Stock to watch: Yelp Inc (NYSE: YELP)

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Yelp Inc (NYSE: YELP) stock regained over 1.7% on 14 Jun, (as of 11:48 AM GMT-4; Source: Google finance) after facing a bearish momentum.  Aegis Capital analyst Victor Anthony downgraded the stock from Hold to Sell with a price target of $34.00 (from $45.00). Further, the analyst lowered its revenue and EBITDA estimates through 2019 in the process. Aegis has downplayed YELP’s Request-a-Quote feature, which it believes will fail to make a meaningful impact. As per the analyst, the lifetime value of YELP’s account base is diminishing by as much as 25% as the business model transitions away from the 12-month contract to non-term or good-’til-cancelled contracts. He thinks that Yelp will have to spend more to acquire new customers due to its new model, which along with a drop in average revenue per user could crimp the company’s model.

Meanwhile, YELP Faces Serious Headwinds. The whole problem with the company is that its business is so easily replicated, and the platform doesn’t have enough scale to fight back against replication. At its core, YELP is a place where consumers can discover places to eat, curated by other users through millions of reviews. There really isn’t anything new idea, and it would be pretty easy for a company with a ton of users and a lot of engagement like Facebook, Google or, Inc. to step in and copy the business.

Moreover, Facebook, Google and Amazon could copy the business at scale and win because Yelp doesn’t really have the size to combat replication efforts from these internet giants.

Yelp has 30 million app unique devices, 155 million reviews, and 177,000 paying ad accounts. Facebook has 2.2 billion monthly active users. Google processes 3.5 billion searches per day. Amazon has more than 100 million Prime members.

Furthermore, Facebook recently launched Local, which has the potential to be a Yelp killer. Google is getting into e-commerce with Shopping Actions and could easily turn that initiative into a Yelp replacement that allows people to order food online and leverage Google reviews to decide where to eat. Amazon Restaurants is already a thing. In other words, it is only a matter of time before competition starts to erode Yelp’s unique value prop.

Additionally, Advertising revenue growth at YELP has run around 20% over the past several quarters and years. This growth rate should start to erode over the next several years as competition in both digital advertising and on-demand food discovery ramps up. Profitability is also a major concern for the company.

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