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PREMIUM INSIGHT

[UNLOCKED] Early Look: Inhaling All-Time Highs?

[UNLOCKED] Early Look: Inhaling All-Time Highs? - obama smoking

This is a complimentary Early Look written by Hedgeye CEO Keith McCullough on July 11th. "When I grew up in the hedge fund business, my bosses only cared about generating alpha," McCullough wrote. "Rather than inhale every little wiggle in the SPY for the last year (chasing up moves and freaking out on down ones), we just have to stay with our winners. Ride them. And breathe."


YELP | New Noise, Same Story (2Q16)

Takeaway: Mgmt is doing a much better job selling its story to the street, but not much has changed. We're on sidelines till we get closer to 2017.

KEY POINTS

  1. 2Q16 = ALGO STUNT ↑ SELF-SERVE ↓: 2Q was largely driven by the 1Q algorithm change.  ARPU accelerated again in 2Q16 (up 7% vs. 4% in 1Q16).  While mgmt suggested that there was “no step function kind of improvement” in 2Q ARPU, YELP probably saw an incremental tailwind from the algo change unless it was implemented exactly on Jan 1st of this year.  The other ARPU tailwind is slowing new account growth, which translates to higher % of LAAs paying a full quarter’s worth of revenue.  Interestingly, promo/self-serve accounts may already be losing steam.  Mgmt’s comments on 2Q16 salesforce-driven small-biz account growth of nearly 30% vs. its 2Q16 LAA growth of 32%, suggest YELP ended 2Q with +2K accounts that were driven by a combination of self-serve and multi-location.  Mgmt had suggested that a “meaningful percentage” of its 10K net new LAAs in 1Q16 were self-serve.  Collectively, we suspect that means self-serve growth either sputtered out in 2Q, or YELP already lost the bulk of its new self-serve accts from 1Q; the subtle spike in its 2Q churn suggests it may be the latter.
  2. NEW NOISE, SAME STORY: Mgmt is doing a much better job talking up the story, but when you break it down, not much has changed.  Revenue growth of 30-40% in its longest-tenured markets isn’t a surprise since those are its largest markets (est. 50% of TAM), and YELP is still ramping its salesforce at a ~40% growth rate.  Having ~75% revenue visibility into its following quarter is just a reflection of the portion of customer base that is locked into annual contracts.  Increased revenue retention in 2Q16 is a result of higher ad budget fulfillment (revenue) from the algo stunt (LAA churn increased).  Improving salesforce productivity (on revenue) is backward looking since it’s a reflection of past account wins that history suggests YELP will eventually lose, which is why we measure productivity on the new account side (more below).  All in, mgmt hasn't introduced much to the story outside of noise; most of which we've all already heard.
  3. WHAT'S CHANGED? The COO has decided to retire at age 42, and is being replaced internally.  Mgmt talked up National/Multi-Location Advertising & Transactional, but the core Local Ad business still represents 70% of its revenue.  That story YTD can be boiled down to the the algo change & sell-self serve; the former is just a one year benefit, the latter has already emerged as a headfake of a growth driver.  Meanwhile the core business continues to deteriorate, specifically on new LAA growth that continues to track below its rate of salesforce hiring; despite being partially aided by self-serve.  Remember, that its new LAA growth today is essentially a glimpse into YELP’s 2017 base business since YELP will lose most of the accounts that it entered 2016 with as those contracts lapse.  We remain on the sidelines for now since we do not believe we have a short catalyst until the 4Q16 release at the earliest.  We also suspect mgmt may still be shopping the company.  Meanwhile, we're not entertaining a long since there hasn't been any real fundamental improvement, and the runway on the long trade (i.e. the algo stunt masked as a fundamental inflection) is only 1-2 more quarters at best. 

 

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

 

Hesham Shaaban, CFA
Managing Director


@HedgeyeInternet

 

YELP | New Noise, Same Story (2Q16) - YELP   New LAA invert vs. ARPA

YELP | New Noise, Same Story (2Q16) - YELP   LAA attrition   rate

YELP | New Noise, Same Story (2Q16) - YELP   LAA v s. Sales 2Q16 scen


#GrowthSlowing: Did You Miss The Move?

Takeaway: Global 10-year sovereign bond yields are down across the board this morning.

I see plenty of email traffic (after the move) on the recent backup in yields, but will I get any emails this morning on the same as 10-year Yields around the world A) fail @Hedgeye TREND resistance and B) fall in unison as Global #GrowthSlowing data continues? UK 10yr -6bps to 0.52%.

 

But, but… “they’re expensive” (Old Wall PM speak for I didn’t and don’t own them) and “eventually” the bubble in bonds “has to pop” (but in “stocks”, never – always room to go higher)…

 

That’s what’s been filling up my inbox for the past few weeks. And that’s primarily because long-term bond yields, globally, bounced off their all-time lows. The widely watched widow-maker (for Long Bond Bears) – Japanese Government Bonds – sold off 22 basis points!

