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Bear of the Day: YELP (YELP)

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YELP (YELP - Free Report) is a Zacks Rank #5 (Strong Sell) that is a website engaged with providing information though an online community offering social network. The San Francisco based company covers restaurants, shopping, nightlife, financial services, health and other services.

The obvious problem here is most of the reason people went to Yelp was shutdown over the last few months. Even with economies reopening, people are still hesitant to go out. Additionally, when people are going out, they are sticking to the areas they know. Tourists in cities are big users of Yelp, but with very little traveling there is no need for the service.

The stock has rallied off the lows, but has struggled to continue higher like so many tech stocks had. Let’s take a look at earnings, estimates and some of the technicals.

Sharp Reductions in Local Business Spend

Yelp has a major issue as economies reopen. Local business has missed a full quarter of sales as everything has been shuttered. For that reason, they have very little budget room in their ad budgets to use with Yelp. Because of recent spikes in cases, we are seeing an even slower reopening in some markets. This is terrible news for revenue and growth at Yelp.

Online advertising is one of the first budgets to be cut and Yelp is on the chopping block for most businesses. Even if a vaccine comes soon and the economy fully reopens, the pent-up demand will not be felt at Yelp like it would in other areas. Instead, we would see a slow return to normal as businesses start getting back to where they were before COVID.

Poor Performance

We have all seen some of the big moves in stocks over the last two months. However, Yelp continues to struggle, still down over 30% from the 2020 highs. The lack of performance is concerning for investors and they should be concerned ahead of earnings on Aug 6th.

 

Technical Take

The stock is struggling at the $25 level after trying to move to the 200-day at $30. The bulls are trying to hold the 50-day moving average at $23, but the stock looks heavy. If the 50 fails, we could quickly see May lows around $18.

To the upside, the stock needs to break $25 and the bulls need over the $29 level to put pressure on the short sellers.

Estimates

Analysts see the reduction of ad spend as a big issue and are dropping estimates. Over the last 60 days, estimates have fallen 166% for next quarter. For the current year, estimates have dropped over 80% for the same time period.

In Summary

There are plenty of stocks to choose from that are making new highs every day. Until YELP can show that the open of the economies is turning their business around, avoid the stock.



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