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Opinion: Hiring problems in tech bubble are a bad sign
Investors gave Yelp Inc. some pretty awful reviews after a second quarter full of unpleasant surprises, and some may now be wondering if its long-term goal to reach $1 billion in revenue is a pipe dream as the company has trouble attracting employees.
Yelp's (YELP) shares fell more than 16% in after-hours trading on Tuesday (http://www.marketwatch.com/story/yelps-stock-tumbles-after-disappointing-outlook-offset-profit-and-sales-beat-2015-07-28), after providing a disappointing outlook for the rest of the year. The review site told investors that it was shutting down its display advertising business by the end of the year, not hiring as many sales people as it had originally projected, and its revenue would take a hit as a result of both moves. Yelp lowered its guidance for full-year revenue to a range of $544 million to $550 million , from a previous range of $574 million to $579 million .
The company decided to shut down its display ads, or its so-called brand advertising business, because it was a shrinking portion of its revenue and mobile users have found display ads annoying and intrusive while taking up too much real estate on mobile devices.
"It is at odds with the consumer experience," Chief Executive Jeremy Stoppelman said.
In addition, one of the company's early investors, Max Levchin -- a founding member of PayPal -- is stepping down as chairman of the board. The company did not name a replacement yet for Levchin.
Of particular note, Yelp said that it is having hiring problems in its home city of San Francisco , where Stoppelman said the company is facing tough competition for new hires. The company now plans to increase its sales headcount by 30%, instead of 40% as previously planned.
Analysts asked on the company's call with investors if part of the problem was the tough competition from "unicorn" startups, companies that are still private with valuations on paper of more than $1 billion . Yelp executives said they are "certainly are feeling those impacts," but that they are keeping a "Goldilocks approach" and hiring, retaining and promoting from within.
"For the most part, it is something we just have to ride out," Geoff Donaker , Yelp's chief operating officer, said on the call.
As expected, the company did not comment on M&A rumors, but when asked for some "color on the M&A process," Yelp officials said that to the extent if something is ever put forward, "we will review that as we have to." In May, the Wall Street Journal said Yelp was exploring a potential sale (http://www.wsj.com/article_email/yelp-is-exploring-a-sale-1431018383-lMyQjAxMTA1MDA2NzcwNTc0Wj), though that process was reportedly put on hold in July (http://www.bloomberg.com/news/articles/2015-07-02/yelp-sale-process-said-to-stall-as-founder-decides-to-wait).
(http://www.wsj.com/article_email/yelp-is-exploring-a-sale-1431018383-lMyQjAxMTA1MDA2NzcwNTc0Wj)A few analysts asked about Yelp's long-term revenue goal of $1 billion by the end of 2017, a goal Stoppelman reaffirmed at the beginning of the call. Whether or not investors are buying it is another story.
Yelp appears to have lost its cool factor enough that it is having a harder time hiring enough sales people during a major tech boom in its home town. That is not a good sign, so many investors decided to instead hit the exits.
- Therese Poletti ; 415-439-6400; [e-mail]
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(END) Dow Jones Newswires
07-28-15 1846ET