What’s Yelp’s review service worth to investors?

Yelp illustrates just another social media bubble reverting to the mean. The premise of this company is that it unites people with great local businesses.  And maybe that actually happens on occasion.  But today investors are increasingly skeptical of this company’s value.

YELP stock

Yelp’s stock crashes 20% on earnings that exceeded expectations.

How does Yelp operate?

Yelp’s position is to try to offer reviews that help consumers make informed decisions about the companies they engage.

The problem is the 1-9-90 situation that Yelp currently finds itself within.  One percent of reviewers are active, 9 percent occasionally review and the rest are simply viewers.

Without any transparency, how can there be trust?

Adding validation of identity, a business transaction or a check-in at the location would likely impact those numbers negatively. And that, in turn, would potentially hurt site traffic and advertising revenue.

But doesn’t having some ability to say, yes, in fact this person did engage this company for this service, provide credibility?  As of this moment the only credibility Yelp has is built off the reputation of the site.  And that seems to be dwindling as more become aware of the ongoing shenanigans.

If Yelp is not willing to go beyond providing anonymous reviews about business relationships that may have never occurred, which then potentially cause real world pain to hard working companies, then I’m not certain that Yelp really provides any value to the local businesses it claims to serve.

Yelp’s ad-driven profit engine is questionable at best

After reviewing how the pay per click advertising system works on Yelp I’m quite disappointed to see that the majority of ad placement occurs in non-related categories or outside of key geographic regions.  Essentially it looks like ads are foisted wherever they can be without attention to applicability.

So what’s the the bottom line on Yelp?

What is a company that provides at least 20% (according to Yelp’s own numbers) false reviews really worth?  Is it net beneficial or harmful to the local business community?  Can it be readily replaced by a service with more credibility and a stronger emphasis on transparency?  Will users continue to utilize this service with Google and other more established companies providing alternative ratings services?

Apparently today investors in Yelp’s shares are asking themselves the same questions.  With a P/E of close to 100 one can reasonably guess that the path of least resistance is down.  My personal estimate is a reversion to the post-IPO pricing of about $20-25/share.

Silver’s scary sell-off

Silver and silver-related assets were smashed across the board on Friday as the World Bank and IMF met in Washington, DC to discuss the worsening global crisis.  Other commodities saw sharp declines as well.  More silver was traded that day in any given hour than silver is available on the market for an entire year.  It was an electronic sell-off.  Physical prices now command a 10-20% premium to spot paper prices, the highest in years.  Gold to silver ratio is now over 1:50, the highest in a very long time.

Predictably news comes out after the trading day (but we must assume the large insiders knew the whole time) that COMEX was raising margins by 15.6% on silver. 

http://www.gold-prices.biz/comex-raises-gold-margins-by-215-silver-margins-by-156/

The problem is the COMEX does not have the silver to deliver, so forced liquidation is the strongest tool they have to bring prices down and take parties who would seek delivery out of the equation.

Silver is still up 46.31% on the year and has strong support in the $30.00 area.  I think we need to see what the price action is when buyers step in and shorts cover.  It could very well move up as fast as it did down (and higher) if we see ECB rate cuts, a Greek bail out, good earnings in the US, emergency Fed easing or other central bank policy movements as well as any geopolitical or event risk scenarios playing out.

Given that even though silver fell to $30.00, but physical silver commands a price of $33-35.00, there is evidence of a growing paper vs. physical price discovery bifurcation. 

http://www.apmex.com/Category/160/Silver_Eagles___Uncirculated_2011__Prior.aspx

As far as my strategy goes, I don’t see any change in the situation for the dollar long term.  The recent strength has been more of a liquidation panic in Europe and foreigners buying dollars because it’s the least bad currency for the moment.  There’s even some rumor of weaker central banks liquidating gold and silver holdings to raise liquidity.

I saw the same pattern of behavior in 2008 and 2009, yet gold and silver are much, much higher now despite the occasional (and sometimes violent) correction.

