TCS Capital Delivers Open Letter to the Yelp Board of Directors

Expresses Serious Concern and Disappointment with the Abysmal Performance of Yelp’s Stock Price

Believes that the Board is Inappropriately Beholden to CEO and Co-Founder, Jeremy Stoppelman, Who Continues to Use the Company as His Personal Piggy-Bank

Believes that the Board should Immediately Begin Exploring Strategic Alternatives and that Several Buyers would Pay a Premium for Yelp

NEW YORK, May 23, 2023 (GLOBE NEWSWIRE) -- TCS Capital Management, LLC (together with its affiliates, “TCS”), one of the largest shareholders of Yelp, Inc. (“Yelp” or the “Company”) (NYSE: YELP) with beneficial ownership of more than 4% of the outstanding common stock of the Company, today announced that it has delivered a letter to the Company’s Board of Directors.

The full text of the letter follows:

NEW YORK, NY 10019
(212) 621-8771

May 23, 2023

Yelp Inc.
350 Mission Street, 10th Floor
San Francisco, CA 94105
Attn: Diane Irvine, Chairperson of Board of Directors
cc: Board of Directors

Dear Diane,

TCS Capital Management, LLC and myself (“TCS,” “we” or “us”) beneficially own more than 4% of the outstanding shares of common stock of Yelp Inc. (“Yelp” or the “Company”), making us one of the Company’s five largest stockholders. The purpose of this public letter is to express our serious concern and disappointment with the abysmal performance of Yelp’s stock price and to demand that the Board immediately explore strategic alternatives. We believe that Yelp is shockingly undervalued and could be sold to either a strategic or private equity buyer for at least $70 per share – or more than a 120% premium to Yelp’s current stock price based on reasonable valuation assumptions. Alternatively, we believe Yelp should explore a tax-free merger with Angi Inc. (“ANGI,” formerly known as Angie’s List) to form a powerhouse in the $500 billion home services market. As a former board member and longtime investor in ANGI, I believe that a Yelp and ANGI combination would yield enormous revenue synergies and cost savings that could ultimately double the value of Yelp’s shares.

We have owned shares of Yelp for most of the last five years. Over that time period, Yelp shares have declined 30% and underperformed the S&P 500 by 98%. Over the last 10 years, Yelp’s share price has been flat, underperforming the S&P 500 by a staggering 208%.

Amid this horrific underperformance, Yelp has become one of the most undervalued stocks that we have encountered in our 22 years as an investment firm. Despite having one of the most recognized digital brands, 73 million users, and 265 million reviews, the Company trades at only 4.8x forward estimated EBITDA and 8.5x forward estimated cash earnings, with a 12% free cash flow yield. This depressed valuation is even more remarkable given that Yelp has reported annual revenue growth rates in the high teens over the last eight quarters. In fact, its strongest and largest business segment – home services – has reported 20-25% annual revenue growth rates over the last four quarters. Moreover, the Company generates significant free cash flow – even though it is not maximizing profitability – and has a pristine balance sheet with nearly $300 million of net cash. Furthermore, Yelp stands to benefit greatly from increased integration of AI and machine learning, especially with regard to improving the quality and value of Yelp reviews and recommendations.

Well capitalized companies with consistently high revenue growth and profitability rarely, if ever, trade as low as 4.8x EBITDA and 8.5x cash earnings.

So what’s wrong with Yelp?

We believe that Yelp’s tragic stock performance is attributable to several factors: 1) the complacency of its co-founder and longstanding CEO; 2) the laxity of its puppet Board; 3) the outrageously high stock-based compensation that has enriched senior management at the expense of unaffiliated stockholders; and 4) a long history of poor execution that has left the Company in a perpetual penalty box.

We believe that Yelp’s main obstacle to improved share price performance is Company CEO and co-founder, Jeremy Stoppelman. Despite the stock’s poor performance, Mr. Stoppelman has remained CEO of the Company for nearly 20 years. We believe he inappropriately runs the Company as his private fiefdom – even though he beneficially owns only 5% of the shares outstanding (only slightly more than do we) and has no special voting rights.

So how has Mr. Stoppelman managed to remain CEO in the face of such value destruction? We believe that the answer is the support he receives from a rubber stamp Board mostly full of long tenured directors with minimal relevant experience or investment in the Company.

And why would Mr. Stoppelman want to remain at Yelp for so many years as his own stock languishes? This is easy to understand when viewed through the lens of his unconscionable compensation packages. He has received $41 million over the last five years (including $10.8 million in 2022), even though Yelp shares have declined 30% over that same period. Similarly, senior executives under Mr. Stoppelman have been grotesquely enriched as well. In 2022, for example, the Company paid its CFO, CTO, COO and CPO an average of $5.7 million each. After examining these exorbitant executive compensation packages, it becomes clear why Mr. Stoppelman and his team would fiercely resist a change of control or a value-enhancing combination with the likes of an ANGI. While such a transaction would, undoubtedly, massively benefit all of the unaffiliated stockholders, it would threaten Mr. Stoppelman’s cushy compensation and lifestyle as Yelp CEO.

