$YELP at $25 is getting a pretty lazy sell-side treatment.
Most of the discussion is still ad locations, traffic, CPC, ARPU, margins, etc. The models basically extrapolate the legacy advertising business and call it a day. The analysts spend 15 minutes looking at these numbers and get back to networking on Linkedin.
Meanwhile Yelp bought back 5.1M shares for $125M in Q1. Shares outstanding are down roughly 9% YoY. At $25, another $125M takes about 5M shares out. They can keep doing this with the cash the business generates. That changes the per-share math pretty quickly and charts don't even adjust for the shares outstanding to share price.
9.04M shares are short. That's "\~18%" of reported float, and the 7.4 days-to-cover uses 1.19M shares of average daily volume. YELP has actually been trading closer to 800-900k shares a day lately. On that volume, 9M shares is roughly ten trading days. Who's short? Try buying 1000 shares at the bid, the market makers jack up the price because they don't have any shares. This is testable. Or see just how long a limit order takes.
Other revenue grew 17% last year. SaaS, transactions and data licensing are being built alongside the advertising business.
OpenAI is paying to use Yelp reviews, ratings, photos and business information in ChatGPT. For the macro: Microsoft, Amazon, Meta and Google are spending absurd amounts on the infrastructure to make AI search work and are exceptionally clear that buying data rather than infrascture is more economically feasible. Yelp already spent 20 years building the local-business dataset that makes a lot of those answers useful.
The Google case is another thing the normal model doesn't capture. The June ruling found Google had monopoly power in general search through August 2024. Yelp is a \~$1.5B market cap company. A real damages award or settlement would be material. So would a meaningful change in how Google handles local search. The distribution EV from a $0 settlement to a meaningful win and resulting Google liability (for other companies) is north of $1BB exposure for Google.
I don't think the analysts are stupid. They are just of mediocre aptitude and limited curiosity. The structure of the job gives them very little reason to spend time on any of this and downside risk to deeper models. They can update the KPI model every quarter. There isn't much compensation for figuring out what a Google remedy could mean for Yelp, what Yelp's data might be worth in an AI search world, or how much the share count could fall if buybacks continue.
Some of the questions on the calls are pretty revealing. Lots of detail on traffic and ad performance. Not much curiosity about the actual strategic situation.
At $25, “legacy ads decline” is a pretty thin description of what you're shorting. Plus, Stoppelman isn't an idiot but he just seems like he's more interested in traffic tickets and perhaps he'll be re-invigorated. And if/when he wakes up I would be bullish. Come on Jeremy, light that fire again.