prev

YELP | Good Luck Guys (4Q15)

Takeaway: YELP is still chasing consensus estimates while its model continues to unravel. Apparently it hasn't learned much from its mistakes in 2015.

KEY POINTS

  1. 4Q15 = LOCAL DETERIORATING: This is now YELP's fourth consecutive miss on Local Advertising revenue.  YELP produced decelerating new account growth of 22%, which is lower than the rate that it has onboarded sales reps in any quarter in 2015.  Further, YELP’s attrition rate accelerated again in 4Q15, which suggests that its CPC ad product isn’t really improving its client’s ROI.  Note that YELP has been selling CPC for well over a year and is now over 60% of revenue, so if CPC had the ROI that mgmt claimed, then we would have noticed it by now.  The one bright spot from the quarter was accelerating revenue growth in its Eat24 business, but the transactions segment is almost too small to matter (10% of revenue).
  2. GOOD LUCK GUYS: YELP issued 2016 revenue guidance slightly above consensus at the midpoint ($693M vs. $688M), which translates to ~34% revenue growth (net Brand Ad revenues).  YELP didn’t provide segment-specific guidance, so we’re not sure how mgmt plans to get there, or if it has an idea, but it’s more than a tall order.  Post 4Q results, YELP now needs accelerating new account growth on historically low attrition rates to hit consensus Local Ad revenue estimates.  That is also assuming accelerating salesforce productivity since its guided revenue growth is exceeding its saleforce growth target (20%-30%).  The wildcard is its Google AdSense ads; we're waiting for the 10-K for additional color.
  3. SCAPEGOAT: YELP announced that its CFO, Rob Krolik, will be leaving the company after it finds a replacement, or by year end.  We’re not sure if YELP is trying to use Krolik as the scapecoat, or if he’s jumping off the bus before the wheels fall off, but a new CFO won’t change much.  The problem is the business model, which can’t be fixed unless mgmt is willing to take a hard landing (down revenues).  YELP’s attrition can be attributed to poor ROI (note below); the easiest way to fix that is by introducing lower-tiered ad packages.  But the risk there is that it would need that many more brand new customers to offset its attrition (e.g. at half the price, it needs twice as much new account growth).  

 

YELP | Good Luck Guys (4Q15) - YELP   Acct vs. Sales 4Q15

YELP | Good Luck Guys (4Q15) - YELP   LAA Attrition 4Q15

YELP | Good Luck Guys (4Q15) - YELP   2016 Local Scen Anly

 

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

 

Hesham Shaaban, CFA


@HedgeyeInternet

 

 

YELP: Grand Tales of ROI

02/13/15 01:34 PM EST
[click here]

 


CHART OF THE DAY: BOJ Central Planning Can't Stop Nikkei Crash

Editor's Note: Below is a brief excerpt and chart from today's Early Look written by Hedgeye CEO Keith McCullough. Click here to learn more.

 

"... Evidently the bottom is not in in Japan. Last night the Japanese stock market (Nikkei) moves right back into #crash mode (-22.8% since July) after closing down an eye-opening -5.4%. Why?

 

  1. Japan is losing control of the central-market-planning belief system (if we devalue Yen, you buy Nikkei)
  2. Instead, as Japanese Government Bonds (JGBs) yields officially go negative (10yr -0.04%), the Yen is ripping
  3. And, as the Up Yen, Down Nikkei trade goes, panic on the consensus side of the hedge fund community ensues" 

 

CHART OF THE DAY: BOJ Central Planning Can't Stop Nikkei Crash - 02.09.16 chart


The Weakest Hands

“The strongest weak hand suffers the largest loss.”

-Lasse Heje Pedersen

 

That’s an old poker maxim that Lasse Heje Pedersen effectively uses to explain the concept of draw-down risk (crashing portfolios) in what’s turned out to be a great book for anyone who needs a tutorial in modern day market strategies, Efficiently Inefficient.

 

Bad poker players (not knowing who the sucker is at the table means it’s probably you) are also great metaphors for schizophrenic levered long hedgies and chart chasers who continue to buy high and puke this US stock market up lower.

 

“Eventually they cave and sell near the bottom as their funding dries up or panic ensues. Why are most of them selling near the bottom? Because this defines the bottom.” (Efficiently Inefficient, pg 61)

 

The Weakest Hands - bull cartoon 02.08.2016

Click here to join Hedgeye CEO Keith McCullough live on The Macro Show at 9am. 

 

Back to the Global Macro Grind

 

Bottom? Did you say bottom? Oh, Keith – we need a bottom. Please call a bottom.

