Yelp generated $286 million in operating cash flow last year. The company is debt-free, carries $343 million in cash, and spent $251 million buying back stock—more than its entire free cash flow. Operating margins expanded from 11% to 14%. Net income hit $128 million through September. By traditional metrics, this is a healthy, profitable software business generating cash and returning it to shareholders.

The stock trades at $30, down 28% from its December peak. Market cap sits at $1.95 billion, implying a 12.7% free cash flow yield and forward P/E of just 12 times—half the market multiple—for a company with 90% gross margins. Something doesn't add up, and the answer lies in one number: revenue growth decelerating from 6.8% to 5.2% to 3-4%.

The Platform Nobody Questions Until the Growth Stops

Yelp built something genuinely valuable over twenty years: 280 million consumer reviews connecting people to local businesses. The company monetizes this content by selling advertising to restaurants, home service contractors, auto repair shops, and other local businesses who want visibility when consumers search for their categories. It's an elegant model—96% of revenue comes from advertising, the platform requires minimal capital expenditure, and customers tend to stick around because the ads work.

The problem isn't that the business broke. The problem is that it stopped growing at a pace that justifies investor enthusiasm. Restaurant advertising, historically the core category, faces structural headwinds as establishments close and discretionary spending contracts. Home services and auto repair are growing faster, and the recent $66 million RepairPal acquisition bolsters the auto vertical, but these growth pockets aren't large enough yet to offset weakness elsewhere. Meanwhile, quarterly revenue has essentially flatlined—Q1 through Q3 of fiscal 2025 showed $369 million, $370 million, and $376 million, barely moving sequentially while year-over-year comparisons keep shrinking.

When Cheap Isn't Cheap Enough

The valuation looks compelling on paper. At 12 times forward earnings with a double-digit free cash flow yield, Yelp screens as obviously undervalued compared to market averages. The company is buying back 10-13% of its float annually, which mechanically drives earnings per share higher even if absolute profits stagnate. Management projects operating margins can reach 18% by 2027 as stock-based compensation declines from 11% to 6% of revenue and operating leverage kicks in. The balance sheet provides downside protection—there's essentially no scenario where Yelp goes bankrupt.

But value traps exist precisely because numbers look good while business deteriorates underneath. Google gives away tools Yelp charges for. AI search from ChatGPT and Perplexity could bypass Yelp entirely. TikTok and Instagram are discovery engines for younger demographics who never developed the Yelp habit. Small business failures are accelerating, eroding the advertiser base. Yelp's 3% share of the $40-50 billion digital local advertising market appears to be shrinking.

The investment decision: misunderstood compounder that will re-accelerate through services expansion and AI, or melting ice cube that looks cheap because it's structurally challenged? At $30, the stock prices modest pessimism but not catastrophe. If growth stabilizes at 4-5% and margins reach 18%, fair value sits around $35-40. If revenue goes negative, downside to $20-25 exists. The risk-reward feels balanced in a way that rarely excites anyone—it's just reasonable, which in markets often means forgettable.