• run with the bulls

    get your first month

    of hedgeye free


EDV: Removing Vanguard Extended Duration ETF from Investing Ideas

Takeaway: We are removing EDV from Investing Ideas.

Please note that we are removing EDV from Investing Ideas today.


"It's just a risk management move to not be as long bonds, for now," according to Hedgeye CEO Keith McCullough. "We're keeping TLT and MUB."


EDV is up 13% since it was added to Investing Ideas on 9/5/14 versus a 2% return for the S&P 500.


Click image to enlarge.

EDV: Removing Vanguard Extended Duration ETF from Investing Ideas - edv

YELP: Hiding the Bodies (Update)

Takeaway: See update below on timing of SeatMe reclassification.

UPDATE: We originally believed revenues from SeatMe (reservation service) would be reclassified from YELP's Other Services segment into its core Local Advertising segment starting in 1Q15.  However, that likely happened in 1Q14.  We just didn't realize it because the reclassification wasn't explicitly disclosed in any of YELP's filings until its 2014 10-K filed two weeks ago.  Given that its previously-reported 2014 quarterly segment revenues haven't changed within its recently-filed 10-K, we have to assume that the change already occurred in 1Q14.  Details below.  All Key Points remain the same.   



  1. THE MODEL IS DETERIORATING: YELP’s business model isn't sustainable; we're already seeing signs that its model is breaking down at a progressively worse rate within its reported metrics. 
  2. HIDING THE BODIES: In response, management is now manipulating its reported metrics to mask what's really happening.  In addition, YELP made a very questionable acquisition (Eat24), and potentially understated its expected revenue contribution (link) to make its core business look better.
  3. PENDING IMPLOSION: The overriding theme is that these suspect moves aren't any more sustainable than its current business model.  Management may buy themselves a short-term reprieve on its stock, but are only raising the sell-side bar on a fading buy-side growth story.



YELP’s Local Advertising segment is riddled by an absurd level of attrition, which is becoming increasingly more challenging to overcome as the company presses up against a limited TAM that can’t support its model.  We can already see YELP’s model breaking down in its reported metrics.  So in response, management is now manipulating that very data in order to hide what’s really going on.


YELP: Hiding the Bodies (Update) - YELP   New Acct vs. Sales 4Q14



Below are series of suspect moves that management has taken to mask its rampant attrition issues, and overstate the fading strength in its core Local Advertising segment. 

  1. **SEATME ALREADY RECLASSIFIED IN 2014**:  We originally believed that its SeatMe (reservation service) would be reclassified into its Local Advertising segment starting in 2015, which would provide an artifical boost to local ad revenues.  However, that boost likley happenned in 2014.  What confused us was that the SeatMe reclassification was never explicitly disclosed in any of YELP's filings until its 2014 10-K filed a couple weeks ago.  Given that its 2014 quarterly segment revenues previously reported haven't changed within its recently-filed 10-K, we have to assume that the change already occurred in 1Q14.  Note that the decision to shift SeatMe into its Local Advertising segment must have happened sometime between 3/14/14 and 4/30/14 (i.e. 2013 10-K filing date and 1Q14 earnings release).  In short, SeatMe already boosted Local Ad revenues in 2014.  
  2. HIDING THE BODIES: Starting in 2015, YELP will no longer provide its legacy Active Local Business Account metric in favor of a new metric called “Local Advertising Accounts”, which only includes accounts contributing to its Local Advertising Revenue.  The implications here is that YELP will buy itself some deniability on our attrition thesis.  YELP’s customer repeat rate is based off the legacy account metric that mgmt will be retiring. This means that we can’t explicitly calculate its customer mix (and attrition) moving forward.  This gives management deniability, but doesn’t change anything.
  3. BUYING GROWTH: YELP has a history of making questionable acquisitions to mask weakness elsewhere in its business.  With its most recent Eat24 acquisition, there's a good chance that management grossly underestimated Eat24's expected revenue contribution given that associated $36M revenue guidance raise is roughly inline with what Eat24 may have been generating back in 2013 (link).
    1. SeatMe: Reservation service acquired into 3Q13.  SeatMe accounts were reclassified into Active Local Business Accounts beginning 2014, and its revenues are being reclassified in Local Advertising starting 2015.
    2. Cityvox SAS/Restaurant-Kritik: International competitors acquired in 4Q14 after YELP couldn’t produce revenue growth off its international Qype acquisition from 4Q12. 
    3. Eat24: Food-ordering service acquired in 1Q15.  We have no idea how YELP will account for the service, but if it can reclassify its SeatMe reservation service as an Advertising business, there is nothing stopping them from doing the same with Eat24.



The overriding theme is that these suspect moves aren't any more sustainable than its current business model.  Management may buy themselves a short-term reprieve on its stock, but are only raising the sell-side bar on an a fading buy-side growth story. 


This is how we see the progression of the YELP's earnings releases as we move through the year.