 

That defines a not un-consequential percentage of discussions I’ve been having on the road. As if I’m the catalyst for a bottom! Bottoms aren’t up to us humanly creatures to “call.” They are processes, not points.

 

Evidently the bottom is not in in Japan. Last night the Japanese stock market (Nikkei) moves right back into #crash mode (-22.8% since July) after closing down an eye-opening -5.4%. Why?

 

  1. Japan is losing control of the central-market-planning belief system (if we devalue Yen, you buy Nikkei)
  2. Instead, as Japanese Government Bonds (JGBs) yields officially go negative (10yr -0.04%), the Yen is ripping
  3. And, as the Up Yen, Down Nikkei trade goes, panic on the consensus side of the hedge fund community ensues

 

Do you know how many hedge funds are short the Japanese Yen? Moreover, do you know how many of them have the exact same catalyst? What happens when they actually get the catalyst (negative yields) and their position reacts opposite to expectations?

 

You can apply this line of risk management questioning to the entire macro market:

 

  1. What happens if European stocks stop going up on Draghi’s #cowbell?
  2. What happens if the Fed comes around to Hedgeye’s view, stops raising rates, and stocks crash?
  3. What happens if your entire positioning is based on the weakest “strong” hand, that is a government catalyst?

 

There was a time last year when I was bullish on both European and Japanese stocks. That was mostly an extension of our #StrongDollar view (Down Yen and Down Euro was correlating inversely with European and Japanese equities).

 

But, every day, I’d get on our Macro Show (morning call, daily at 9AM EST) and say that there’s absolutely no fundamental growth and/or inflation reason to be buying Japanese stocks. How weak of a perceived strong hand was that?

 

That is the thing about sitting at the poker table and/or at your desk trying to not lose all your (or your client’s) money – #perception risk. What if everyone at the table (in the market) has the same weak hand as you?

 

How many pundits and PMs had a pair of 7s, long “European stocks because they’re cheap”?

 

A) Lots (if they were long Spain it was a pair of 4s; if long Italy a pair of 2s)

B) Now the Italian Stock market is down -33% since July 2015 (when the SP500 peaked)

C) If the SP500 had that crash/draw-down from its July #bubble high, it would be at 1436!

 

But no, no, no. No one is talking about Italy or Greece (still crashing) or Spain this morning. They’ll all be talking about Japan, just like they were all talking and talking and talking about China and Oil…

 

The strongest vs. weakest hands you can have in this poker (macro metaphor, stay with me here!) game is currently:

 

  1. Royal Flush – Long The Long Bond (TLT), Utilities (XLU), Gold (GLD), Volatility (VXX) and Cash
  2. 7 (of hearts), 5 (of diamonds), 4 (of spades), 3 (of spades), 2 (of spades)

 

That worst hand would look something like this:

 

  1. Long Italian Stocks (MIB Index) for “diversification”
  2. Long the Financials (XLF) -14.3% YTD on “rate hike expectations”
  3. Short Utilities (XLU) +7.2% YTD on “rate hike expectations”
  4. Long Oil and a basket of levered Energy stocks like Chesapeake (CHK) and Linn (LINE)
  5. Long Ackman

 

Most of the perceived “strong hands” had LEVERAGE to either inflation or growth expectations gone bad. In other words, they had the 2-3-4 of spades and were praying for a central-planner to deliver them the 5 and the 6 of the same suit.

 

That’s why the biggest risk to the entire game is that the belief-system (ideology) of central-market-planners being able to bail out markets breaks down. That’s why you’re already seeing the strongest weak hands suffering some of the largest losses.

 

Our immediate-term Global Macro Risk Ranges are now:

 

UST 10yr Yield 1.72-1.91%

SPX 1
RUT

Nikkei 157

VIX 22.07-28.91
USD 95.66-98.40
YEN 114.99-118.68

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

The Weakest Hands - 02.09.16 chart


Daily Trading Ranges

20 Proprietary Risk Ranges

Daily Trading Ranges is designed to help you understand where you’re buying and selling within the risk range and help you make better sales at the top end of the range and purchases at the low end.

The Macro Show Replay | February 9, 2016

 


Central Market Planning

Client Talking Points

JAPAN

Breaking bad, the belief system is here – Japan says “negative yields” (and they got them – 10YR JGB -0.04% now), but they didn’t get Down Yen, Up Nikkei – they got Up Yen, Crashing Nikkei! (Nikkei -5.4% overnight, -22.8% since July).

ITALY

If you thought the central planning experiment in the U.S. and Japan went bad, look at what Draghi is doing to the banks in Europe. Italy’s stock market is down another -1.5% this morning taking it’s crash (since July) to -32.8% (if the SPX crashed that % it would be at 1,436 FYI).

