Yelp (YELP) Sell-Off an 'Over-Reaction', SunTrust's Peck Says

April 3, 2014 12:58 PM EDT
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Price: $40.72 +0.89%

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After dropping 6% Wednesday, shares of Yelp (NYSE: YELP) are down another 6% today following an FTC disclosure that the company received 2,046 consumer complaints targeting Yelp over a 5-year period ending March 4, 2014.

SunTrust Robinson Humphrey analyst Robert Peck weighed in on the matter in a note to clients this morning. Peck said while the headline number looks "big and alarming," he is not really sure it is all that significant. He notes 2,046 complaints equates to: 3% of the 67,200 businesses that advertised with Yelp just in 4Q13, 0.1% of the 1.5M businesses that have claimed their free Yelp page to date, and <0.1% of the minimum 2.8 million businesses (as of 2011 per S-1/A filing) that have been reviewed on the Yelp platform.

"We are not sure how these percentages compare to the average business in the FTC or Better Business Bureau database, but the numbers do not strike us as noteworthy given the number of companies that have been reviewed on the Yelp platform," Peck said. "The ‘six subpoenas per month’ also strikes us as unsurprising given the sheer number of businesses that Yelp touches and the potentially contentious nature of reviews."

The analyst also notes this is not a new topic as the firm spent some time on the subject in their initiation (pages 12-13) of Yelp back in February. "There have been questions for some time, in the press and amongst investors, around the legitimacy and policing of content (reviews) on the Yelp platform and around whether the company in any way manipulates ratings and reviews to favor Yelp advertisers and strong-arm non-Yelp advertisers into signing on."

In conclusion, Peck said: "The move in the shares yesterday is likely an over-reaction. To paraphrase our initiation: "These concerns have been around and we do not expect them to dissipate anytime soon. We believe the majority of Yelp content to be legitimate and helpful and the catalyst for bringing more users to the platform and sustaining the all-important network effect. That said, the onus is on Yelp to protect its content lead and content integrity."

The firm maintained a Neutral rating and price target of $100 on the stock.

For an analyst ratings summary and ratings history on Yelp click here. For more ratings news on Yelp click here.

Shares of Yelp closed at $75.63 yesterday.

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SunTrust Robinson Humphrey, S1


Yelp Extortion
Notta Victim on 2014-04-03 14:56:56
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I would not touch this p.o.s. with a ten foot pole. YELP is a known extortion scheme whereby businesses who decline to advertise wind up with their positive reviews filtered and their negative reviews made prominent. A cadre of so called elite Yelpers (chronically unemployed losers) are Yelps hired guns who do the dirty work of defaming small businesses for them and shilling for advertisers. Thousands upon thousands of Yelp reviews are actually reviews of big chains like Starbuck and Chipotle rather than being genuine reviews of small businesses who lack advertising and p.r. budgets. If you look at the numbers for this IPO they simply do not add up. After all, how can YELP expect small businesses to advertise with a bulletin board which has already defamed them or threatens to do so? Keep in mind that this MONEY LOSING BUSINESS relies on advertising for over 60% of its revenue! Yelps advertising rates area a complete ripoff. While other online advertisers are charging 60 cents per 1000 impressions, Yelp is charging $600!!! To make matters even worse there are numerous class action lawsuits which have already been filed and many, many others in the works. The nail in the YELP coffin? GOOGLE is a powerful competitor which recently acquired Zagat. The removal of links to Google searches will considerably reduce Yelp traffic.
No wonder Jeremy Stoppelman and other top brass absconded with 36Million in Series E funding by dumping shares in advance of this sham IPO and continue to dump shares at every given opportunity. The only analysts touting this dog are the shills working for the insiders trying to get out at a high price.
The thousands of FTC complaints, subpoenas and class action lawsuits are only the tip of the iceberg. Look out below!

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