You're watching...
Rick Summer, Morningstar Senior Equity analyst, on Yelp's big trading debut, plus if it will be able to sustain this value.
Also in this playlist...
Auto-advance: ON
Auto-advance
This transcript is automatically generated
Yeah working.
-- began trading today that's also working and shares soared more than 60% but can exceed the momentum alive joining me now strict -- senior equity analyst for Morningstar.
And -- I'm looking at the stock price here I'm looking at the F financials that it revealed.
It dad posted a loss -- seventeen million dollars it posted revenue of 89 million dollars and the market is valuing it in a camp in terms of market cap along with US Airways.
Revlon I'm scratching my head.
Thinking what are these investors thinking.
-- -- I keep keep stressing that had wait you know we're sitting over here saying the same thing.
It's going after pretty attractive market but there's been a lot of companies that have been chasing.
The in the same market its local advertising market.
We just don't see it frankly.
We'll look at on the stock price we think it's worth about nine dollars a share without going to be pricing modestly above that we certainly priced well above and then the after markets been incredible.
It does has sent some some positive values to its business -- you take it take a very compelling community high growth rates out.
As somewhat defensible -- are -- in terms of user community here but it does -- -- big downside risk what do you see.
As a biggest downside risks facing yell and yet they knew the -- -- -- shareholders.
Going forward.
Yes -- great points than me who we think amounts we actually translate that it's gotta be economic -- so.
They've certainly held onto a community of users but we can look back -- plethora of companies from Judy spoke to.
Turning a community into a big viable business is incredibly difficult.
Looking at Amazon there community is part of their core offering that they have a lot of people shopping there.
Yelp we don't have that connection to a transaction is not nearly as close its assembly is a business listing service where people are paying for enhanced listings.
That's -- challenge building a moat around the businesses where they feel they have to spend on Yelp.
When they may have other and better alternatives to spend their advertising dollar that's the biggest risks to this company.
The other the other risk is our -- that users don't -- use this service is as an advertising based service aware do you think the evolution.
Others perhaps a subscription based service sort.
Additional sources are revenue are going to come from from this company also let me ask in terms on top of that.
Cost and management because according to my analysis it pays out about sixty cents -- every dollar.
That it brings in have for our R&D marketing ads sales at center.
Yet actually a little bit worse than that if you -- it only to the -- part of the market.
-- local ad sales are running anywhere from 68 to 72%.
Expenses are going to supporting those local ad sales and that's extremely expensive part of that market we talk about it with Groupon.
We talk about a with that with Yelp as well -- taking -- generate additional revenue streams which we think they can.
Then they can be profitable and they -- ought to be very profitable but the biggest constraint here once again as how do you keep -- businesses to spend.
More and more and -- actually -- the trends move the other direction those paid businesses the businesses that are paying.
Those trends and drop by as much as 30% over the course those last -- quarters.
Rick before even starts to tackle some of those challenges that you mentioned you think that this companies have potential and any takeover target two years ago.
Google offered 500 million dollars -- shot it down Yahoo! a billion dollars is it possible that even before -- starts it.
Move forward and and and take and take on some of its ad aids -- its challenges that they get scooped up -- -- FaceBook -- Google.
Yeah I think so I think that's definitely a possibility have been -- -- question a month to get its valuation.
Saying it straight up like this is actually I can't see any suitors -- -- incredibly excited about.
Acquiring 66 million users you know for one and a half north of one and a half billion dollars it just doesn't seem to make good economic sense.
On the other hand if you sit around and wait if I'm a suitor come and acquire I don't know wait for the wheels come off the bus on the stock price may get -- covenants with the top.
That's what ended up having -- opinions -- -- quite a while back they never went public valuations came down and you're actually able to acquire that community at a much more reasonable price.
I think investors are willing for the wheels come off of this bus hoping that's a little -- -- further down the road because the party continues today Rick summer of Morningstar.
Thanks very much for joining us.