Over the last 11 years silver and gold have outperformed all sectors of the S&P 500 by many multiples.  There is no paper asset class quite as trusted during times of crisis, either. 

http://finance.yahoo.com/q/ta?t=my&s=SLV&l=on&z=l&q=l&c=SPY (three year chart)

Now, given the potential for further easing by the Fed, ECB, BOJ, BOE, SNB and others, the need to monetize debt in the US to keep the government open (i.e. the necessity for QE3) — without debt monetization the government will go in to a crisis mode where their ability to spend will be limited as interest rates rise because treasuries are sold more than bought.  But we’re not the only country that has to monetize debt.  Keep in mind the US government has over $75 trillion in unfunded liabilities and there’s no ‘economic growth’ scenario that allows these debts to be funded from revenues.

QE3 from the Fed at this point seems like a foregone conclusion once we see a sovereign debt or large bank collapse.  The ECB is also monetizing debt in the Euro zone for a few of the larger PIIGS, the BOE has QE’d in England and there’s a good chance the BOJ and SNB will continue to print money to artificially devalue their currency.

http://www.reuters.com/article/2011/09/24/us-imf-ecb-stark-idUSTRE78N1Y220110924

These actions will create a short to intermediate term burst in global money supply — and hot money seeking a high return.  These types of inflationary pressures lead to booms for precious metals.  

http://www.businessweek.com/ap/financialnews/D9PU96280.htm

Greece’s default is all but inevitable, and that is going to rock the world and create the need for much, much more liquidity.  This situation will spread throughout Europe and spread here and to Asia.  Lower rates and more stimulus will follow.

http://www.zerohedge.com/news/lehman-weekend-redux

Many shops sold out of their silver bars and coins on Friday because the appetite for physical silver was so strong at $30.00 (even though customers gladly paid the $5.00+ premium making purchases $35.00+ per ounce).  In fact I still saw online stores selling silver for $45.00 to $50.00 per ounce.

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/9/23_Sprott_Money_Temporarily_Runs_Out_of_Physical_Silver.html

I believe that the bifurcation in physical and paper prices is important to note because it indicates that there are two markets.  A real market and a phony market.  The phony market is being manipulated downward to an artificially depressed price.

This happened in 2008, too.  But from that low price of $8.00 silver quickly rose to $48.00 in the course of three years, a 600% increase or averaged to 200% per year.

http://www.kitco.com/charts/popup/ag3650nyb.html

Gerald Celente, one of the best trend forecasters of our era is now buying physical silver.  He made the announcement on Friday, so I believe that will mean something to the many that follow his advice and watch his investments closely.

http://kingworldnews.com/kingworldnews/Broadcast/Entries/2011/9/24_Gerald_Celente.html

One year silver chart

Tonight silver is testing the 350 day moving average.  Some continuation selling was to be expected after Friday’s drop, but we’re looking for some consolidation or even a short term reversal due to the very, very oversold condition, combined with the support of the 350 day moving average at 29.57 as well as the appetite that should be present in Asia during this season.

We’re also dealing with price move that is over a four standard deviation event — i.e. something that is extraordinarily rare and it’s punctured the bottom bollinger band, leaving a reversion to the moving average around $37.00-40.00 quite possible if technical buyers come in.

24 hour silver chart Right now silver is trading at $29.83, having found some support at the $29.57 area.

Volume is light as to be expected, but once Sydney and Hong Kong open we’ll get a better idea of what the Asian appetites for metals are after last week’s discount.

Personally, I am tempted to buy silver and silver-related assets given these discounts.  Even if prices are weak short term, I know they will be much, much higher in the intermediate and longer term.

Bye bye Dubai

In the downdraft of oil prices and the global recession taking full grip, a once bustling city in the United Arab Emirates is collapsing at an alarming rate. Dubai’s foreign workers are leaving in droves, their investments are drying up and new problems seem to be arising on a daily basis.

Recent incidents have highlighted the deterioration of competence.  Only a few weeks ago, raw sewage was discovered on tourist beaches.  Apparently being pumped in to the ocean by poorly run industry.  Just a few days ago a tanker collided with a freighter offshore creating a lot of debris and a necessitating more clean ups.

Dubai Towers
Above: The planned Dubai Towers project.  On hold.

I remember only a few years ago I would read that record breaking skyscrapers were being planned and even erected on a seemingly never ending basis. Now that the local economy is collapsing the government has passed a law that forbids talking badly about the city and fines those that would dare to about $250,000.

Tourism has been dropping as other destinations or staycations (staying home on vacation) become more desirable. Certainly many of the lofty projects will be put on hold if not outright abandoned as income dries up in energy and tourism. Many speculate this may be the end of a city that never really reached its planned potential.