"Yelp!" That's the sound shorts are making as Yelp (YELP) shares are rocking more than 20% higher on Thursday. The social media business review company reported a 1-cent loss on revenues of $55 million last night. Analysts had been expecting a 4-cent loss on $53.4 million in sales.
Below those admittedly modest financial headlines Yelp added better than expected ad conversion rates in local business accounts --in other words, a larger than expected number of people who accessed Yelp reviews ended up using the local business. That's a good thing as it leads to higher revenue per user, sunny smiles on the faces of Wall Street analysts, and a stock price at least temporarily impervious to the laws of gravity.
Eventually the laws of physics apply to all things, including and especially stocks that move 20% higher in single sessions. The only qualifier to that rule is that maybe, just maybe, Facebook (FB) managed to change the game for all social media companies when it proved that mobile advertising is a money-making business as opposed to just a cool idea.
Todd Schoenberger of LandColt Capital is an enthusiast. He's giddy about Yelp's mobile execution, local advertising, customer conversion and just about everything else. "Buy it and buy it again!" he gushes in the attached clip. "Why wouldn't you buy it? The growth story is excellent!"
There are two ways to think of Yelp, either way is bullish. As an investment, I wouldn't buy anything up this much in one day. My mind would burst into flames even seriously considering it. Beyond that as a general rule Yelp's quarter wasn't strong enough to justify this type of move as a permanent gain.
Facebook changed the way you have to think about the company on a fundamental basis. Yelp beat expectations. There is a huge difference. Yelp will be a buy someday. Just not this day. Take your profits if you're long.
Set a ticker alarm for Yelp. When it retraces back to $40 a share load the boat.
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