Takeaway: Here are the first two parts of a four part interview between private investor Buddy Carter and Hedgeye CEO Keith McCullough.
In the first of four parts of a wide-ranging interview with Buddy Carter, a private investor and former proprietary trader at Goldman Sachs, Carter discusses how to find the best resources in a radically changing global information landscape with Hedgeye CEO Keith McCullough.
In the second of four parts in a wide-ranging interview with CEO Keith McCullough, private investor Buddy Carter, a former proprietary trader at Goldman Sachs, talks how about technology has changed the pace and the way we consume financial information.
Takeaway: We think the BoK is gearing up to ease monetary policy and/or intervene in the FX market to arrest KRW appreciation.
Feel free to ping us with any follow-up questions. Have a great evening,
Associate: Macro Team
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Takeaway: 64% NO; 36% YES
Right now, 43 analysts have a “Buy” rating on Facebook and nine have “Holds” – there are zero “Sells.” Shares are currently trading at 14X revenues (with advertising revenues set to slow meaningfully through 2014 according to Facebook management). Hedgeye CEO Keith McCullough believes that “as revenue growth slows, this wacky 14x revenue multiple should compress.”
That said, we wanted to get your opinion by asking in today’s poll: Would you buy Facebook right now?
At the time of this post, 64% of voters said NO; 36% YES.
Several NO voters agreed that the timing isn’t right either because of #bubblesbursting, or the market being too risky, as this voter explained, “Technically the chart needs more time to base and consolidate before stepping in to buy. Second, the Nasdaq is in a downtrend presently, which is leading the market, and therefore, initiating a buy here would be trying to catch a falling knife or going against the path of least resistance. There are much better plays out there right now, but $FB will be on my watch list.”
Another person who voted NO said, “The multiple to ARPU at Facebook is still ~80x. Mature subscription businesses (i.e. Satellite TV) trade at multiples of ~3-4x. Facebook will have to grow ARPU 20 fold just to grow into its current valuation. That's a tall order for a small business, let alone a company of FB's size.”
Additionally, a different NO voter pointed out that “the business model might be powerful, but everything has a price. There have been 411 insider transactions since the IPO for net proceeds of $15.2 billion. Only one of those was an insider Buy – and that was at $21.03 for a million bucks. That's only 0.01% of the total cumulative Insider Transaction value – and was at a price that's 63% below current levels. If Insiders won't buy, then why should I?”
Those who took the opposite stance and voted YES said:
Hedgeye Managing Director and Restaurants analyst Howard Penney walks investors through the reasons why he added Panera Bread as a "Best Idea" on the short side over a year ago, ahead of its earnings report tomorrow night.
Takeaway: Our short focuses on the TREND/TAIL duration, so we don't care much about 1Q14. But, the stronger the quarter, the more bearish we become
We're not seeing as much risk to 1Q14 Revenues; largely because what we've seen in terms of macro pressure didn't begin until mid February, which was after the company issued 2014 guidance (2/5/14). That said, the backdrop has materially deteriorated since then, and will only get worse through 2014.
We previously pointed out the sensitivity of YELP's customer penetration levels to commodity prices in our YELP Short Best Ideas presentation. Dating back to 1Q11, the y/y change in customer penetration levels is almost perfectly inversely correlated (-.93) with the change in commodity prices on a y/y basis.
The point is that SMBs see a disproportionate impact from rising input costs given lower economies of scale. In turn, advertising expenditures become increasingly discretionary when the SMB P/L is under pressure.
The CRB index has seen its sharpest sequential increase since 2011; most of that acceleration occurring after the company issued guidance. More importantly, commodity comps ease throughout the year, so unless commodity costs decline materially, the y/y pressure will intensify.
Put another way, as we move through the year, each SMB that is debating whether to renew its contact with YELP will be in a progressively worse situation than it was when it initially decided to advertise with YELP.
YELP loses virtually all its clients annually, meaning it must continually sign more new clients in excess of what it starts the year with in order to drive growth. That said, it's current client base will always be its future hurdle; the larger that is, the larger the hurdle, the lower it's future growth.
The sad truth is that YELP's current year strength will become next year's weakness since it can't hold on to its customers, and it's addressable market is much smaller than many believe (see note below more detail). In turn, the stronger YELP's 1Q14 revenues, the more bearish we become.
We provide more detail on our short thesis in the note below, and far more detail in our YELP Short Best Ideas Slide Deck. For a copy, or to discuss our thesis in more detail, let us know.
YELP: Death of a Business Model
04/04/14 10:05 AM EDT
Hesham Shaaban, CFA
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