To add further insult to injury, our research indicates that Yelp insiders have collectively sold nearly $120 million of stock since 2018 and none have purchased shares during that same period (except to exercise options). Mr. Stoppelman himself has led the way with approximately $83 million of stock sales since 2018, including $19 million in January of this year alone. In essence, over the past five years an unfortunate theme has emerged involving Mr. Stoppelman and his team cashing out their stock positions while unaffiliated stockholders suffer painful losses.

Amidst these insider stock sales have come allegations of insider trading and suspiciously timed stock sales by members of the C-suite, including Mr. Stoppelman. In fact, in just the last year alone, Yelp has been forced to pay over $40 million to settle securities class action lawsuits alleging that Mr. Stoppelman, among other members of the C-suite, made materially false and misleading statements concerning the Company and benefited from those statements by selling their shares at artificially inflated prices. Tellingly, one of these settlements also included a commitment from the Company to implement a plan of “comprehensive corporate governance reform.”

Accordingly, we believe Mr. Stoppelman and his entrenched Board lack the incentive and skills to drive significant stock appreciation and have fostered a culture of complacency at the highest levels of the Company. For this reason, we believe that unaffiliated stockholders urgently deserve strategic action that would lead to a sale of the Company or a merger, such as with ANGI. Remaining independent only benefits Yelp’s egregiously overpaid senior executives.

Another troubling aspect of Yelp’s story is that Wall Street appears to have given up on its narrative. During the Company’s first quarter earnings call earlier this month, only two sell-side analysts asked questions on the call, whereas most of Yelp’s peers receive at least twice as many questions on their earnings calls. Yelp’s solid first quarter results were virtually ignored by analysts covering the stock and the research reports commenting on the results were relatively downbeat. Among the 10 analysts with ratings on Yelp, only one has a buy recommendation, three have a sell and six have a hold. We believe this negativity is largely attributable to Yelp’s checkered history of missing market expectations. We believe that many investors and analysts refuse to embrace the stock now because they have been “burned” by it for so many years. Of course, this has all happened under Mr. Stoppelman’s watch.  

Nevertheless, we are confident that Yelp would attract robust interest from many potential strategic and private equity suitors were the Board to put the Company up for sale. Such a sale would likely garner a high premium for all Yelp stockholders. We believe there is a large universe of potential acquirors, including private equity buyers that would be attracted to Yelp’s strong brand, pristine balance sheet, solid growth, predictable cash flow and opportunity to optimize margins.

For strategic buyers, Yelp has scarcity value as one of the only independently owned digital assets with scale. We believe that its 73 million users, 265 million reviews, 6.3 million businesses and massive organic traffic would be highly desirable to many digitally oriented companies. We would gladly share with you our long list of potential strategic buyers. We conservatively assume that a buyer would need to pay at least 12x 2024 estimated EBITDA to acquire Yelp (although we believe 15x 2024 estimated EBITDA is more realistic given its scarcity value). At 12x 2024 estimated EBITDA, Yelp would be valued at approximately $70 per share – offering more than 120% upside to its current stock price.

However, Mr. Stoppelman appears to be a major obstacle to a transaction. It has been widely reported over the years that he has rejected credible takeover offers from multiple suitors. We believe that he has continued to rebuff strategic overtures from third parties without consideration for the best interests of all stockholders.

As part of its review of strategic alternatives, the Board should also seriously consider a combination with ANGI, which we believe would unite two of the best brands in the $500 billion home services market. We also believe that the transaction could be structured in a tax-free manner and Yelp could remain publicly traded, which would enable current stockholders to participate in the upside of a merger with ANGI – a much stronger entity with accelerating growth and profitability. As a former board member and long-time investor in ANGI, I know the home services space well. We believe that ANGI is an obvious partner for Yelp, especially as ANGI has recently shown signs of turning the corner. We believe that a Yelp/ANGI merger would create a compelling multi-brand powerhouse that would benefit from substantial cost savings, improved traffic monetization and sales force efficiencies. We estimate that the combined company would generate $600 million of EBITDA and offer significant upside for Yelp stockholders.

Given Yelp’s many years of poor stock performance, we believe it is imperative for the Board to finally take action to maximize value for unaffiliated stockholders. We have been patient and long-term oriented for several years. But our patience has run out. If necessary, we are willing to make a bid ourselves to acquire Yelp. Our group includes a major operating executive with many years of experience as the CEO of a public company in the same business as Yelp.

In conclusion, we demand that the Board act to advance stockholder interests by immediately commencing a rigorous exploration of strategic alternatives. We look forward to hearing from you but, regardless, we will remain relentlessly focused on ensuring that these necessary steps are taken to build and maximize value for all stockholders.


Eric Semler
TCS Capital Management, LLC

About TCS Capital Management, LLC
TCS Capital Management, LLC is an investment fund founded by Eric Semler in 2001 and was at its peak among the largest independent technology, media and telecom investment funds before its conversion into a family office in 2017. TCS Capital Management, LLC and Mr. Semler have helped public companies unlock stockholder value both through thoughtful, collaborative shareholder activism and Mr. Semler’s impactful board service.

Investor Contact
Eamon Smith
Managing Director
142 West 57th Street, 11th Floor,
New York, NY 10019
1 (212)-621-8771