(YELP) Archives

Avoid Yelp on Pain of Death

Tech investors should be migrating towards stocks that have high visibility of an earnings turnaround once a health solution is discovered for the current health scare. One that definitely does not fit the bill is Yelp (YELP) who has experienced negative earnings growth for the past three years.

What’s the deal with Yelp?

The company recently withdrew its first quarter and 2020 financial guidance because the coronavirus has destroyed large parts of its business probably to never return.

If you didn’t know, Yelp provides information through online communities on restaurants, shopping, nightlife, financial, health, and other services, so it’s easy to do the calculus as to why lockdowns and restrictions on public life are affecting these revenue streams.

A recent survey reported a higher average likelihood of households missing a debt payment over the next three months, meaning the consumer is in dire straits unless there is a swift 180 in circumstances.

In the longer-term, the New York Fed affirms a “persistent deterioration” in consumers’ expectations to access credit throughout the rest of 2020.

The New York Fed said the sharp decline in consumer expectations cuts across all age, education, and income groups.

Less money for consumer spending means less consumer demand on Yelp translating into lower ad revenue – it’s that simple.

On a conference call on February 13, Yelp mentioned that it expects 2020 revenues to grow between 10% and 12% year over year and adjusted EBITDA by 1 to 2 percentage points. It had also expected margins to expand again in 2020.

What a difference 4 weeks makes!

Now almost every company is in survival mode and Yelp is the weakest link.

Consumer interest in restaurants and nightlife has taken a nosedive in the new coronavirus economy.

Yelp data shows that consumer interest had declined 54% for restaurants and 69% for nightlife venues.

Cafes, French restaurants, and wineries decreased their share of daily consumer actions (down 66%, 47% and 44%, respectively) week over week.

In contrast, the weekly growth numbers favor just a select few - grocery stores interest is up 102%, fruit and vegetable shops are up 102%, fast-food joints are up 64%, and pizzerias round out the bunch up 44%.

Some hard-hit companies come in the form of bowling, yoga and martial arts services which tend to involve groups of people, declined by a respective 43%, 38%, and 33%, and these are all companies that would be spending ad money.

Even worse news on the financial side - mom and pop stores have a short leash with median cash buffer for a small business at just 27 days.

As you would assume, searches on home fitness equipment surged 344%, and interest in parks rose 53%.

Interest was also up 360% for buying guns and 166% up for buying water - breweries were down 61%.

Lawmakers and states, including New York, New Jersey, California, and Pennsylvania, have ordered a temporary closure of restaurants and bars and I can safely say that consumers probably won’t return the next day to barge down the entrance door.

The last earnings report wasn’t all that hot for Yelp who missed on revenue while spending 10% more on advertising to get to that miss.

Earnings per share also missed estimates by sliding 35% year over year validating my thesis that this is a sinking ship headed towards an iceberg.

These propped up numbers were before the coronavirus hit the company and the business model is poorly prepared for this type of phenomenon and the lasting effects.

I expect a material decrease in the growth of the number of paying advertising locations and lower advertising budgets from multi-location customers.

Paying advertising locations should drop by half just this quarter.

Materially lower traffic dropping over 50% is a trend that will perpetuate and even if there is a dead cat bounce because shares are so beaten down, this is an unequivocal “sell on the rally” type of stock.

April 8, 2020/by Mad Hedge Fund Trader

The Sad Truth About Digital Marketing

Tech Letter

Granted that technology companies have been the mule carrying the load for the broader market, beneath it is an ugly underbelly of venomous spirits.

Digital tech companies are frauds.

This could crater the broader market if the worst-case scenarios play out.

What do I mean by labeling them frauds?

Well, first, not all tech companies are charlatans. The ones producing components like semiconductor companies and others creating hardware are not the target of my wrath.

Since content has migrated into an all-out assault on traditional media, there is a dirty little secret that is festering because the new online media isn’t regulated.

The numbers are all a lie.

Much of the analytics and calculus involved with crafting cost to the other side is being entirely gamed by tech companies quoting prices based on fake analytics.

Instagram switched over its algorithm to displaying photos chronologically, to now display posts that engage the most, more specifically, what gets clicked the most.

