One of David Einhorn's newest investments is up more than 20% today
David Einhorn disclosed a long position in Yelp on Monday.
One of hedge fund manager David Einhorn's newest investments is killing it.
Shares of Yelp spiked on Friday after the company crushed earnings estimates on Thursday after the market closed.
Yelp reported earnings-per-share of $0.08 versus beating analysts’ estimates of a loss of $0.16 per share. Revenue for the first quarter came in at $159 million versus analyst estimates of $156 million.
Yelp’s stock (YELP) was last trading up more than 21% at $26 per share.
On Monday evening, Einhorn, the founder of Greenlight Capital, disclosed a new position in Yelp's stock in a letter to investors.
“We purchased Yelp at an average price of $21.16. YELP is a dominant search and review website for local businesses with roughly 200 million unique monthly visitors and the 21st most popular mobile app in the U.S. The stock has suffered due to missed expectations and anxiety about an upcoming negative documentary,” Einhorn wrote in an investor letter dated May 2 obtained Yahoo Finance.
Einhorn’s comments refer to the "Billion Dollar Bully," which according to IMDB takes "an investigative look into accusations that online marketing giant Yelp! is running a mob-like extortion racket against business owners who refuse, or can't afford to pay-to-play."
The size of Greenlight Capital’s position is unclear. Hedge funds are required to report their long holdings 45 days after the quarter ends in a regulatory filing with Securities and Exchange Commission. Those regulatory filings are expected to come out in mid-May.
Yelp was not one of Greenlight’s winners in the first quarter. The stock had ended the quarter down at $19.88 per share.
In the investor letter, Einhorn said that the company has the potential to double its revenues by 2019. He also thinks there could be the potential of a bidding war for the company if it decides to sell itself.
“YELP is adding more transaction-based revenue, gradually relocating its salesforce to lower-cost cities, and providing more reporting tools to its customers to better illustrate the robust ROI of dollars spent with YELP. If the company executes its current plan, by 2019 it will double revenues and earn $300 million of EBITDA at a 35% margin,” Einhorn wrote.
He continued: “A peer group EBITDA multiple would imply a $55 stock price. Alternatively, YELP could pare back and operate only in its top 20 markets – using a similar EBITDA multiple, we estimate 30% upside in this ‘downside’ scenario. We also believe that the company has strategic value and that it has been approached by multiple potential acquirers. Should YELP’s board ever decide to auction the company, a bidding war could emerge.”
As the “Billion Dollar Bully” film, Einhorn is not worried.
“Finally, we’ve reviewed the criticisms raised in the trailer to the documentary and we are comfortable that they won’t have a negative impact on our investment thesis. YELP shares ended the quarter at $19.88. We rate them five stars.”
Greenlight Capital was up 3% for the first quarter.
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Julia La Roche is a finance reporter at Yahoo Finance.
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