  1. 1Q15: Let's say YELP knocks the cover off the ball on the 1Q15 release and raises guidance. Consensus then raises estimates even higher as they always have (likely 2H15 weighted, with 2016 even higher).  
  2. 2Q15: the bar is now higher.  YELP could produce 2Q15 upside, but its 3Q15 guidance release is likely less impressive, if not light.  
  3. 3Q15: YELP can't guide 4Q15 estimates above consensus estimates since the sell-side has raised the bar too high throughout the year.  
  4. 4Q15: Consensus expectations for 2016 have steadily risen throughout 2015 with the sell-side trying to justify their price targets.  Now, YELP needs a much bigger acquisition and/or a more egregious accounting maneuver to distract the street...while hoping no one catches on.

In short, the setup for YELP will become progressively more challenging as we move through 2015 into 2016.  Even if the stock pops on the 1Q15 release, it likely ends the year lower than it started once YELP doesn't raise guidance above expectations (likely 2H15).



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


Hesham Shaaban, CFA




Keith's Macro Notebook 3/10: USD | Deflation | Bunds


Hedgeye CEO Keith McCullough shares the top three things in his macro notebook this morning.

real-time alerts

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.

Current Global Macro Market Risk Summed Up In One Word



The US Dollar Index continues to go parabolic… making another fresh new high at $98.40. That puts it up over +9.0% YTD versus Euros and Yens (which remain flaming balls for devaluation.)

Current Global Macro Market Risk Summed Up In One Word - Dollar cartoon 03.09.2015


It’s an ugly morning for everything commodities, including Russian stocks which failed @Hedgeye TREND resistance and are down -3% today


As far as #Deflation is concerned, it’s mathematically impossible for the Europeans, Japanese, and Chinese to create reported inflation well into the summer time. Including the commodities bounce to lower-highs in February, Chinese producer prices dropped -4.8% y/y (Norwegian PPI -9.9% y/y).

Current Global Macro Market Risk Summed Up In One Word - Deflation cartoon 01.21.2015


Newsflash: many producers report lower revenues and earnings during #deflation.


***This is a distillation of some of Hedgeye CEO Keith McCullough's notes earlier this morning. For a deeper dive into our thinking on deflation and the market opportunities and economic implications, subscribe to our Morning Newsletter.

USD Driven #Deflation

Client Talking Points


The U.S. Dollar Index continues to go parabolic, making another new high at $98.40, which puts it +9.1% year-to-date vs. Euros and Yens which remain flaming balls for devaluation – ugly morning for everything commodities, including Russian stocks which failed @Hedgeye TREND resistance and are -3% today.


It’s mathematically impossible for the Europeans, Japanese, and Chinese to create reported inflation well into the summer time – including the commodities bounce to lower-highs in FEB, Chinese producer prices dropped -4.8% year-over-year (Norwegian PPI -9.9% year-over-year) – many producers report lower revenues/earnings during #deflation.


10YR German Yield retesting the lows at 0.31% (Swiss 10YR is negative -0.13) and that puts the spread between the German 10YR and the UST at +188 basis points (widest of the cycle). We think this mean reverts with the UST yield falling again – Janet Yellen just needs to breathe dovish on –t-bonds for that to happen. 

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

iShares U.S. Home Construction ETF (ITB) is a great way to play our long housing call, U.S. #HousingAccelerating remains 1 of the Top 3 Global Macro Themes in the Hedgeye Institutional Themes deck right now. Not only did U.S. home prices accelerate (in rate of change terms) in the Core Logic data this week to +5.7%, but the supply/demand data has been improving throughout the last 3 months.


Penn National Gaming is the best way to play improving domestic regional gaming trends due to its superior operational management and unit growth opportunities. Catalysts include positive estimate revisions, the opening of the first Massachusetts casino in June, and industry leading earnings growth in 2015 and 2016.


Low-volatility Long Bonds (TLT) have plenty of room to run. Late-Cycle Economic Indicators are still deteriorating on a TRENDING Basis (Manufacturing, CapEX, inflation) while consumption driven numbers have improved. Inflation readings for January are #SLOWING. We saw deceleration in CPI year-over-year at +0.8% vs. +1.3% prior and month-over-month at -0.4% vs. -0.3% prior. Growth is still #SLOWING with Real GDP growth decelerating at -20 basis points to +2.5% year-over-year for Q4 2014.The GDP deflator decelerated -40 basis points to +1.2% year-over-year.

Three for the Road


LIVE @ 1230pm today Healthcare Sector Head @HedgeyeHC Talks SHORT $ZMH & Answers Your Questions Click here to watch: https://app.hedgeye.com/insights/42844-hedgeye-healthcare-sector-head-tom-tobin-talks-short-zmh-and-answers-y



Tomorrow hopes we have learned something from yesterday.

-John Wayne


9% of American adults have never sent an email.

