Back in October of last year, we explained that Facebook Inc (NASDAQ:FB) was trying to crush the niche hold that Yelp Inc (NYSE:YELP) had with many local advertisers and businesses. It’s a gigantic business that Facebook just recently began targeting after adding new features to Facebook business pages aimed at how Yelp conducts and creates business.
Clearly, a business, whether it is international or local, prefers Facebook’s near two billion monthly active users (MAUs) to Yelp’s 73 million unique mobile users. It’s not hard to figure where advertisers will allocate ad dollars. We viewed this as a major concern for YELP stock owners, and questioned whether YELP stock would ever return to $40/share.
While YELP stock has indeed surpassed $40/share since that October article, it did not hold. The stock crashed after the company’s recent earnings and now trades at just $29/share.
That said, the above chart should really concern YELP stock owners.
The company’s advertising account growth is important to maintain long-term revenue growth. What we are seeing is a steep drop in the quarter-to-quarter growth of these accounts.
While it is normal for growth rates to decelerate as a company grows larger in any division, such as advertising accounts, what’s unusual is the significance of the drop after a stable performance of 5% plus quarter-to-quarter growth. The drop from 5.5% growth to 2.2% and under 1% in just two quarters is undeniably a big problem for Yelp Inc (NYSE:YELP).
What’s meaningful is that this decline from 5.5% growth came right after Facebook Inc made changes to its business pages. These were changes that we said would become problematic for Yelp. What this reduction illustrates is a likely truth to the narrative that Facebook is trying to crush Yelp stock, and is doing so rather quickly.