Ad system trouble rattles Yelp

Yelp (YELP) recently reported that it faced a problem in 1Q17 wherein small businesses had trouble competing with large brands for advertising spots on its site through its ad placement system. But Yelp has said it was able to fix the problem.

Still, the fix seems to have come late, considering the downbeat results the company reported for 1Q17 and the anemic outlook for the current quarter and year.

Why Isn’t Yelp Screaming?

Revenue up 20% annually

Yelp posted 1Q17 revenue of $197.3 million, falling below the consensus estimate of $198.3 million. Still, revenue rose 20.0% from one year ago, supported by improvements in advertising and transaction sales.

Downbeat outlook

Yelp is expecting its current quarter revenue to be in the band of $202.0 million–$206.0 million, while on average, analysts are expecting revenue of $215.0 million. For fiscal 2017, the company lowered its revenue target to the range of $850.0 million–$865.0 million, while analysts are looking for revenue of $889.0 million.

This updated guidance is the second time that Yelp has trimmed its revenue forecast for the year. Initially, the company expected to hit $1.0 billion in revenues this year, but in February, the company scaled the expectation down to the range of $880.0 million–$900.0 million.

Pressure from Google and Facebook

Yelp’s anemic revenue guidance smells of a company struggling to cope with competition for advertisers. Although it added 4,500 new advertising accounts in 1Q17, as compared to 2,800 in the previous quarter, Yelp is seeing growing competition from Facebook (FB) and Alphabet’s (GOOGL), Twitter (TWTR), and Snap (SNAP).

Notably, Facebook and Google represent particularly serious threats, considering how they are gunning for Yelp’s staple market of small local business advertisers.

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