Yelp Inc. is under pressure again from an activist investor to sell the company — which is not a new story and may face the same roadblock as previous efforts.
Eric Semler, the chief executive of TCS Capital Management LLC and a top Yelp investor who is stirring up the pot, said that he believes Yelp
YELP,
is actually doing well, and pointed out that the review site has had eight consecutive quarters of double-digit revenue growth and its home services is now growing faster than its core restaurant business.
In Semler’s view, the problem is not with Yelp but with investors: He believes that Wall Street does not appreciate the company’s value. And the company’s top executives are not helping, with their fat paychecks and large stock sales that don’t generate confidence, he said.
“Yelp is not the company people think it is,” Semler told MarketWatch in an interview Tuesday. “It is a robust home-services business, a majority of its revenue is coming from home services. Restaurant is growing too, but at 10%, not 25%. You have a thriving business with a ridiculously absurd valuation, so it makes sense for something to happen.”
TCS Capital Management issued a scathing letter to Yelp’s board of directors Tuesday, expressing “serious concern and disappointment with the abysmal performance of Yelp’s stock price and to demand that the board immediately explore strategic alternatives.” TCS said it owns 4% of Yelp’s outstanding shares, and is one of the company’s top five shareholders.
“We have not heard directly from the investor regarding their views beyond what has been issued publicly, but as always, we welcome constructive input from our shareholders on ways to increase shareholder value,” a Yelp spokesperson said in a statement.
Whether Yelp can be sold to a strategic or private-equity buyer for at least $70 a share, as Semler suggests, is the big question. Late Monday night, when news of TCS Capital’s letter was reported by the Wall Street Journal, its shares surged about 14% in after-hours trading, but on Tuesday, closed up just 5.7%, an indication of how the market feels about a 120%-plus premium bid materializing.
“Longtime Yelp followers may recall that this occurs roughly every four years,” wrote Justin Patterson, an analyst with KeyBanc Capital Markets. One of those efforts was in 2015, when Yelp hired Goldman Sachs to find a buyer, but decided not to pursue a sale. And in 2019, another activist, SQN Investors LP, agitated for change and for a sale of the company. In 2019, Yelp replaced three board members and initiated stock buybacks, and has since added two more directors.
It is those newer directors Semler hopes to reach. “I think I have a pretty good shot with the new board members,” he said. The rest of the board, he said, has rubber-stamped Chief Executive Jeremy Stoppelman’s salary of $41 million over the past five years. He also said that the top five C-suite executives at Yelp all make on average about $1.7 million a year, a high salary for a smaller tech company, he said.
Semler believes Yelp could merge with Angi Inc.
ANGI,
formerly known as Angie’s List, in a tax-free merger. Semler, who is a former board member of Angie’s List, agitated for change at that home-repair recommendation site, got a seat on the board, and within a year, Angie’s list was bought by IAC
IAC,
which still owns about 90% of Angi.
Other than Angi, Semler suggested GoDaddy Inc.
GDDY,
with its focus on small- to medium-sized businesses and Microsoft Corp.
MSFT,
as other potential acquirers besides Angi.
That is still a pretty narrow range of potential buyers, largely because the most obvious candidate would never happen. Given its past animosity with Alphabet Inc.’s
GOOG,
GOOGL,
Google — Yelp was at the forefront of getting regulators to look at Google’s monopolistic practices, often voicing publicly the bias in Google’s search — the search and ad giant is on the bottom of the list of potential acquirers. Even Semler agrees that U.S. regulators would not let such a deal happen, even if it were to be proposed.
Yelp is a pretty narrowly focused company to continue to stand alone. But the right buyer has never materialized, and Google is not an option. While Semler seems to have some decent ideas, this is yet another effort that may end up with Yelp still standing alone.
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