KEY POINTS
- THESIS UPDATE: We're going to spare you the long regurgitation and point you to the notes below instead. Long story short, 2016 was a mirage; nothing has really changed outside of new noise and a CFO who knows how to talk to the street. This will become more evident in 2H, which was the focus of our short to begin with.
- THOUGHTS INTO THE PRINT: This one will be noisier than usual. Mgmt guided light for 1Q, and it won't take much to edge out rebased Local Advertising estimates unless there is no reversion in its in quarterly attrition rate, which spiked to a 2-yr high in 4Q16. Further, Factset is still disclosing YELP's segments in the old format; the new format lumps the bulk of what was Other Revenue into Local Advertising, which is now called Advertising. That said, we'll likely see an optical beat in its core segment because of the discrepancy. We expect YELP to miss LAA estimates though, but in the context of the emerging street narrative, that could actually be a good thing (Point 3). The 2Q guide is more of a question mark since YELP will fully anniversary the ARPU tailwind from the algorithm change by 2Q. However, YELP's two post-print acquisitions could be enough to juice the print. We're not sure what either are doing in sales, but a million or two in inorganic revenue could be the difference b/w a beat or miss.
- WHY WE'RE TAPPING OUT: Let's tease this out. We stay short, maybe the 2Q guide disappoints, maybe it gaps down another 10%, 20% if we're lucky. Or YELP beats rebased 1H estimates…then the sell-side chest-thumpers chalk up 4Q16 as a temporary mishap while suggesting YELP is now on its way to greener pastures. Ironically, if YELP beats the top-line while missing LAA estimates, it will just fuel the emerging narrative around LAA & revenue growth decoupling (it's not). We suspect the street would eat that up since the longs are waiting for the day that YELP's other segments become large enough to mitigate the core Local Ad business, which only the sell-side still has faith in. Further, the street appears to be piling into anything that's showing newfound signs of life this earnings season. For context, the two biggest winners this earnings season (TWTR & GRUB) didn't really do much more than beat estimates that were rebased after their prior prints. If it wasn't for the heightened risk-on environment, we'd probably just stick with the short in case we were wrong on 1H. It's just not worth it. We also doubt anything will emerge from the print that would prevent us putting the short back on closer to 2H.
See the below notes for supporting analysis. Let us know if you have any question or would like to discuss further.
YELP | Smells Like 1Q15 (4Q16)
02/10/17 09:25 AM EST
[click here]
YELP | New Short Idea
02/08/17 08:33 AM EST
[click here]
Hesham Shaaban, CFA
Managing Director
%
@HedgeyeInternet
