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Yelp Shares Fall to Two-year Low After Guidance Cut

07/29/2015 | 11:55am US/Eastern

Yelp Inc. shares fell to their lowest level in two years on Wednesday after the reviews site cut its revenue guidance for the year, reigniting concerns about its ability to grow.

San Francisco-based Yelp on Tuesday lowered its revenue guidance by about 5% to a range of $544 million to $550 million. The company also said it would cut its branded-advertising product, which had struggled in recent quarters as people shift away from traditional display ads to performance-based advertising products.

Shares of Yelp fell as much as 29% in morning trading Wednesday, erasing more than $700 million from its market value. More recently, shares were down 28% to $24.07 a share. Yelp's stock peaked at $101.75 a share in March 2014.

On top of the revenue-guidance cut, which Yelp attributed to slower growth in salesforce hiring and the phasing out of brand advertising, some analysts were discouraged by Yelp's traffic in the second quarter.

Traffic growth has been a concern for investors lately, and the company said in April that it would stop providing total monthly unique visitors, focusing instead on desktop and mobile monthly unique visitors.

The company said Tuesday that monthly mobile unique visitors rose 22% in the second quarter from the prior year, to about 83 million, on a monthly average basis. Still, that represented a slowdown from the 29% year-over-year increase in users it posted in the first quarter and its 37% increase from the fourth quarter.

In a note, Northland Capital Markets analysts said decelerating user growth could drive the company to spend more on marketing.

Yelp started in 2004 after former PayPal executives Jeremy Stoppelman and Russ Simmons devised a local website to replace word-of-mouth recommendations. With a $1 million investment from Mr. Levchin, a PayPal co-founder, Yelp quickly spread to new markets and drew a community of contributors.

Yelp relies on Google's search engine for more than half its online visitors. That reliance has created tension between the two companies over the years, especially as Google has pushed further into its own listings for restaurants and other local points of interest.

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