Shorting Yelp, the win of the year?
I am considering going short on Yelp and similar public review companies. My view is that they are about to be opened up to monetary responsibility for fraud reviews. I have always been suspect of these companies, it being very easy for them to punish business that turn down their advertising campaigns as well as reward those whom accept.
Up to now these companies have been given protections due to previous legislation that exempts them from what people say on their platforms. But I think there is going to be a tipping point with these types of business plans that generate money by selling ads for companies they review.
What do you all think?
Full disclosure I do not currently have any position in any public ratings company.
I'm not planning on going long or short on them, but I definitely agree that their business model holds a lot of potential for major legal action and/or a loss of advertising (primary source of revenue). I think that you are absolutely looking at this from the correct perspective. Why Yelp as your major one to short? Is there something specific to their amount of ad revenue that gives you pause? I would simply find the one major company in this arena that has had the quickest growth of ad revenues (and in turn should be pushing the upper limits of hypervaluation). Yelp may be your best short, I just haven't looked at the numbers. Good luck with it!
Yelp was just the most well known example. they also happen to be on the cusp of a major legal decision by a state supreme court. So it would just be the one most likely to take a huge bath or a massive run up.
Article in this mornings WSJ about these lawsuits and how some businesses are claiming that things were fine until they were approached by Yelp for advertising and said no.
Going to be interesting to see how this plays out.
Yelp is pretty sweet, especially for the pictures. Some of the reviews on there are like Shakespearean.
If you can Google and find the old Yelp review of the Ford's Theatre where the posters "A. Lincoln" and "J.W. Booth" go at it, it is well worth the read. They took their posts down, but you can find screenshots somewhere on the net.
I really hate these "online review" companies. It's hard to believe that such a business model can do so well. Besides the fact that what they are doing is potentially illegal, they post losses year after year.
One I have been looking at is Angie's List. It's similar to Yelp (but perhaps even more questionable). Angie's List has posted losses for like 10+ years I think and at the same time, their subscribers have decreased. The only thing keeping them going is increasing revenue from the businesses…which doesn't make sense since they're supposed to be offering unbiased advice about them.
Also, Angie's List lost 50%+ within the past ~9 months. Yelp has only lost 30% off its high, so with bad news, who knows how far down it could go….
I agree Will. Angie's list is a business who's model relies on having people pay for information that is somewhat readily available for free. I thought that their potential as a viable business was doomed the first time I found out that it was a paysite. I should've gone with my brain/gut on that and initiated a short immediately. If it walks like a duck, shits like a duck...
One of the big things I have noticed is reviewers giving low scores to a business for things not related to the business.
Here are some representative examples of reviewers that gave low scores:
"I went to get my car washed here because of the high reviews, but they weren't open."
"I tried to order some food at this place, but they wouldn't take my order because I was on the phone with my girlfriend. Who the hell are they to tell me when I can and can't talk on the phone?"
I'm sure it is a PITA for these really small businesses to deal with this stuff.
There's always a faction of people that don't understand the ratings/review process for anything. I can't tell you how many reviews I've read on Amazon and elsewhere that people use to complain about something other than what they should. Example - I read a review where someone was reviewing a product on Amazon and instead of saying whether the product was a good product, they gave it one star and their only complaint had to do with UPS losing the package containing the product. Idiots.
If Yelp and/or Amazon want sympathy they will figure out how to get rid of those type of comments/complaints so that the "true" reviews are there.
might be difficult to time but the thesis sounds reasonable
@"rufiolove" - I agree. It would have to be a long-standing short position. Maybe some January 15 puts in the $40-$50 range...
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