Management Compensation Raises Concerns at Yelp
"So Jeremy Stppleman is still the CEO, the co-founder from 20 years ago, and I think he's done a good job navigating the business towards services. However, as I was reading the proxy, I found myself getting increasingly annoyed. Yelp's management team has a base salary, annual cash incentives, and performance-based stock bonuses tied to revenue and relative return metrics. I was particularly frustrated to see that the co-founder and CEO, who owns 6.3% of the company, is taking an extra $10 million in annual stock compensation. This seems unnecessary given he could benefit directly from share price appreciation."
Ryan acknowledges CEO Jeremy Stppleman’s role in pivoting Yelp towards a stronger services model, but he criticizes the management compensation structure. He is especially troubled by the extra $10 million in stock compensation awarded to the CEO despite his significant ownership, suggesting it may not align with shareholder interests.
Compelling Starter Buy for Yelp
"Okay, despite the disappointments with the proxy statement, I am still very compelled by the valuation. I think I'm going to buy some shares. It's going to be a starter position. And the two metrics I'm tracking to potentially raise my position sizing is whether I am right about the services business. Because if they have a unique method of approaching a valuable customer group, this could be a much bigger business and you're going to get the benefit of revenue growth plus operating margin expansion plus either multiple rerating or huge stock buybacks which is a recipe for great returns. You can keep that going to help not only with that upside but with the downside protection as well."
Ryan expresses a strong bullish stance on Yelp, indicating a starter position buy. His rationale is based on the company’s attractive valuation, potential revenue growth and operating margin expansion driven by its expanding services segment, and the benefit of share buybacks as downside protection.
Yelp as the Small Cap of the Week with a Revitalized Business Model
"Yelp, with a market cap of just under $2 billion and a revenue growth rate of 26% since 2010, has transformed its business by shifting focus from restaurants to services like plumbing and legal, while boosting its operating profit from -$40 million to $183 million. Its 12% buyback yield further evidences its capital discipline."
Yelp is spotlighted as a turnaround small cap with impressive growth and operational improvements. Its evolving revenue mix and strong share repurchase program suggest an undervalued opportunity amid industry headwinds in restaurant advertising.