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YELP | Thoughts into the Print (4Q15)

Takeaway: 2016 is unattainable, but not sure what mgmt has up its sleeve with guidance. Either way, we’re short until mgmt guides to reality


  1. 2016 IS UNATTAINABLE: Consensus is still not factoring attrition into its estimates, so it doesn’t understand the burden of new account growth necessary to hit those numbers.  In short, YELP needs to maintain its current new account growth rate every quarter from now through the end of 2016, and that’s assuming historically low attrition rates.  That’s highly improbable unless it accelerates its sales rep hires in excess of revenue growth guidance, and that alone might be a major red flag for the street.
  2. MACRO COULD MAKE IT WORSE: Remember that YELP caters to a relatively fragile customer base that doesn’t have economies of scale and is hostage to its local economics.  If we are moving into a recession as our Macro team suggests, it’s going to be that much tougher to sell into that environment, especially since Local Advertising spend typically declines in excess of national spend in a recessionary environment (see notes in first slide below), and would likely exacerbate its account churn.
  3. WHAT’S UP YOUR SLEEVE? Just because YELP can’t hit 2016 estimates doesn’t mean it won’t guide to them.  We saw that last year when YELP guided to 53% revenue growth (Eat24 included), then subsequentally cut its growth forecast to 44% two quarters later.  This time around, there’s no telling what mgmt will do here, especially since it has a history of doing whatever it can to disguise the issues at its core.  Either way, we suspect YELP really needs to show something on this release to drive its stock materially higher from here.  We’re staying short till mgmt guides to something more reasonable than what consensus is asking of them.


YELP | Thoughts into the Print (4Q15) - YELP   2016 Local Slide

YELP | Thoughts into the Print (4Q15) - YELP   mgmt lie slide



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


Hesham Shaaban, CFA


Investing Ideas Macro Overlay: U.S. Recession, Profit Cycles and Currency Wars

On today's Macro Overlay, Hedgeye CEO Keith McCullough distills his top 3 macro concerns and ranks our current Investing Ideas.



Cartoon of the Day: Lipstick On A Pig

Cartoon of the Day: Lipstick On A Pig - jobs pig cartoon 02.05.2016


Today's jobs report showed a 151,000 non-farm payroll number, well under what was predicted by Wall Street economists. We're not surprised. As Hedgeye CEO Keith McCullough and our Macro team continues to reiterate, jobs growth peaked in February of last year. It's a classic #LateCycle indicator.

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HEDGEYE Exchange Tracker | Up and To The Right

Takeaway: Open interest at CME registered an all-time high of 111.2 MM contracts and the company has solid guidance across the board this morning.

CME Group (CME), one of the few stocks that sits on our Best Ideas list as a long, put up a decent fourth quarter earnings print this morning with a slight revenue and earnings beat. Not that we put much weight on what happened last quarter but trends into the new operating period are looking even better. The exchange guided to just a +1% operating expense increase for 2016, guided to slightly lower annual taxes for '16 (with more activity coming from abroad), and again announced that open interest was setting a new record, this week at over 111 million contracts. January activity for the Merc is averaging 18.2 million contracts per day, up 16% year-over-year. Even assuming some mean reversion to just over 16.5 million contracts (depending on product group), 1Q is running at ~$1.20 per share in earnings, which means the Street will need to perk up its current $1.06 estimate. Simply put, this is one of the few growth stories in the current macro environment within Financials. 


HEDGEYE Exchange Tracker | Up and To The Right - CME group



Weekly Activity Wrap Up

1Q16TD average daily volumes (ADVs) in cash equities and futures continued to rise this week. Cash equity volume for the week came in at 9.3 billion shares traded per day, bringing the 1Q16TD ADV to 9.3 billion, up +34% Y/Y. Futures activity at CME and ICE came in at 24.7 million contracts traded per day this week, bringing the 1Q16TD ADV to 24.1 million, up +21% Y/Y. Additionally, CME is currently at an all time high in open interest of 111.2 million contracts, which should push volume higher going forward. Options did not have as strong a week, coming in with 16.9 million contracts traded per day, bringing the 1Q16TD ADV down to 18.7 million, although that still registers +23% Y/Y growth. 


HEDGEYE Exchange Tracker | Up and To The Right - XMon1 2


U.S. Cash Equity Detail

U.S. cash equities trading came in at 9.3 billion shares per day this week, bringing the 1Q16 average so far to 9.3 billion shares per day. That marks +34% Y/Y and +31% Q/Q growth. The market share battle for volume is mixed. The New York Stock Exchange/ICE is taking a 24% share of first-quarter volume, which is consistent with the prior quarter and year-ago quarter, while NASDAQ is taking a 19% share, +65 bps higher Q/Q but -84 bps lower than one year ago.


HEDGEYE Exchange Tracker | Up and To The Right - XMon2


HEDGEYE Exchange Tracker | Up and To The Right - XMon3


U.S. Options Detail

U.S. options activity came in at a 16.9 million ADV this week, bringing the 1Q16TD average to 18.7 million, a +20% Y/Y and +17% Q/Q expansion. In the market share battle amongst venues, NYSE/ICE has been trending downward at a moderate pace, but at an 18% share it is +106 bps higher than the year-ago quarter. Meanwhile, NASDAQ's recent declines bring it -418 bps lower than 1Q15. CBOE's market share is down -148 bps Y/Y but has improved recently; its 27% share of 1Q16TD volume is up +130 bps from 4Q15. BATS and ISE/Deutsche have been taking share from the competing exchanges, with BATS up to a 10% share from 9% a year ago and ISE/Deutsche taking 16%, up from 13% a year ago.


