Shares of online-review service Yelp (YELP) climbed 3% Tuesday following news that activist billionaire David Einhorn's hedge fund, Greenlight Capital, has taken a stake.
Einhorn, who has a track record of moving the market on the announcement of his firm's positions, published a bullish report Tuesday on Greenlight's logic behind the new addition to its portfolio, citing a potential "bidding war" if Yelp were ever to go on the auction block. Einhorn is set to present an update on his market outlook at the much-anticipated Sohn Investment Conference Wednesday.
"Yelp is adding more transaction-based revenue, gradually relocating its salesforce to lower-cost cities, and providing more reporting tools to its customers," Einhorn said, noting the company is on track to double its sales by 2019 under its current management plan, which would add $300 in EBITDA, or earnings before interest, taxes, depreciation and amortization.
Just last year, Einhorn helped pressure shares of fracker Pioneer Natural Resources (PXD) down 4% at the annual conference, citing a "nearly infinite supply of negative return opportunities" at Pioneer.
But Real Money's Jim Cramer says Yelp may have already missed its buyout opportunity when Yahoo! (YHOO) lurked as a potential suitor in 2014, as the company's interface has since lost its appeal since its 2012 initial public offering.
"Yelp's natural buyer was always Yahoo!, but Yahoo! decided to buy its own stock," Cramer said in a Tuesday email, underscoring Yahoo's 15% share decline over the past 12 months. "It would have dovetailed perfectly. I now find the user experience so poor that it is very hard and cumbersome to use."
Yahoo! has found itself on the opposite side of takeover rumors, as the struggling Web giant has been considering selling some of its core Web assets to help reverse a longstanding cash burn and share decline.
However, a Yelp takeover would come at a significant discount from where its shares traded a year ago, with about 44% of its market cap disappearing amid mounting costs and an income drought. Yelp posted $15 million in losses over the past four reported quarters, as costs of more than $51 million more than doubled over the period.