Consumers have complained about it being significantly harder to gain likes and followers because, for the ones that don’t have many clicks, it’s harder to get those added clicks if your post is relegated down the feed.

The platform has also been a breeding ground for fabricating likes, friends, views, clicks and so on. Companies can be hired per like, resulting in a beefed-up profile built on fantasy.

Ad companies gauge each Instagram profile by the amount of engagement generated and if most of them are fraudulent likes, there will be weak follow-through in sales after ad purchases since a good chunk of the potential audience is a mirage.

Instagram is the preferred social platform of most influencers and Facebook is attempting to merge both assets into one in order to claim to regulators that they can’t be separated.

Much of digital marketing has migrated down the path of growing a large following for the reason to qualify as an effective brand ambassador and siphon off influencer marketing budgets from corporates who desperately want to penetrate a target audience.

In an age of automated robocalls and strict email rules, companies hesitantly confess that the only way to reach their end buyer is through social media channels.

Corporates are wasting billions of dollars because they aren’t getting what they really pay for and are basically being fleeced by tech companies.

And if you think this is mutually exclusive to Facebook (FB) and Instagram, it happens in every tech company that involves data.

Tech companies are monetarily incentivized to flat out lie about their data, partially because the penalties are minimal or absent in many cases.

Marginal tactics to fast-track the process by buying likes should be rooted out of the eco-system.

They are not only hurting the trust users have with the platform, but misrepresenting the brand that associates with a product.

Tech firms ward off anyone and everything from taking a peek at internal data by claiming it is their proprietary IP causing them to effectively police themselves.

That is not even the worst part of it all.

Parent company Facebook is turning a blind eye to something that could crash the company.

Mark Zuckerberg's old classmate Aaron Greenspan published a report complaining that over 50% of Facebook accounts are fake.

Facebook is on record admitting that between 2-3% of accounts are fake, but that number is a dream and artificially low by a country mile.

If it is true that half of Facebook accounts are fake, this would mean that Facebook sits on over 1 billion fake accounts.

Never mind the fake likes or clicks issue, Facebook shareholders could lose most of their worth in this stock if the truth is ever discovered.

Remember, the network effect works on the way down just like it works on the way up as a de-facto force multiplier.

Facebook and many other tech firms are a black box just like the Google (GOOGL) search algorithm.

Yelp (YELP), the online review company, could potentially sub-contract out fake reviews and never disclose how many of them are truly fake, they have no incentive to.

I recently stayed in an Airbnb rental whose active management was sub-contracted to a local property manager.

When I met him, he told me “This apartment was just bought and you are the first guest to stay in this apartment, so if there are any issues, please contact us as soon as possible.”

Wait, hold on, in my head, I am thinking, how did I see 45 great reviews from the apartment’s profile if I am the first guest?

I logged on to reread some reviews and some of the responses were completely inaccurate about the apartment.

It was clear these were made up and paid for and I was, in fact, the first to stay in this apartment like the property manager said.

Expectedly, there was more wrong with the apartment than just the fake reviews.

The television, stove, and hot water didn’t work, the key to the apartment was half broken and I had to perform miracles just to get the front door open.

There is a reckoning coming to technology companies because of the rampant misuse of the technology by nefarious actors monetizing the platform while perverting it.

Companies look the other way because they don’t want a revaluation of their business model which would add costs and, in some cases, bankrupt a company if the problem isn’t fixable.

As we move forward, the problems enlarge.

In a nutshell, this is why everyone hates tech now and its already stomach-churning enough that these firms steal your personal data and sell it to whomever they want.

A harsh reckoning will eventually hit the involved companies, but until then, tech business models are manipulated to the extreme and they continue to print real and fake growth mixed together as one.

One day, that fake growth will vanish and these companies will have to explain why to their shareholders.

In the meantime, just assume all online reviews are fake and enjoy the bull market in tech.

November 27, 2019/by Mad Hedge Fund Trader

April 17, 2019

Tech Letter

Mad Hedge Technology Letter
April 17, 2019
Fiat Lux

Featured Trade:

(ALPHABET DOMINATES WITH GOOGLE MAPS)
(GOOGL), (AMZN), (YELP), (UBER)

April 17, 2019/by Mad Hedge Fund Trader

Alphabet Dominates with Google Maps

Tech Letter

Remember Google Maps?

