YELP is a Buy at Support

November 22, 2013, 11:17 am ET, BY Neal- Contributor| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

Yelp (NYSE:YELP) stock has returned over 215% YTD, even though the company still is not profitable.  The company missed analyst estimates when it reported in late October, and shares have since declined.  Local business reviews are more popular than ever, and Yelp’s mobile app continues to be the most popular tool for consumers on the go, so was the recent pullback a buying opportunity?

Along with earnings, YELP announced a registered public offering of approximately $250 million of its shares of Class A common stock, and that was a concern. Yelp intends to use the net proceeds of the offering for additional working capital and general corporate purposes, including sales and marketing activities, general and administrative matters and capital expenditures. In addition, Yelp may use a portion of the net proceeds for the acquisition of, or investment in, technologies, solutions or businesses that complement its business.  Given the pullback, based on the real-time trading report published by Stock Traders Daily, the stock is moving closer to a test of longer-term support.

Yelp is making great progress with its local business, but competition is also growing.  Google is still playing catch up, but it is working its recently acquired Zagat, into Google maps. This allows customers to search for local businesses and rate those using Google maps and is a concern for Yelp because Google drives about half of its website traffic. Yelp is going to need to encourage non-app users to find its reviews in a more direct path. Facebook, who also offers reviews, has more than 18 million local businesses and counting. Groupon Inc (NASDAQ:GRPN) and Yahoo! (NASDAQ:YHOO) maps are also looking to take their share of the local business revenues.

Right now about two-thirds of internet users choose Google Maps for their mapping needs,  even in mobile and tablet markets, Google Maps continues to be dominant. Google Maps is not only the most popular mapping app, but it is also one of the most popular apps period. Right now, Google Maps is used in 46% of all mobile devices.

A big positive for Yelp however is the fact that the Apple (NASDAQ:AAPL) mapping application utilizes Yelp reviews when someone searches for a local business using it.  The issues surrounding Apple Maps recently hurt yelp but after numerous changes and feature updates for Apple Maps, they have significantly improved the user experience.  The total number of iPhones and Android phones in the US has grown to 136 million and the number who used the Google Maps app has been dropping, down to 58 million, while the number of Apple Maps users stands at 35 million out of a total iPhone population of 60.1 million.  As Apple Maps' users continue to increase, Yelp should continue to benefit. 

YELP is a stock traders love, but as a trader we must pay close attention to price because that matters most.  If we time the trade correctly we can make lots of money, and that is what our real time trading report for YELP is designed to help traders do.  Based on the Stock Traders Daily real-time trading report for YELP, the stock has been drifting closer to long-term support, but isn’t there yet (be patient). If the stock continues to move lower and tests long-term support we would be buyers near support.  For casual observers, that means we are anticipating slightly lowers levels before we would consider buying YELP, and then we would use the support level that triggers the buy signal as our risk control as well just in case the trades begins to move against us.

About us:  Stock Traders Daily has been providing comprehensive market analysis, and correlated trading strategies since January 2000, which was the virtual peak of the Internet Bubble.  Our objective is to provide strategies capable of making money in any market environment, and we have been doing that since inception. 

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