LEISURE LETTER (03/10/2015)



  • March 11 - SGMS 4Q CC, 4:30pm pw: SGMS
  • March 16-19: Cruise Shipping Miami Conference
  • March 19: Galaxy FY 2014 results



  • GTECH will delist from Milan bourse April 2
  • Planned IGT acquisition could be complete on April 7 (subject to approval of UK court), with merged company trading on NYSE
  • GTECH took a 22m euro loss related to IGT transaction in 4Q 2014
  • 4Q Conf call:
    • In the Americas, same-store revenues were essentially unchanged, as the solid 4.5% growth in Instants and Draw Games was offset by a drop in Jackpot.
      • Contraction in large jackpots: Only 1 Jackpot in the $300m range in Nov
    • Sharp increase in product sales (Oregon VLTs and machines in Latin America)
    • Will retain IL facility mgmt agreement at least through June 2021
    • Achieved lottery contract wins in Minnesota and Mexico
    • Belgium Jackpot was a bright spot
    • Greece: were awarded up to 5,550 of the initial 16,500 OPAP machine in addition to the central system that GTECH had previously won. Still no visibility on timing.
    • Operating income of the Italy segment was impacted by the mix of Machine Gaming revenues, higher remuneration paid to retailers in order to strengthen long-term partnership and the timing of a large marketing campaign for the launch of a new family of annuity tickets. On a full-year basis, however, these factors were more than neutralized, yielding a 3% increase excluding one-off items.
    • Italy sports betting was unlucky despite higher drop
    • IGt transaction: Redeemed 2016 notes in December
    • Jan/Feb 2015: 
      • Italian Lotto performing well.
      • Sports betting significiant growth but with high payouts
      • Stable AWP, declining VLT - but has kept market share
      • International same-store sales are robust

Takeaway: The completion of the integration is proceeding faster than expected.


SGMS - Spirit Mountain Casino selected the Company's Bally systems solutions for its property in Mohave Valley, Arizona.  Spirit Mountain will replace a competitor's systems with the Bally SDS slot management system, which will be deployed across 250 slot machines to manage casino, slot, and hospitality data. 

Takeaway: We believe Bally replaced Aristocrat's Oasis system at Spirit.


CCL - "There may be some people who experiment with both [ships], but I don't see them in competition. Britannia is cruising for U.K. people, Anthem is not that...we welcome [Anthem] to the fray," said Arnold Donald, CEO of CCL.


P&O reports that Britannia, which was built at a cost of £473 million, saw the fastest-ever sales for a maiden voyage in the line’s history.

Takeaway: We don't see a war between Britannia and Anthem either. But both ships will compete with the P&O UK core fleet and some RC brand ships, which has pressured their pricing recently.


Li Gang - The Liaison Office director remarked that the tourist number of Macau cannot grow without any limits because it would affect the quality of life of Macau residents. Asked about the tourism capacity in Macau, Mr. Li said there is no confirmed data related to the capacity. However, he reckons that how much the city can afford depends on whether it can increase its resources for tourists.


Regarding the Macau Government’s suggestion to improve the current Individual Visit Scheme (IVS) for Chinese tourists, Mr. Li perceives that the government should first decide the scale of tourism development by consulting public opinion.  He indicated that only after setting the scale could the government make decisions on whether it should expand, tighten or stay with the current IVS policy.


Takeaway: Window dressing for the public or a serious effort to impede tourism? One more risk factor for this troubled market 


Construction safety record -  While the city is busy with construction works in the Cotai casino-resort sites and other public infrastructure projects, the number of construction-related injuries and deaths are on the rise. This is due to overworking to meet completion schedules and because of the lack of stringent checks on work safety, a contractors’ trade chamber and a labor union maintain.


From January to September last year, a total of 890 people were injured at work on construction sites - a jump from the 789 in 2013 and 564 in 2012.


Takeaway: More scrutiny will likely result in higher costs and delayed projects.


Smoking fines -Between January 1 and February 28 this year, a total of 1,154 instances of smoking in prohibited areas were recorded by authorities, the Health Bureau said in a statement.  Officers have conducted a total of 728,574 inspections in different areas across the city since the Tobacco Prevention and Control Law came into force in 2012. So far, 25,307 people have been accused of smoking in prohibited venues.



Indiana Feb GGR: -2% YoY

Ohio Feb SS GGR: +1% YoY

Takeaway:  February regional revenues is trending into negative territory. Cold and snowy weather offset what should've been a fairly good month


Okada Philippines resort - Tiger Resort, Leisure and Entertainment Inc – developer of Philippine casino project Manila Bay Resorts, originally slated as a US$2.3 billion venture – has reportedly been told it will be allowed to “complete” the resort by the first quarter of 2017.  





Hedgeye Macro Team remains negative Europe, their bottom-up, qualitative analysis (Growth/Inflation/Policy framework) indicates that the Eurozone is setting up to enter the ugly Quad4 in Q4 (equating to growth decelerates and inflation decelerates) = Europe Slowing.

Takeaway:  European pricing has been a tailwind for CCL and RCL but a negative pivot here looks increasingly likely in 2015.

Early Look

daily macro intelligence

Relied upon by big institutional and individual investors across the world, this granular morning newsletter distills the latest and most vital market developments and insures that you are always in the know.