group Inc. PCLN may find Yelp to be a lucrative acquisition target given its food-delivery service, Eat24, and reservation service, SeatMe. Notably, Priceline acquired restaurant service company OpenTable and might consider expanding further with Yelp. Currently, analysts evaluate the deal to be worth well over $4 billion, representing a 14% premium to Yelp’s current valuation.
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