Google will start monetizing it, let me tell you about it.

The web mapping service developed by Google gifting access to satellite imagery, aerial photography, street maps, 360° panoramic views of streets has been around since the beginning of this generation of big tech and is what I would consider legacy technology.

Legacy technology is often associated with failure as the out of date nature isn’t applicable to the tech scene and the commercialization of it today.

In a candid letter, Jeff Bezos wrote to shareholders that Amazon will “occasionally have multibillion-dollar failures.”

Silicon Valley tech will have its share of implosions stemming from ill-fated industry decisions correlating to heavy losses.

Google Maps won’t be one of these slip-ups.

However, a whole catalog of instances can be chronicled from Microsoft’s purchase of Nokia’s handset division to Google’s social media foray in Google Plus.

It hasn’t gone all pear-shaped for Alphabet in 2019. I strongly believe they are one of the companies of the year harnessing YouTube in ways consumers never imagined.

Adding color to the story, any remnant of apprehension to any bearish feelings about Alphabet should vanish once investors understand how lucrative Google Maps will become.

Google has spent decades and billions of capital honing the application and in terms of market share they have cultivated a monopoly.

Uber’s S-1 filing shined some light on Google Maps characterizing it as a must-have input into their business saying, “We do not believe that an alternative mapping solution exists that can provide the global functionality that we require to offer our platform in all of the markets in which we operate.”

Uber sunk $58 million integrating Google Maps into its services from 2016-2018 along with continuous payments to its Google Cloud arm to host Uber’s data.

The strong relationship with Uber shows how Alphabet is adept at milking 3^rd party apps for what they are worth.

Alphabet’s stake in Uber is projected to be $5 billion from the $250 million investment in Uber in 2013.

The party doesn’t stop there with Uber paying Alphabet $631 million from 2016-2018 in digital marketing services and another $70 million for technology infrastructure.

To say that Google firmly has its tribal marks tattooed into Uber’s skin is an understatement.

Almost 80% of smartphone users regularly use navigation apps.

Google Maps is the most popular navigation app by a country mile with 67% of market share.

One billion people consistently use Google Maps.

It is the go-to navigation app for nearly 6x more people compared to the runner up app Waze with 12% market share.

The superior performance of the app has allowed it to branch off into a Yelp-like hybrid app accumulating reviews of businesses and institutions that are conveniently dotted around its map.

Multi-functional terrain was integrated to make the maps more 3D and route navigation from point A to B routes has steadily improved since its inception.

The increasing detail showing even roofs of sheds and the Google street view offering a point of view vantage point boosting the reliability of the app.

The result of making the app better is that navigators can easily discern locations and follow routes clearly.

Most would concede that they use the app to look up specific street routes.

By implementing digital ads into the experience, product and service offers will possibly populate in real time as the user glances at the app’s directions.

A vast amount of services such from food to personal grooming to even cannabis club ads could be applicable and ad companies will pay top dollar to post on Google Maps.

Google could also offer personalized recommendations to users and collect an affiliate fee if the user clicks on an attached link transferring the customer to a 3^rd party landing page.

They already benefit from this strategy on Google Flights.

Google might even be tempted to implement a Groupon model with group discounts on services positioned on Google Maps.

Google Maps is hands down the most underappreciated app and most under monetized tech asset in the world.

Another possible revenue generation avenue would be the advent of Google Maps voice ads en route to a destination that would promote a 5 or 10 second voice commercial of a businesses that the user is physically passing by.

The unintended effects of Google’s audacious transformation of their proprietary Map service spells doom for Yelp’s business model.

Google’s move into digital ads of maps effectively means that Yelp will be relegated to an inferior version of Google Maps without the map technology.

Google has accumulated enough personal data to draw up any type of profile for particularly Android users voraciously consuming data on Gmail, Google Maps, Google Search and Google Chrome.

These four data generators will allow Google to formulate a shadow profile based on individual tastes with daily use of these four Google properties.

Alphabet has a time-honored model of building assets that become utilities and once they monopolize the utility, they sprinkle the digital ad pixie-dust effectively monetizing the asset that was once free of charge.

They have followed the same road map for Gmail, Google Search, YouTube, and if Waymo can become a utility, prepare from Google digital ads inside the screens of Waymo autonomous cars.

