YELP: Thoughts into the Print (4Q14)

Takeaway: We're expecting a light 2015 guidance release given lofty consensus estimates. Note that our short thesis extends well beyond 2015.


  1. CONSENSUS 2015 ESTIMATES BEYOND LOFTY: Their mistake is simple: If you don’t understand the attrition element to the story, you can’t understand the excessive number of new accounts required to hit 2015 consensus estimates, which will require both accelerating new account growth and record low attrition.
  2. EXPECTING LIGHT GUIDANCE, BUT: We’re expecting revenue growth of 32% under our bull case scenario (vs. consensus of 43%).  However, there are a few risks to being short the guidance release, but not enough to consider covering ahead of the print.
  3. IT’S MORE THAN JUST 2015: The problem with YELP’s business model is that its current account base is always the hurdle.  The more accounts it starts the year, the more accounts it will lose, and the more new accounts it must sign to generate growth.  We’re are already seeing signs that it’s model is failing, likely because its TAM isn’t large enough to support it. 



Consensus estimates for 2015 remain outside the realm of reason.  Their mistake is simple: If you don’t understand the attrition element to the story, you can’t understand the excessive number of new accounts required to hit 2015 estimates. 


In the table below, we created a scenario analysis flexing new account growth and average quarterly attrition for 2015.  For perspective, in 2014 YTD, YELP has achieved average new account growth of 40%, which was partially inflated by both the Qype account transition in 4Q13 and the reclassification of SeatMe accounts into Active Local Business Accounts beginning 2014.  YELP's average quarterly attrition in 2014 YTD was 18.5%.  


That said, YELP will need to produce both accelerating new account growth and historically low attrition rates to hit 2015 consensus estimates, which are calling for 43% revenue growth.


YELP: Thoughts into the Print (4Q14) - YELP   2015 Consensus Scenario Detail 3



For 2015, we’re expecting revenue growth of 32% under our bull case, 23% under our bear case (vs. consensus of 43%).  We’re expecting guidance to come in light; especially since management had to essentially cut 2014 revenue guidance last quarter after factoring in the 3Q14 top-line beat.  However, there are a couple risks to being short the release.


The first is the two international acquisitions announced less than a week after its 3Q14 release.  YELP didn’t provide any financial detail on these acquisitions, so we’re not sure how much upside they might provide.


The second is the precipitous decline in commodity costs, which we have loosely linked to YELP’s attrition rate (although that relationship appears to have broken off this past quarter).  This is more of a callout than a legitimate concern.


YELP: Thoughts into the Print (4Q14) - YELP   CRB vs. Att Rate 3Q14


The problem with YELP’s business model is that its current account base is always its hurdle.  YELP’s business model is predicated on hiring enough new sales reps to drive the new account growth necessary to compensate for its rampant attrition.  Since 1Q12, quarterly churn has averaged 18.8%, with a relatively tight standard deviation of 60bps. 


YELP: Thoughts into the Print (4Q14) - YELP   Attrition Rate 3Q14


That said, the more accounts YELP starts the year, the more accounts it will lose, and the more brand new accounts it must sign in the following year to generate its growth.  This strategy would be sustainable if YELP’s TAM was as large as management believed.  It’s not; we delve into its TAM in great detail in the note below.


YELP: Debating TAM

06/30/14 01:10 PM EDT

[click here]


More importantly, we are already starting to see signs that its model is failing.  YELP is now at the point where it can’t produce new account growth in excess of the rate that it is hiring sales reps, which may be the most glaring sign that its model is broken.    


YELP: Thoughts into the Print (4Q14) - YELP   Reps vs. New Acct 3Q14



Let us know if you have any questions, or would like to discuss in more detail.


Hesham Shaaban, CFA


The Euro, Oil and Sentiment

Client Talking Points


The Euro bounced fast from $1.11 to $1.13 (on spec that the Fed is more dovish today), but now has to decide whether Greek fires (banks -10-15% this morning, stock market -7%, UST 10YR Yield up almost 100 basis points to 10.46%) are going to be put out by The Draghi again – should he come out with a weekly central planning podcast?


Same #deflation fire drill – WTI down a full 2% this morning after failing @Hedgeye $46.81 resistance – and has no immediate-term support to $44.02. If the Fed is dovish today (Down Dollar, Up Euro), they could try to bounce Oil again. We would much prefer to be long Gold on that idea right now – Gold has immediate-term upside to $1325.