 

So if you nailed it (instead of being nailed for the last year shorting “expensive” bonds and their proxies) and shorted JGBs, Bunds, and Treasuries at the all-time lows in yields, I say you book those gains before the Gold Bond Bulls run you over.

 

 

Editor's Note: The snippet above is from a note Hedgeye CEO Keith McCullough wrote for subscribers this morning. Click here to learn more. 


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.

Daily Market Data Dump: Wednesday

Takeaway: A closer look at global macro market developments.

Editor's Note: Below are complimentary charts highlighting global equity market developments, S&P 500 sector performance, volume on U.S. stock exchanges, rates and bond spreads, key currency crosses, and commodities. It's on the house. For more information on how Hedgeye can help you better understand the markets and economy (and stay ahead of consensus) check out our array of investing products

 

CLICK TO ENLARGE

 

Daily Market Data Dump: Wednesday - equity markets 8 10

 

Daily Market Data Dump: Wednesday - sector performance 8 10

 

Daily Market Data Dump: Wednesday - volume 8 10

 

Daily Market Data Dump: Wednesday - rates and spreads 8 10

 

Daily Market Data Dump: Wednesday - currencies 8 10

 

Daily Market Data Dump: Wednesday - commodities 8 10


Yields, Gold & Oil

Client Talking Points

YIELDS

Plenty of email traffic (after the move) on this topic, but will we see any emails this morning on the same as UST10YR Yields around the world A) fail @Hedgeye TREND resistance and B) fall in unison as Global #GrowthSlowing data continues? The UK 10YR is down -6 basis points to 0.52%. 

GOLD

Who said we weren’t bullish? On Gold – big time! Phelps wins #20 and #21 and Gold ramps another +1% to +28% year-to-date. Gold and Platinum are up +23% and +21% year-over-year, respectively (vs. TLT +11.9% and SPX +3.7%).

OIL

Oil fails (again) @Hedgeye TREND resistance as our Potomac Policy team reiterates their call on Saudi Supply. WTI is down -1.2% to $42.27 and there is no immediate-term support in the risk range to $39.12 (top end of the risk range = $43.70).

Asset Allocation

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
8/9/16 64% 3% 3% 9% 13% 8%
8/10/16 61% 3% 3% 10% 14% 9%

Asset Allocation as a % of Max Preferred Exposure

CASH US EQUITIES INTL EQUITIES COMMODITIES FIXED INCOME INTL CURRENCIES
8/9/16 64% 9% 9% 27% 39% 24%
8/10/16 61% 9% 9% 30% 42% 27%
The maximum preferred exposure for cash is 100%. The maximum preferred exposure for each of the other assets classes is 33%.

Top Long Ideas

Company Ticker Sector Duration
GLD

See update on TLT/UUP.

TLT

Back to growth ... we’ll refrain from commenting on Friday’s headline non-farm payrolls number in isolation, and rather offer some perspective on the cyclical nature of the non-farm payroll data series (you’ve heard it before):

  • On a Y/Y rate of change basis, Non-Farm Payrolls peaked in February of 2015;
  • Once growth in this series peaks and rolls over, it doesn’t return and we move toward economic contraction on the margin. Read: Bullish for Long Bonds (TLT);

A print of +282K jobs was needed for July to avoid another Y/Y sequential deceleration in the series. NFP additions were +255K. While this beat expectations of +180K (which was cheered by just about every mainstream media outlet), the TREND in this series remains slow-moving, predictable, and most importantly past peak.

UUP

Our team’s macro process is both fundamental and top-down, and we get the top-down signals in real-time. The bottom-line is that both the CRB Commodities Index and crude oil have recently broken down from a quantitative risk management perspective. While this is a key factor contributing to our recent addition of the PowerShares DB US Dollar Index Bullish Fund (UUP), it also signals that TIP does not have as much upside as we thought. As Keith McCullough wrote to subscribers this week:

 

“Changing my mind on longer-term longs has happened infrequently this year, but it should happen. That’s how the game goes.”

Three for the Road

QUOTE OF THE DAY

"If you don't have confidence, you'll always find a way not to win."

-Carl Lewis

STAT OF THE DAY

Only about 3% of the 11 million containers that arrive at U.S. ports are screened with X-rays.


CHART OF THE DAY: The Widely Watched Widow-Maker (for Long Bond Bears)

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.

 

"... But, but… “they’re expensive” (Old Wall PM speak for I didn’t and don’t own them) and “eventually” the bubble in bonds “has to pop” (but in “stocks”, never – always room to go higher)…

 

That’s what’s been filling up my inbox for the past few weeks. And that’s primarily because long-term bond yields, globally, bounced off their all-time lows. The widely watched widow-maker (for Long Bond Bears) – Japanese Government Bonds – sold off 22 basis points!" 

 

CHART OF THE DAY: The Widely Watched Widow-Maker (for Long Bond Bears) - 08.10.16 chart


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