Seeking Alpha
Long/short equity, deep value, special situations, growth
Profile| Send Message|
( followers)  

Insider selling in Yelp (YELP) was identified as a concern in a recent SeekingAlpha.com article. In the comment section it was put forward by an apparent Yelp skeptic that these executives could stop the automatic selling in their 10b5-1 trading plans if they really felt the stock is undervalued. In reply, a Yelp defender pointed out that it is "very typical, insider selling at this point... People sell for all kinds of reasons, buying a house, sending kids to college, taking deserved profit to diversify holdings."

Indeed one can say there has been significant selling in Yelp but only by the dollar figure relative to the average American's net worth. Yelp CEO Jeremy Stoppelman sold 58,824 shares August 26 - September 16, pursuant to a 10b5-1 trading plan. That sounds like a large number depending on how one spins it. When you consider that Stoppelman currently controls 4,895,096 shares, the gravity of the sales diminishes somewhat.

Such selling is not so unusual for a company at this stage after an IPO.

Right from the beginning, venture capital firms and founders invariably make their initial rounds of investment with a "liquidity event" in the business plan. There is also often sweat equity involved and this is how founders pay themselves. You will find the same type of selling with many successful companies, including Google, shortly after their IPOs and before their parabolic stock appreciation. I remember writing many similar harangues in 2002, about Jeff Bezos when Amazon.com (AMZN) was trading at the bubble price of $10 billion: In that linked thread one can see Bezos and a litany of other executives selling hundreds of thousands of shares as they did on a monthly basis.

Stoppelmann has been doing a great job running Yelp but in 2012 received "only" $340,657 in total compensation. I think that is rather modest for a CEO building a high growth, publicly traded company. None of that $340k was in stock or option compensation, so he is being prudent rewarding himself out of his equity position as I suspect he will be rewarded with additional stock and options in the future as he continues to make money for shareholders.

As an investor, I could sell off my entire portfolio and invest all of my liquid net worth in Yelp today - but I won't. By remaining diversified, do I demonstrate contradiction? Candidly, because my original investment is now up 500% this year, Yelp has become my largest single interest. The reason why I still maintain my long position instead of cashing out and finding "the next great growth opportunity" is - as I wrote months ago, I believe Yelp (if not acquired first) will warrant a $8-$10 billion valuation near-term and $25 billion within the next decade largely due to scaling within the two trillion dollar (combined) global industries it is poised to dominate. Given that belief, if I locked in my Yelp profits today and sought to reinvest that capital in an outstanding growth opportunity, I would find myself back in Yelp.

Having written several columns making the distinction between Yelp and the infamous Technology/Internet bubble of the 90s (to which it has been erroneously compared) it is unnecessary to enumerate those points already made. However, it is relevant to point out that I did add a nuance to my strategy with Yelp.

My price targets are all the same, which is why I am still long. I have however purchased out of the money short-term Put Options on Yelp to participate in possible volatility before the Q3 announcement. I do not look at charts and am anti-technical analysis; however, psychologically I expect a new posse of gun slingers to find going short Yelp irresistible, hence, making some possible profits on their predictability.

Source: Insider Selling At Yelp Is A Non-Issue