Getting Back Into Yelp for the Next Move

 | Nov 15, 2013 | 11:15 AM EST
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I've recently gone back into Yelp (YELP) as a long position.

I've loved the company for a long time, but it got a little frothy there for a while.

Now the stock has been in a holding pattern for the past two to three months (at least relative to its prior six months). At the end of October, we got a good earnings report, to which the stock didn't react very much, and then a secondary offering by the company to raise more cash for the balance sheet.

This was a smart move, but it led some of momentum investors to jump out of the stock and take it down into the $60s.

For me, this has seemed like a great entry point, and I guess I'm not alone, as the stock is already up 5% this morning and was back over $70.

For the fourth quarter and for the next six months, I see this being a great opportunity for Yelp to build up its brand as the new form of Yellow Pages.

As I've said ever since this was a newly trading public company with a $1 billion market cap, Yelp has a very deliberate way in which it makes money. It moves into new cities and spends money on building out its directory for the city, and it also clearly knows that it won't be very profitable in those cities until two to three years out.

The more it invests in new cities as it goes, the more profitable it knows it will be in two years' time. Then, it really becomes a matter of the farmer sitting back and waiting for the seeds to sprout up after the planting.

When Yelp reports a particularly hot quarter, the earnings are a surprise, and the stock rockets. We've been in a holding pattern now for a couple of months, and this likely means were getting close, either on the January or April earnings call, to have another "rocket" announcement from new city revenue beginning to roll in.

I'm in Yelp, looking for just that kind of result.

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