When many sulked that this could be one of those billion-dollar failures that Bezos whined about, Google has decided to supercharge Google Maps by cross-pollinating the power of Google maps with its digital advertising knowhow.

This powerful cocktail of forces working in tandem will accelerate its revenue growth along with the resurgence of its YouTube digital ad revenue.

I believe this new lever of revenue growth isn’t priced into Alphabet shares yet, and withstanding any random black swan shocks to the broader economy, Alphabet is poised to outperform the rest of the trading year.

Short Yelp on any and every rally - Google has made their business model redundant.

April 17, 2019/by Mad Hedge Fund Trader

August 27, 2018

Tech Letter

Mad Hedge Technology Letter
August 27, 2018
Fiat Lux

Featured Trade:
(WHY ALIBABA IS THE FIRST STOCK TO BUY WITH THE OUTBREAK OF TRADE PEACE),
(BABA), (GOOGL), (AMZN), (YELP), (MSFT), (MU), (ZTE), (HUAWEI)

August 27, 2018/by MHFTR

Why Alibaba is the First Stock to Buy with the Outbreak of Trade Peace

Tech Letter

According to the government agency, China Internet Network Information Center, the Chinese Internet community has surpassed 802 million, which only represents a 57.7% penetration rate, miles behind the 89% penetration rate in America.

The gargantuan scale of the Chinese Internet world means China has three times as many Internet users than America, and this is a big deal.

The additional 30 million added to the Chinese Internet ecosphere in the first half of 2018 shows the scale in which local Chinese tech companies are playing with and use to their clear-cut advantage.

Ostensibly, most business strategies in China revolve around scaled tactics as the backbone to operations.

There is even more room to expand in the Middle Kingdom and one clear victor sits atop the parapet looking at the riffraff below and that is Chinese Internet conglomerate Alibaba (BABA).

Alibaba, led by Chinese Internet pioneer Jack Ma, posted its highest-performing growth quarter in the past four years.

Total quarterly revenue ballooned an incredible 61% YOY to $11.8 billion, highlighting the dominant position Alibaba possesses in the Chinese e-commerce landscape.

If you want to know what Amazon (AMZN) is going to do next watch Alibaba.

Profit margins were somewhat sacrificed in the process because of M&A activity that saw Alibaba move into the physical supermarket business snapping up 35 Hema supermarket locations then reinvesting into the business. Echoes of Whole Foods?

Alibaba did not stop there, funneling another $3 billion into food delivery app ele.me, which plans to merge its operations with Yelp (YELP) lookalike app Koubei.

If you thought Silicon Valley moves at a rapid pace, the Chinese Internet space moves faster than lighting.

Alibaba last year dipped into the retail segment as well pocketing a department store chain with 29 stores along with 17 shopping malls.

Alibaba is the closest replica the world has to Amazon and thus is an ideal barometer of the health of the overall Chinese consumer and a peek under the complicated hood that is the Chinese economy.

Alibaba also provides onlookers at how China and its Internet behemoths are coping with the global trading war that has invaded the news headlines from its outset.

The short answer to all this is that China is coping quite well and by no means is ready to back down.

Indeed, there will be peripheral pressures exerted from the fringes, but the core engines remain intact and Chairman Xi can fall asleep in his Beijing abode more than peacefully.

A reason for the stalemate between the two governments is that both are quietly confident they have the levers in place to absorb whatever Molotov cocktails the other has to throw at them.

Investors would be mad to dismiss China’s capabilities after experiencing a mesmerizing economic rise enriching hundreds of millions of Chinese nationals that can be found comfortably living in western megacities in luxury real estate often with a real estate portfolio dotted around the world.

Alibaba’s management made it known on the earnings report that it is not worried much about the trade war because it is largely focused on the domestic Chinese consumer, which has been one of the best economic stories of the past decade.

The overseas expansion unfolding under Alibaba’s tutelage is away from the western world and predominantly focused on Southeast Asia and Eastern Europe where cheap, value-for-money hardware and software allows citizens at these income levels to participate in the e-commerce game.

These individuals can’t afford iPhones on a salary of peanuts. And Alibaba has targeted the undeveloped world as a potential lever of substantial growth.

