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Yelp (YELP) Rallies 16% on Faster Economic Recovery Hopes

Zacks Equity Research

Shares of Yelp YELP appreciated nearly 16% last Friday after the U.S. Bureau of Labor Statistics reported an unexpected drop in the unemployment rate. According to the latest data released by the labor department, the unemployment rate fell to 13.3% in May from April’s 14.7%.

The labor department further added that employers added 2.5 million jobs last month, crushing economists’ predictions of further job losses in May. The overwhelming job data has provided investors hopes for a faster-than-expected recovery from the pandemic-induced economic crisis.

Additionally, optimism over a potential vaccine for COVID-19 and an uptick in economic activities, as lockdown measures are now starting to ease, are also driving the stock. Notably, centers of economic activities had remained closed since March due to the lockdown.

Yelp Inc. Price

Yelp Inc. Price
Yelp Inc. Price

Yelp Inc. price | Yelp Inc. Quote

Yelp provides information on restaurants, shopping, nightlife, financial, health and other services through online communities. However, lockdowns and restrictions to contain the spread of coronavirus have been hurting these businesses. This, in turn, has been affecting Yelp.

Notably, in an internal e-mail dated Apr 9, Yelp’s CEO Jeremy Stoppelman had stated that the company’s Restaurant category volume has registered a 64% slump since the lockdown was announced on Mar 10. The company’s Nightlife, Gym, and Salon and Other Beauty businesses have tanked 81%, 73%, and 83%, respectively, since the same date.

Due to uncertainties regarding the duration of the pandemic, the company lay off and furloughed more than 2,000 employees in April, in an effort to save cost and stay afloat amid the crisis. Yelp also cut the salaries of all executives by 20-30% and reduced the working hours of others to preserve cash.

However, as all 50 states are gradually reopening their economies, investors hope for a faster-than-expected recovery in Yelp’s business. Businesses, offices, shops, stores and movie theatres are now open again, attracting old customers. As consumer activity is picking up, businesses such as airlines, hotels, restaurants, retailers of apparel, shoes and other discretionary products are also gaining momentum.

Coronavirus Crisis Wreaking Havoc on Global Economy

The coronavirus outbreak has not only claimed human lives but has also beenwreaking havoc on the global economy. It is affecting global trade, investment, tourism, and supply chains.

Companies are facing unprecedented challenges and taking stringent measures to counter this crisis. Suspension of production, forced leaves/layoffs and cost cutting are becoming commonplace. Despite policymakers’ best efforts, companies are finding it difficult to stay afloat amid such trying times.

To preserve cash and maintain ample liquidity, various companies are resorting to dividend cuts and stock-buyback suspensions. Most recently, on Jun 4, Sabre SABR announced to lay off approximately 800 workers across its 43 locations, globally. The move follows the 400-staff reduction in April from voluntary severance and voluntary early retirement programs.

Last month, cruise operator Carnival Corporation CCL announced the lay-off of 820 employees, and cut salaries and work weeks in Florida. In March, the U.S. automaker, Ford F, scraped its quarterly dividend payment.

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Ford Motor Company (F) : Free Stock Analysis Report
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