Yelp faced challenges throughout 2016, leading to the firing of its international sales force in the third quarter. The company has now lowered its guidance for 2017, following a period of weak sales towards the end of the year.
Yelp’s stock dropped eight percent following the release of its earning on Thursday, and has dropped more than 12 percent in early trading on Friday.
“If I were to point to a weakness and a slowness, it’s potentially around kind of the local sales force in the fourth quarter and it was a modest slowdown that, quite frankly, we think the election and a period around the election both from an output and productivity perspective from the sales force and that kind of bled into vacation time,” said Yelp chief operating officer Jed Nachman on the company’s fourth quarter earnings call. “It’s not something we’re super concerned about coming into 2017 and we feel the fundamentals are in place and really strong. And then there’s some other factors that contribute to that as well.”
Overall, it wasn’t a terrible quarter for Yelp; revenue and earnings beat estimates, and the company continued to grow its traffic and user base. Transaction revenue increased 40 percent year-over-year in the fourth quarter, and its number of local advertising accounts increased 24 percent year-over-year.
At the same time, the company’s operations became more expensive, eroding some of its gains. Part of Yelp’s dilemma is its in-market sales are slowly shifting to online sales, meaning the return on investment for its sales staff has dropped.
The company will look to invest more in developing transaction capabilities, like its Eat24 food delivery service, to drive more revenue outside of advertising.
“We’ve got a strong brand, we’ve got a great product experience for consumers and businesses, and we think it makes sense to continue to invest in that,” said Yelp chief financial officer Charles C. Baker. “We’re making elective decisions to invest in our product, in our marketing, particularly around performance marketing, and in our sales channels with the goals of driving users, businesses, and new ways to make money. The trade-off of maybe another few margin points we might otherwise deliver this year is for more revenue growth in the long term rather than any kind of structural thing.”