Is Yelp Stock Worth a Shout?

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Online review platform Yelp is no stranger to controversy lately. Many small businesses have come forth to boycott the company, claiming their positive reviews were stricken from the website because the business owners refused to pay advertising fees, which apparently ranged from $300 all the way to $1,000.

Yelp has denied the allegations, but it's difficult to ignore the power this company has over promoting local shops. But for all the make-or-break potential present here, how does Yelp itself rank as a business? Let's see whether this company's financials deserve a top rating, or should be sent back to the chef.

The 5-star stats
In terms of stock price, it's been a very good year for Yelp so far. Since the beginning of 2013, the company has seen its share price jump more than 100%. Yelp generated 86.3 million unique visits last year, up 31% from 2011, and its users have posted 36 million reviews since the end of 2012, which is a 45% spike from the previous year.

Yelp's revenue is also worth shouting about from the rooftops. Since 2009, the company's annual revenue has jumped from $26 million to $138 million, a staggering 430% increase. Clearly Yelp is doing something right, but a meteoric leap in revenue doesn't guarantee the rest of the company's financial gears are working like clockwork.

The not-so-favorable reviews
Many companies have tiny margins, but in Yelp's case, they're basically nonexistent. For the past four years, both the company's operating and net income have been squarely in the red, mostly due to spending most of its revenue on selling, general, and administrative expenses. Over the years, Yelp's operating margins have sunk from negative 7% to negative 13%, as have its net profits. The company's quarterly margins have held a little steadier, with operating and net profits rising from negative 37% to  negative 10%.

Yelp's not the only one of its kind undergoing margin struggles, however. Fellow consumer review platform Angie's List has brought in higher revenue over the years (thanks perhaps to charging its users where Yelp doesn't), but its profit margins are even worse. From 2009 to now, Angie's List's operating margin has dropped from negative 19% to negative 32%, and its net profit has fallen from negative 26% to negative 33%. Their revenue might be impressive, but these companies basically have nothing to show for it if the rest of their financials are continually coming up negative.

Check, please
Yelp, and others like it, may have major pull when it comes to helping a local shop or restaurant, but these companies look completely different when analyzed as investments. There's no guarantee that another company won't swoop in and become a new sensation. If Yelp can ever figure out how to retain some of its earnings into profit, its future as a stock might look a little brighter. For now, however, investors might want to save their pennies.

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The article Is Yelp Stock Worth a Shout? originally appeared on

Fool contributor Caroline Bennett has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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