By Alistair Barr
Yelp Inc. is struggling with a problem analysts call the
"unicorn bubble, " as the local search and advertising company
competes with big startups for young employees that are vital to
its growth.
"Unicorns"--later-stage startups scooping up big money in
private financing rounds valuing them at $1 billion or more--are
flush with venture capital money, which they are spending to hire
workers in San Francisco and the Bay Area. As a result, Yelp is
having to spend more to hire salespeople and is adding them at a
slower rate than previously expected, the company said Tuesday.
Tougher hiring conditions could mean fewer ads sold, slower
revenue growth and lower profit in the future. Yelp's employees
sell local ads to small businesses with listings on its website and
app--its main source of revenue.
"We certainly are feeling those impacts," Geoff Donaker, Yelp's
chief operating officer, said on a conference call with analysts
following the company's disappointing quarterly results Tuesday. He
said the company's costs have increased, a "function of
compensation in the marketplace. So we will do what we can to hold
the dam on that whole thing and ride it out."
Yelp on Tuesday forecast sales head-count growth of 30% in 2015,
down from a previous expectation of 40% growth. It also lowered its
full-year revenue forecast and said two-thirds of that reduced
outlook was because of its struggle to add more sales staff.
The increased competition for workers is the latest headache for
Yelp. It was trying to sell itself, but CEO Jeremy Stoppelman said
Tuesday he plans to operate the company independently. It also
continues to struggle with Google Inc.'s changes to its search
engine.
Analysts are concerned. Mark Mahaney, of RBC Capital Markets,
has been tracking the impact of startups flush with cash disrupting
publicly traded rivals.
"The 'unicorn bubble' is causing aggressively rising
workforce/compensation challenges," Mr. Mahaney wrote in a note to
investors Wednesday. "Perhaps especially for public companies in
the Bay Area with stagnant stock prices. Which is Yelp."
Yelp shares slumped 28% at $24.04 in afternoon trading
Wednesday. The stock has more than halved in value over the past
year.
Write to Alistair Barr at alistair.barr@wsj.com