FINANCIALS

We shifted our favorite S&P Sector short from Energy to the Financials on JAN 5th and the main reason for that was our uber bullish call on the Long Bond (calling for all-time low in UST 10YR Yield) and Financials being the most over-owned group relative to its rate risk. The XLF is now -14.3% vs. Utes (XLU) +7.2% year-to-date.

 

*Tune into The Macro Show with Hedgeye CEO Keith McCullough live in the studio at 9:00AM ET - CLICK HERE

Asset Allocation

CASH 64% US EQUITIES 0%
INTL EQUITIES 0% COMMODITIES 0%
FIXED INCOME 24% INTL CURRENCIES 12%

Top Long Ideas

Company Ticker Sector Duration
XLU

The bond market understands #GrowthSlowing. So do Utilities (XLU), which is why XLU is leading S&P sub-sector performance in 2016. XLU is up +7.6% versus down -8.0% for the S&P 500. Stick with it on the long side.  

GIS

GIS remains one of analyst Howard Penney's top Long ideas in the Consumer Staples space. As we have continued to say, it boasts style factors ideal in turbulent times; high market cap, low beta and liquidity. While GIS is down year-to-date, it's held up very well against the broader stock market. GIS is down -4% versus down -8% for the S&P 500 in 2016.

 

GIS has been picking up steam, as the company is working to improve merchandising and advertising on core business. One of the initiatives is making a distinct effort to delve deeper into the natural and organic category. That will certainly help them a lot in the long run. More to come.

TLT

Down go growth expectations and down goes the yield curve. That's the latest from Macro markets last week and it plays right into our long Long-Term Treasuries (TLT) and short Junk Bonds (JNK) Investing Ideas.

 

The UST 10YR Yield declined another -9 basis points last week which helped boost TLT +1.1% on the week. In a healthy environment, bonds as an asset class go up in tandem, but JNK lost -0.9% on the week despite a falling yield curve. That’s because we’re NOT in an “all is good” environment. Credit spreads widen in turbulent times. This widening is the alpha-generating opportunity in long TLT, short JNK.

Three for the Road

TWEET OF THE DAY

VIDEO FLASHBACK: 4 Videos With Keith McCullough On Our Economic Outlook & Long Bond Call https://app.hedgeye.com/insights/49025-video-flashback-4-videos-with-keith-mccullough-on-our-economic-outloo… via @hedgeye

@KeithMcCullough

QUOTE OF THE DAY

Not appreciating what we have now robs us of our abundance even when it exists.

Marshall Sylver                                     

STAT OF THE DAY

Anheuser-Busch Inbev has spent $278.3 million on Super Bowl ads over the past decade, according to Kantar Media.


VIDEO FLASHBACK: 4 Videos With Keith McCullough On Our Economic Outlook & Long Bond Call

Takeaway: Hedgeye CEO Keith McCullough likes to say "I'm the most bullish guy on Wall Street... on Long Bonds (TLT)."

VIDEO FLASHBACK: 4 Videos With Keith McCullough On Our Economic Outlook & Long Bond Call - tlt say cheese

 

We've been bullish on the Long Bond (TLT) since August 2014. Here's what the score looks like versus the S&P 500.

 

VIDEO FLASHBACK: 4 Videos With Keith McCullough On Our Economic Outlook & Long Bond Call - LONG BOND

 

In fact, Hedgeye CEO Keith McCullough is fond of saying, "I'm the most bullish guy on Wall Street... on Long Bonds." Below are four recent videos in which Hedgeye CEO Keith McCullough lays out our dour economic outlook and explains why that is bullish for Long Bonds.

 

1. McCullough on Fox Business, 10/20/2015.

 

"If you’re a CIO and you told everyone that rates would surprise to the downside, you’re doing your job. You’re giving [clients] a much lower volatility profile and they would have a big position in the Long Bond. To me that’s the elephant stomping around in the room." 

 

 

2. McCullough on The Macro Show, "The Best Way to Play the Coming Recession," 12/29/2015.

 

 

3. McCullough on The Macro Show, "This Is Our Best Idea Right Now," 12/30/2015.

 

 

4. McCullough on Fox Business, "The Economy Is A Slow Moving Train Wreck," 1/4/2016

 


get free cartoon of the day!

Start receiving Hedgeye's Cartoon of the Day, an exclusive and humourous take on the market and the economy, delivered every morning to your inbox

By joining our email marketing list you agree to receive marketing emails from Hedgeye. You may unsubscribe at any time by clicking the unsubscribe link in one of the emails.

next