It took 1 up week for U.S. Equity beta to bring the bulls back (there’s only been 1 up week by the way); today’s II Bull/Bear Survey shows the spread between Bulls and Bears widening +16.5% week-over-week to +3680 basis points to the Bull side. Consensus Macro has been wacky long SPY futures/options all year (and short the Long Bond) – we still say do the opposite, until sentiment resets.



WATCH and INTERACT with CEO Keith McCullough and Hedgeye's analysts as they discuss the stock market, economy and more all in real-time. They will answer your questions live via email, phone, Twitter and chat throughout the entire trading day. 


Special appearances by market experts, including best-selling "Currency Wars" author James Rickards, money manager Michael Holland, Jones Trading chief market strategist Michael O'Rourke and many more. CLICK HERE to sign up.


Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

The Vanguard Extended Duration Treasury (EDV) is an extended duration ETF (20-30yr). As our declining rates thesis proved out and picked up steam over the course of the year, we see this trend continuing into Q1.  Short of a Fed rate hike, there’s no force out there with the oomph to reverse this trend, particularly with global growth decelerating and disinflationary trends pushing capital flows into the one remaining unbreakable piggy bank, which is the U.S. Treasury debt market.


As growth and inflation expectations continue to slow, stay with low-volatility Long Bonds (TLT). We believe the TLT has plenty of room to run. We strongly believe the dynamics in the currency market are likely contribute to a “reflexive deflationary spiral” whereby continued global macro asset price deflation and reported disinflation both contribute to rising investor demand for long-term Treasuries, at the margins.


Hologic (HOLX) is a name our Healthcare Sector Head Tom Tobin has been closing monitoring for awhile. In what Tom calls his 3D TOMO Tracker Update (Institutional Research product) of U.S. facilities currently offering 3D Tomosynthesis, month-to-date December placements signaled a break-out quarter after a sharp acceleration in October and slight correction to a still very high rate in November. We believe we are seeing a sustained acceleration in placements that will likely drive upside to Breast Health throughout FY2015. Tom’s estimates are materially ahead of the Street, but importantly this upward trend in Breast Health should lead not only to earnings upside, but also multiple expansion and a significant move in the stock price.

Three for the Road


Our interactive Market Marathon just hours away. Don't miss out! Get in: … cc @KeithMcCullough



We are only as strong as we are united, as weak as we are divided.

-J.K. Rowling


The Athens Stock market is -6.9% this morning to -11.6% year-to-date.


Takeaway: In today's edition of the Macro Playbook, we show how this year has provided investors with a much easier "market" to generate alpha in.


Long Ideas/Overweight Recommendations

  1. iShares U.S. Home Construction ETF (ITB)
  2. Consumer Staples Select Sector SPDR Fund (XLP)
  3. Health Care Select Sector SPDR Fund (XLV)
  4. PowerShares DB U.S. Dollar Index Bullish Fund (UUP)
  5. iShares 20+ Year Treasury Bond ETF (TLT)
  1. LONG BENCH: Vanguard REIT ETF (VNQ), Utilities Select Sector SPDR Fund (XLU), Vanguard Extended Duration Treasury ETF (EDV)

Short Ideas/Underweight Recommendations

  1. iShares TIPS Bond ETF (TIP)
  2. iShares MSCI Emerging Markets ETF (EEM)
  3. CurrencyShares Japanese Yen Trust (FXY)
  4. SPDR Barclays High Yield Bond ETF (JNK)
  5. Industrial Select Sector SPDR Fund (XLI)
  1. SHORT BENCH: SPDR Oil & Gas Exploration & Production ETF (XOP), CurrencyShares Euro Trust (FXE), WisdomTree Emerging Currency Fund (CEW)



It’s a Great Exposure-Picker’s Market: One of the things Keith and I have been hitting on in client meetings this year is how great of a market this is for investors to generate alpha in – both long/short and long-only (via tracking error).


And by “market” we don’t necessarily mean the U.S. equity market (though it applies to our statement); we mean Global Macro markets. Be it at the asset class, region, country, sector or style factor level, the variance of returns among these various exposures is up substantially on a YoY basis.


Specifically, the variance of YTD returns among the nearly 200 ETFs we track in our Tactical Asset Class Rotation Model (TACRM) is up +36% YoY; if you narrow the field to just the top-10 and bottom-10 performers each year, the level of variance is up +65% on a YoY basis.






