tumbled more than 28% in post-market trading Thursday after the company cut its revenue forecast on slower-than-expected growth in the number of merchants advertising on its platform.
The San Francisco-based online review company said local advertising revenue was lower than anticipated in the third quarter, in part because it had a harder time reaching businesses with traditional sales calls. Paying advertiser account growth, which reflects businesses that have paid for ads over a three-month period, remained flat from the second quarter at about 194,000.
As a result, Chief Financial Officer Charles Baker said on a conference call with analysts that Yelp will slow the growth of its sales force in 2019. Usually, Mr. Baker said, Yelp expands the number of workers in sales by 20% a year. The company intends to focus on alternative ways to reach business owners such as using targeted emails, text messaging and in-app notifications.
“We’d love to get off of a, ‘Hey, you need to drive head count in order to drive revenue’, and really invest in those high-quality areas,” Chief Operating Officer Joseph Nachman said on the call.
Yelp executives also said the shift to not requiring business customers to commit to a fixed time period for advertising made its results more sensitive to short-term issues. In its second-quarter report, the company said its results benefited from loosening terms on advertising. Ad revenue rose 21% in the second quarter from the prior year.
Revenue for Yelp rose 8.9% to $241.1 million, missing the $245.4 million analysts polled by FactSet were expecting. The firm also lowered its 2018 revenue forecast to between $938 million and $942 million from its prior target of between $952 million and $967 million.
“We have begun to address a number of the issues that impacted our third-quarter results; however, we expect them to affect our fourth-quarter results as well,” Chief Executive Jeremy Stoppelman said in prepared remarks.
Overall, Yelp reported a profit of $15 million, or 17 cents a share, compared with $8 million, or 9 cents a share, the same period a year ago. Analysts were expecting a profit of 10 cents a share.
Shares of Yelp are up about 3% for the year through Thursday’s close.