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Yelp Admits the Unicorn Bubble Is Hurting Its Profits

Public companies in the Bay Area with stagnant stock prices are at risk in the unicorn bubble.

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Yelp debuted “surprise losses” on its earnings yesterday, causing its stock to plummet 28 percent by the next day. Its projected revenue for 2015 was lower than expected, in part because its employees’ salary costs are rising. With the rise of big, private-venture-backed companies in Silicon Valley — so-called unicorns — the competition for workers is fierce.

COO Geoff Donaker admitted that this “unicorn bubble” is hurting Yelp. “We certainly are feeling those impacts,” he said in response to a question from RBC Capital Markets’ Mark Mahaney during Yelp’s earnings call. “I think for the most part, it is something that we just have to ride out.”

This is the first time that a public company has said the unicorn bubble is impacting its business, according to Mahaney.

“If you’re an employee of a public company in the Bay Area with a stagnant stock price and you’re really good at what you’re doing, you have the chance to go down the road and get a lottery ticket [at a startup],” Mahaney told Re/code.

Yelp employees are getting offers from private companies at 1.5 to two times their current salary. As a result, the reviews company predicted it would only be able to increase its salesforce by 30 percent year over year even though it originally aimed to hit 40 percent. “I heard it clear as day from the Yelp numbers and call last night,” Mahaney said. “They’re not able to grow as quickly as they want to because of the unicorn bubble.”

A Yelp spokesperson told Re/code that to combat the hiring problems it has plans to hire people in other offices across the country.

All companies are shelling out more and more money for talent. It’s not necessarily a problem for the private startups whose profit matters less to their investors than their growth rate. With hundreds of millions or billions in venture, the likes of Uber, Airbnb and Pinterest can pay big staff salaries without it hurting them … yet.

That’s not the case for public companies with slower growth and greater pressure from shareholders to produce strong profit numbers. In a report on the earnings, RBC Capital Markets pointed out that the compensation competition could impact any and all “public companies in the Bay area with stagnant stock prices.” In other words, Yelp may not be the last casualty of the unicorn bubble.

The other cause of Yelp’s low 2015 revenue projections was the phasing out of brand ads to make way for local, native advertising. “Ads that play video or audio intrude upon the consumer experience,” Yelp CEO Jeremy Stoppelman said on the call.

This article originally appeared on Recode.net.

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