The regulatory harshness of the west has shut out Huawei and ZTE from its shores. Australia followed suit as well, banning the two telecom companies even though it enjoys a better relationship with Beijing than Europe or North America.

China has already planned a workaround because the engines driving the Chinese tech miracle are semiconductor companies such as Micron (MU), which sells boatloads of DRAM memory chips to Chinese tech companies that flood the world with smartphones and other gadgets.

Beijing has already formulated a plan to circumvent American chips by tapping Korean, European, and Japanese chips to replace the current American supply that could vanish at any time.

Shenzhen-based chip company HiSilicon fully owned by Huawei is responsible for supplying Huawei with chips and is the biggest local designer of integrated circuits in China.

This is what the future of China looks like when China can finally build up the adequate supply necessary to achieve its plans to dominate global technology, America, and the world.

But the plan is still in the process of playing out. The awkwardness was highly visible when the administration’s ban of selling U.S. manufactured components to telecommunications company ZTE resulted in the company almost shutting down until a last-second change of heart by the administration.

The near-death experience will invigorate ZTE to muster its own local supply of chips to avoid the unreliable foreign supply and a deja vu feeling.

American chip companies won’t be able to enjoy the Chinese market for long as all these negative experiences for Chinese companies has forced Chinese tech companies to search and secure a guaranteed chip supply.

At the same time, Chinese local smartphone players have gone from 0 to 60 in no time with companies that barely existed a few years ago, such as Oppo, Vivo coming into the fore along with Huawei picking up 43% of the global smartphone market.

This is bad news for Apple as local competitors are learning fast and furious how to build premium smartphones via re-engineering the current technology or through forced technology transfers.

These companies subsequently offer these phones at the lowest possible price point. And at some point in the near future Apple could be expendable if Chinese smartphones start to display the type of quality the best phones show.

Chinese domestic consumption and investment comprise 90% of the GDP growth in China and are propped up by three robust trends including real wage growth boosting the middle-class population, high savings rate that of which Americans would be jealous, and easy access to credit vehicles.

When I was recently in the Middle Kingdom, it was highly evident that as the generations became younger, their quality of life was higher than their parents.

The opposite is happening in America with millennials earning demonstrably less than their parents’ generation while the American middle class is shrinking at an accelerated pace.

Beijing knows this and hopes to wait things out as it feels time is a positive variable for China and not America.

It is true that if this trade war took place in 20 years in the future, China would be in a stronger strategic position to extract whatever concessions it desires because even though Chinese growth is slowing, it is still growing at 6.5%.

And if you don’t believe what I just said then just look at Alibaba’s cloud division, which grew 93% YOY opening artificial intelligence-based data centers around Europe to battle Amazon (AMZN) and Microsoft (MSFT).

Europe was once Elysian Fields for American tech companies, but with European regulators going after American tech and China encroaching on European turf, the future looks a lot less certain for the FANGs there than ever before.

Alibaba’s operating margins dipped 10% YOY but the slide will be returned to shareholders in the future in the form of high-quality revenue and is worth the investment into the most innovative ideas of tomorrow.

I did not even mention the large stake Alibaba has in Ant Financial, which operates the ubiquitous digital payment app Alipay.

It would be analogous to Amazon if it owned Visa.

Alibaba is one of the best tech companies in the world headed by a former Chinese English language teacher in Hangzhou.

If America becomes too difficult or expensive with which to do business, Alibaba and Chinese tech will just recalibrate their strategy to deeper infiltrate the confines of Southeast Asia and the rest of the undeveloped world.

Any price war on undeveloped soil favors the Chinese as they have mastered scale better than anyone on the planet.

The stellar Alibaba numbers also mean the trade war has no end in sight as each player thinks they have the upper hand. But it also means the tech giants from both countries will come out unscathed and will lead their country’s respective equity markets higher for the foreseeable future.

The Jeff Bezos of China – Alibaba’s Jack Ma

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Quote of the Day

“Technology is nothing. What's important is that you have a faith in people, that they're basically good and smart, and if you give them tools, they'll do wonderful things with them,” – said Apple cofounder and former CEO Steve Jobs.

August 27, 2018/by MHFTR

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The Jeff Bezos of China – Alibaba’s Jack Ma

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