With return dispersion on the rise across global financial markets, there is no excuse in 2015 for not being able to generate alpha. We are hopeful that you find our daily missives helpful in your quest; as always feel free to reach out whenever you’d like our updated thoughts on any key risks.


***CLICK HERE to download the full TACRM presentation.***



Global #Deflation: Amidst a backdrop of secular stagnation across developed economies, we continue to think cyclical forces (namely #StrongDollar driven commodity price deflation) will drag down reported inflation readings globally over the intermediate term. That is likely to weigh heavily upon long-term interest rates in the developed world, underpinning our bullish outlook for U.S. Treasury bonds.


EARLY LOOK: Late-Cycle Slowdown (1/27)


#Quad414: After DEC and Q4 (2014) data slows, in Q1 of 2015 we think growth in the US is likely to accelerate from 4Q, aided by base effects and a broad-based pickup in real discretionary income. We do not, however, think such a pickup is sustainable, as we foresee another #Quad4 setup for the 2nd quarter. Risk managing these turns at the sector and style factor level will be the key to generating alpha in the U.S. equity market in 1H15.


The Hedgeye Macro Playbook (1/23)


Long #Housing?: The collective impact of rising rates, severe weather, waning investor interest, decelerating HPI, and tighter credit capsized housing in 2014.  2015 is setting up as the obverse with demand improving, the credit box opening and 2nd derivative price and volume trends beginning to inflect positively against progressively easier comps. We'll review the current dynamics and discuss whether the stage is set for a transition from under to outperformance for the complex.


HOUSING: Riding Strong Through the Actual and Arithmetic Blizzard of Crummy Macro Data (1/27)


Best of luck out there,




Darius Dale

Associate: Macro Team


About the Hedgeye Macro Playbook

The Hedgeye Macro Playbook aspires to present investors with the robust quantitative signals, well-researched investment themes and actionable ETF recommendations required to dynamically allocate assets and front-run regime changes across global financial markets. The securities highlighted above represent our top ten investment recommendations based on our active macro themes, which themselves stem from our proprietary four-quadrant Growth/Inflation/Policy (GIP) framework. The securities are ranked according to our calculus of the immediate-term risk/reward of going long or short at the prior closing price, which itself is based on our proprietary analysis of price, volume and volatility trends. Effectively, it is a dynamic ranking of the order in which we’d buy or sell the securities today – keeping in mind that we have equal conviction in each security from an intermediate-term absolute return perspective.          

Attention Students...

Get The Macro Show and the Early Look now for only $29.95/month – a savings of 57% – with the Hedgeye Student Discount! In addition to those daily macro insights, you'll receive exclusive content tailor-made to augment what you learn in the classroom. Must be a current college or university student to qualify.


TODAY at 11:00am EST, the Hedgeye Gaming, Lodging, and Leisure team will host Mike Driscoll, Editor-In-Chief of Cruise Week to discuss current demand trends.  Mike has extensive contacts throughout the travel agent community and should provide relevant and timely commentary.  In line with our standard format, prepared commentary will be followed by an email Q&A session.


The topics of discussion include:

  • Wave 2015 bookings/pricing
  • Travel agent expectations
  • New ship premiums
  • Customer demographics
  • Destinations: What’s hot/what’s not

For conference call details, please contact  



Mike Driscoll is editor-in-chief of Cruise Week, published since June '95. Its readers include most of the top cruise sellers in the industry, industry analysts, and cruise line executives and employees. Mike has covered travel trade issues for more than 25 years. Before Cruise Week, he was the editor of ASTA Agency Management for seven years and is a graduate of the Medill School of Journalism at Northwestern University. Driscoll also studied writing at Trinity College, Oxford, England.

January 28, 2015

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Creatively #Patient

This note was originally published at 8am on January 14, 2015 for Hedgeye subscribers.

“Creative minds tend to make unusual associations because they engage in divergent thinking.”

-J.P. Guilford


Joy Paul Guilford was one of the first credible American researchers in the field of creative thinking. He was a psychologist (born in Nebraska in 1897, moved to LA – died 1987) “best remembered for his psychometric study of human intelligence, including the distinction between convergent and divergent production.” (Wikipedia)


Is your portfolio converging  or diverging from consensus? When you diverge from the crowd, are you typically early – or happy to be late? Irrespective of your answers to those questions, isn’t the idea of a diversified portfolio to have creative ideas that are all of the above? After all, it’s always nice to have something working!


