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Yelp, the online review company, moved last month to address
criticism that it was not doing enough in response to a plunge
in advertising revenue. It announced planned cost savings and
added three independent directors to its board.
In the letter sent on Thursday and seen by Reuters, SQN praised
Yelp for its plan to deliver double-digit revenue growth for the
next five years, the changes to its board, and a commitment to
buy back $500 million worth of stock.
"Considering the numerous changes made or announced by the
company, and the stated financial targets for 2019 and 2023, we
are prepared to support the newly refreshed Board and refrain
from nominating director candidates for election at the 2019
Annual Meeting," Amish Mehta, SQN's founder, wrote.
SQN, which bets on tech companies and is not traditionally an
activist investor, will not be submitting its own nominees to
Yelp's board this year after the company outlined a plan to turn
business around. The hedge fund sent its letter just before the
deadline to nominate directors.
Even so, the hedge fund said much work is left to be done to
fulfill Yelp's recently adopted promises. Selling the company
may still be necessary if management cannot deliver on a planned
turnaround, the fund added, moderating its earlier call for the
company to be put up for sale.
A source familiar with Yelp's strategy said this week that the
company is not running any process to sell itself. Yelp did not
immediately respond to a request for comment.
SQN urged Yelp to appoint one of the three new directors as its
board chair to hold "management accountable to performance
targets."
These include cutting costs by moving some staff out of
high-cost centers like San Francisco and considering
partnerships, including a potential move with ANGI Homeservices,
that could help boost revenue.
Most important, however, may be boosting returns and achieving a
mid-teens compound annual growth rate from 2019 to 2023, the
hedge fund said. "This implies adding roughly $1 billion in
revenue or essentially doubling the size of Yelp by 2023," the
letter said.
SQN, which invests roughly $1.1 billion, is Yelp's fourth
largest investor, according to Refinitiv data, having first
bought into the company four years ago and now holding a 4
percent stake.
Late last year, SQN's patience snapped against a backdrop of
financial underperformance by Yelp under its co-founder and
chief executive Jeremy Stoppelman. Yelp's stock tumbled 45
percent in the five years ended on Dec. 7, 2018, while the S&P
500 index gained 62 percent, SQN wrote in an earlier letter.
SQN called for changes in a 112-page presentation released in
January, arguing that Yelp's share price could jump to $65 if
the company followed its road map. The stock closed at $35.93 on
Wednesday, giving the company a market capitalization of $3
billion.
(Reporting by Svea Herbst-Bayliss in New York; Additional
reporting by Stephen Nellis in San Francisco; Editing by Leslie
Adler)
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