YELP Will Continue to Have Investors Screaming HELP

Media Darling No More

I am writing this article partially because of the recent CNBC video that came out just a few days ago on March 28th.  Dain Evans’ headline was “The story of Yelp — and why it’s struggling to survive.”  He tackles a Harvard study done by business school student Michael Luca and Georgios Zervas of the Boston University School of Business whereby they concluded based on their research that between 2004-2012 a full 16% of Yelp’s reviews for Boston restaurants were fake.

This expose-of-sorts also covers some “shady cold calls” that Yelp’s salespeople have made to myriad business owners all over the US where they offer to push low reviews of a business way down to the bottom of the page in exchange for an advertising package.  CNBC’s Dain Evans rightfully concludes that this reeks of extortion even though the FTC found no cause for charges against Yelp.  Documentary filmmaker Katie Milliken made a film called “Billion Dollar Bully” that also highlights Yelp’s highly aggressive tactics.

The darling Silicon Valley company seems to have lost a lot of goodwill over the years with regards to consumers and media, which might bode badly for the stock moving forward.

How Do Consumers Find Reviews of Local Businesses?

How do you as a consumer looking for excellent local services find out about the venue-in-question?  Like almost everyone outside of China and a few other countries, you probably jump onto google and do a search for that business’ reviews.  In fact, ever since the introduction of Google Search in 1997, they have grown their market share to an unbelievable 89.95% market share as of January 2019.

I run a few businesses — one in trading and one in private education — and for the latter, if you do a search of my tutoring business on Google by typing in “learnhall” or “learnhall reviews,” then you will see all the business’ Google Reviews on the first page of Google and it’s very easy to see and assess our company and services.

How is Yelp going to compete with Google now being firmly in their space?  It’s pretty simple in my humble estimation.  They can’t.  There are lots of reasons why I believe this.

Google

Google

Google > Yelp

Unlike Yelp, Google wants you to ask for reviews.  Yelp leadership think you’re only going to ask customers who will give you a glowing review so they don’t want you to ask.  Google’s policy makes a lot more sense, and they give you a link to make it even easier.  For any business owner who is investing in SEO for their business, Google Reviews can give the businessperson a strong advantage.

In 2017, Local SEO Guide looked at 200+ local ranking factors to see which ones had the strongest effect on rankings in Google’s local pack.  Out of the top 10 most influential factors, 9 of them involved Google reviews:

  1. Total additional organic rankings
  2. Number of Google reviews that mention the target keyword
  3. Number of Google reviews that mention the target city
  4. Total number of Google reviews
  5. Percentage of Google reviews that mention the keyword
  6. Percentage of Google reviews that mention the city
  7. Average yearly Google reviews
  8. Number of Google reviews not responded to
  9. Number of new Google reviews in the last year
  10. Average weekly Google reviews

Yelp reviews won’t really impact a business owner’s SEO, however.  Remember that Google can track IP addresses, so that if one person leaves ten reviews from ten different accounts on Google then those reviews will get flagged and deleted.  But if this happens on Yelp, one can only hope that Yelp does something about it.

Reviews do matter though.  According to a 2016 Vendasta poll, “92% of consumers now read online reviews.”  This percentage is climbing regularly.  Perhaps even more interesting is that an Invesp study claimed that “86% of people will hesitate to purchase from a business that has negative online reviews.”

If business owners focus their efforts on Google Reviews moving ahead, this bodes poorly for Yelp’s revenues as well as their overall business in general.

Yelp’s Pay-Per-Impression Seems a Bit Aggressive

Here’s the cost for Yelp’s advertising program as they market to business owners:

$300/month – promotes you to 1500 people in your area looking for a business like yours.
$500/month – promotes you to 4000 people in your area looking for a business like yours.
$1000/month – promotes you to 10000 people in your area looking for a business like yours.

If you were to compare these numbers to Google’s AdWords program, the cost is insanely high.  Additionally, one has a lot of control and analytics when using Google AdWords to advertise one’s business; Yelp not so much.

Yelp is trying to get into the transaction business instead of the data sharing business as they’ve teamed up with Grubhub so that people can reserve a restaurant table or even order food from their app or website.  There is stiff competition in this space with lots of apps like DoorDash and Postmates and the such.

Plus, if they are abandoning their central business model and revenue model, this could be a big gamble that doesn’t pay off for them.  We shall see, yes, but I believe that there is plenty of evidence supporting the bears going forward.

Bearish Divergence YAWPS volumes

In Walt Whitman’s poem “Song of Myself” the narrator declares, “I sound my barbaric yawp over the roofs of the world.”  Well, the narrator seems ebullient and celebratory.  Contrastingly, in this case, I believe Yelp investors will be yawping in sheer pain and torment as they watch the stock price collapse in the coming weeks/months.

Yelp Weekly Chart

Yelp Weekly Chart

Look at how weak the RSI and MACD indicators are getting as their tops are getting lower and lower even as the price tops of YELP are getting higher and higher.

We just started falling in price and I believe the price drop will continue overall in the coming weeks and months.  Will a huge conglomerate come in and buy them?  I believe it’s a strong possibility.  But maybe they will try to hold out again as they stubbornly did when Google offered $550MM for them and then Yahoo! offered them $1B for their company; the founders summarily rejected both offers.

Regardless of the outcome or the rising din regarding what the outcome might be, I believe that YELP will continue to weaken.  We could drop to $20 or even $15 this year.

-Michael Hoeft

 

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