Today is Ratification Day in the USA (Treaty of Paris officially ended the American Revolution vs. European Central Planners). I love ratifying the end of broken ways. And, even if all of European markets (and US markets reacting to them) only trade on the next central planning rumor today, I’ll always love the divergent thinking that’s been embedded in American independence.


Back to the Global Macro Grind


Yep, it’s all about the love this morning. I said it on the Q1 Macro Themes Call and I’ll say it again this morning – I absolutely love this market. The Global Macro long/short market of non-consensus ideas, that is!


Here’s a not so creative idea. Asset price #bubbles can pop.

Creatively #Patient - bubble cartoon 09.09.2014

The US stock market #bubble has been down for 8 of the last 10 trading days, and plenty of the #bubbles within the bubble (think social media, MLP, energy, TSLA in 2020, etc. stocks) continue to pop.


But, there’s always a bull case to be made somewhere. And, compliments of Hedgeye, asset price #deflation becomes the creative asset of the new buyer, from lower prices. We need to cross the #Quad4 #Deflation bridge before we get to #Quad1.


Are you with us and bullish on #Housing? Yesterday’s macro market action typified the opportunity that is being Creatively #Patient. US equity futures were green in the a.m., then ramped on news from a US homebuilder that they had a good quarter (KBH). Then:


  1. KB Homes (KBH) told the Old Wall that they still have margin pressure associated with what was a bad trailing 12 months
  2. Oh, and that they do a lot of business in the state of Texas
  3. KBH went from being up nicely to -18% on the day (so we #timestamped buy there in Real-Time Alerts, #patience)


Texas? Jobs correlated to asset price #deflation of West Texas Crude? Pardon?


Yeah, really creative thought path there guys. If you didn’t know that #Deflation’s Dominoes go like this: Yens and Euros burned by central planners à Strong USD vs Yens and Euros à Crashing Oil à Shaking High Yield Debt Markets (spread risk breakout) à Levered Energy (MLP) stocks smoked à Job losses in Texas, the Dakotas, etc…


Well, I guess now you know.


So join my boy, Mr. T (as in TLT Long Bond) in commemorating another fresh new 12 month high in the best way to play global #GrowthSlowing + #Deflation. Because lower-bond yields are discounting a peak in late-cycle job adds in a late-cycle economic indicator’s (inflation) Energy states.


What other wild and creative thought path can we come up with in lieu of the aforementioned causal factor embedded in crashing long-term bond yields (10yr started 2015 at 2.17% don’t forget)?


  1. Down Long-term Treasury Yields
  2. Compressing Yield Spread (long-end minus short-rates)
  3. Short the Financials?


Unless you’re still thinking it’s different this time, Financials are cyclicals too. And a core driver of bank earnings is called NIM (net interest margin) which is driven by the spread between the short and long-end of the Treasury curve.


Not to pick on people who got plugged chasing another US equity market top on December 29th, but that was a seminal day for we revolutionaries who refused to buy into the year-end CNBC hype.


At the close of US trading on December 29th:


  1. SP500 = all time high of 2090 (it has corrected -3.2% from there)
  2. Big Cap Financials (XLF) = $25.04 close (correction = -4.7% from there)
  3. Regional Banks (KRE) = $41.18 close (correction = -8.9% from there)


Again, I know. If all you do is talk about the SP500 (which you can’t charge an active manager premium fee for):


A)     At -3.2%, it hasn’t corrected that much – and, by the way, there have been great early-cycle and consumption sectors to be long (after they deflate) on oversold signals within the SP500 too

B)      But the mistakes associated with buying either late-cycle Industrials (think global demand), #deflation risk sectors (energy), and US Regional Banks have been severe


It’s early in the year, and my job is to help make sure you don’t underperform. The best way to do that is to think a little more creatively than the next fund manager, and be a lot more #patient.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr Yield 1.85-2.01%

SPX 1995-2044

FTSE 6332-6580

VIX 17.45-21.99
WTI Oil 44.01-49.03
Copper 2.43-2.65


Best of luck out there today,



Keith R. McCullough
Chief Executive Officer


Creatively #Patient - Chart of the Day

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real edge in real-time

This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.