HEDGEYE Exchange Tracker | Up and To The Right - XMon4


HEDGEYE Exchange Tracker | Up and To The Right - XMon5


U.S. Futures Detail

17.9 million futures contracts traded through CME Group this week, bringing the 1Q16TD average to 18.1 million, a +21% Y/Y and +37% Q/Q expansion. Additionally, CME open interest, the most important beacon of forward activity, currently sits at an all-time high of 111.2 million CME contracts pending, good for +22% growth over the 91.3 million pending at the end of 4Q15, an improvement from last week's +17%.


Contracts traded through ICE came in at 6.8 million per day this week, bringing the 1Q16TD ADV to 6.1 million, +21% Y/Y and +27% Q/Q growth. ICE open interest this week tallied 68.1 million contracts, a +7% expansion versus the 63.7 million contracts open at the end of 4Q15, an improvement from +5% last week.


HEDGEYE Exchange Tracker | Up and To The Right - XMon6


HEDGEYE Exchange Tracker | Up and To The Right - XMon8


HEDGEYE Exchange Tracker | Up and To The Right - XMon7


HEDGEYE Exchange Tracker | Up and To The Right - XMon9 


Monthly Historical View

Monthly activity levels give a broader perspective of exchange based trends. As volatility levels, measured by the VIX, MOVE, and FX Vol should rise to normal levels after the drastic compression this cycle, we expect all marketplaces to experience higher activity levels.


HEDGEYE Exchange Tracker | Up and To The Right - XMon10


HEDGEYE Exchange Tracker | Up and To The Right - XMon11


HEDGEYE Exchange Tracker | Up and To The Right - XMon12


HEDGEYE Exchange Tracker | Up and To The Right - XMon13


HEDGEYE Exchange Tracker | Up and To The Right - XMon14

HEDGEYE Exchange Tracker | Up and To The Right - XMon15


Sector Revenue Exposure

The exchange sector has broadly diversified its revenue exposure over 10 years as public entities with varying top line sensitivity to the enclosed trading volume data. The table below highlights how trading volumes will flow through the various operating models at NASDAQ, CME Group, ICE, and Virtu:


HEDGEYE Exchange Tracker | Up and To The Right - XMon19 3



Please let us know of any questions,


Jonathan Casteleyn, CFA, CMT 




 Joshua Steiner, CFA





JT Taylor: Clinton Hits Her Stride In Debate ... But Stumbles On Wall Street Ties

Takeaway: In last night's Democratic debate, Hillary Clinton appeared to beat out a meandering Bernie Sanders.

Editor's Note: Below is a brief excerpt from Potomac Research Group Senior Analyst JT Taylor's Morning Bullets sent to institutional clients each morning. 


JT Taylor: Clinton Hits Her Stride In Debate ... But Stumbles On Wall Street Ties - bernie hill


We saw one of the most substantive, spirited, and aggressive debates of the whole election so far last night. From our perch, Clinton outperformed expectations and we suspect she'll take a significant bite out of Sanders' 30-point lead in New Hampshire on Tuesday.


Both did well throughout the night (and the moderators didn't compete for the spotlight), but after they sped through the 'stump speech' portion of the debate in the first hour, the advantage shifted Clinton's way as she demonstrated her versatility and command of the issues.


Bernie didn't do as well with the open format, and meandered at several points before reverting back to his familiar Wall Street refrain. The real upshot of last night is that Clinton showed something new, engaging, and well, presidential – injecting some much-needed confidence back into her campaign as the trail heads south where she needs to hit her stride. 


All was not entirely copacetic on the Clinton side, though...


We've said this before and we'll say it again: Hillary Clinton remains puzzlingly inept at handling questions about her ties to Wall Street. While she was marginally better on the topic last night, when asked on Wednesday about the nagging issue of receiving $600,000 in speaking fees from Goldman, her response was: "Well, that's what they offered."


Her campaign staff is at least sensitive to the issue, rescheduling her second Wall Street fundraiser in as many weeks until after the New Hampshire vote. Between the speaking fees and campaign contributions, her rhetorical assault on the financial sector rings hollow, even to non-Sanders supporters. 

Think January Was Bad? Here's Why Next Month's Jobs Report May Be Even Worse

Takeaway: January Challenger job cuts rose +42% Y/Y. While job cuts continue in energy, they've also emerged in retail.

Editor's Note: Below is a complimentary excerpt from a research note written yesterday by our Financials team. Analysts Jonathan Casteleyn and Josh Steiner analyze yesterday's Challenger Job Cuts report, a key leading indicator for what's happening in the jobs market. If you would like more information about subscribing to our institutional research, please contact sales@hedgeye.com.


Think January Was Bad? Here's Why Next Month's Jobs Report May Be Even Worse - jobslatecycle


The Challenger Job Cut announcements moved up notably in January, as the below chart from our Macro Team shows. Energy jobs cut popped to 20,103 which is in-line with the fastest rates of job loss in Energy we've seen since the beginning of Energy's decline.


While the energy sector's woes have been ongoing for some time, the newer development is the deterioration of non-energy labor conditions. Announced job cuts ex-energy were 55,011 in January, which brings the total announced cuts to 75,114, which is the highest level by far in the post crisis period, notwithstanding the one-off military related labor adjustment in July 2015.


To put this in perspective, that brings total announced layoffs to +42% Y/Y in January with no underlying distortions present in the data. Outside of Energy, Retail was the second biggest loser with job cuts rising 15.5k Y/Y.


This emergent trend of worsening labor conditions is also manifest in the initial jobless claims data. Seasonally adjusted claims continued their upward trend last week, rising by 8k from the revised 277k to 285k, and the year-over-year rate of change in rolling NSA claims has essentially converged to zero, deteriorating from -3.2% in the previous week to just -0.8% in the latest week.


Think January Was Bad? Here's Why Next Month's Jobs Report May Be Even Worse - challenger



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