Why Yelp Inc. (NYSE: YELP) Shares Plunged Yesterday

On Tuesday Yelp Inc. (NYSE: YELP) share prices dropped 9.02%, along with a general pullback in the tech sector of the market.

The drop accompanied a broader fall in the NASDAQ Composite Index, which is full of tech companies. The NASDAQ Composite Index fell roughly 1.8% today.

In addition to Yelp, Twitter, Facebook, Pandora Media, and Netflix took a hard hit as well.

The business search engine has been rising almost 35% since May, and was among the tech companies that fell hardest yesterday.

Yelp had been experiencing concerning lows ever since it came under accusations of inaccurate reviews and questionable undisclosed business practices. Back in May, shareholder rights firm Johnson and Weaver LLP investigated whether or not Yelp had violated federal securities law by making deceptive statements when questioned about the accuracy of the reviews on the local business search specialist’s website. The investigation questioned the “true nature of the reviews on the company’s website, the reliability of the company’s processes in screening unreliable reviews, and undisclosed business practices in which businesses pay in order to surpress negative reviews.”

Despite this controversy, investors took advantage of the pullback to purchase more shares. Evidence from eMarketer published that Yelp was still obtaining more market share in the mobile search market – a multibillion dollar market. Analysts say that the mobile search market spending will rise from last year’s $4.95 billion to $28.41 billion in 2018. Yelp is slotted to outgrow other peer companies, including Google, in the market over the 4 year span. Google, by comparison, expects to see its market share drop from just under 83% in 2012 to 64% in 2016.

This disruptive growth means that Yelp is on track to more than double its $4.67 billion market cap to over $10 billion.

Prices of Yelp stock are no where near cheap. The company’s stock is at 21 times the last 12 months sales, and 220 times the next year’s expected earnings. If Yelp can continue this upwards growth and continues to capture a larger share of the ever increasing target market, the stock will absolutely reward its investors down the line.