One short-sale target falls nearly 25% today...

One short-sale target falls nearly 25% today... BP and ExxonMobil both crush earnings expectations... Badiali updates us on the oil markets... One of our favorite business models in the world... Porter's interview with a mining legend... Don't miss Jeff Clark's live training session...
 

 We wrote it, did you short it?
 

Yelp is a modern, 21st-century Silicon Valley Internet company. But its business model relies on an old-fashioned cold-calling, pavement-pounding sales force. It's an Internet company... without the scale. Many Yelp proponents fail to grasp this fact, implying that Yelp deserves a similar multiple as Facebook, Google, or other Internet darlings.   But the fact is Yelp can't simply attract visitors and wait for the click/impression-based ad dollars to pile up. Yelp has to attract reviewers and consumers (i.e., review readers) and convince local business subscribers to pay for advice and advertising. With Yelp's complex business model, success depends on growing and maintaining positive relationships with all three groups.

 The Stansberry's Investment Advisory team shorted online-review business Yelp in March. The company's business model is questionable, many small-business owners (Yelp's primary revenue source) feel extorted, the company will likely have trouble growing in smaller markets and internationally, and it may face legal challenges.
 

As Porter's team wrote in that issue, lots of business owners are complaining...
 

The details differ slightly but, in general, the gripes stem from the fact that Yelp creates individual web pages for millions of local businesses – without the business owners' consent or knowledge. From there, unsolicited reviews start showing up and, eventually, business owners receive a sales call asking if they'd pay up to $1,000 per month to "manage your Yelp presence."   Many of these business owners ask the obvious question: "What if I don't want a Yelp presence? Can you please delete my page?" The answer: No dice – Yelp doesn't offer an opt-out clause. So, from the start, the nature of Yelp's business model creates a contentious relationship with small businesses – the very group it relies on for 85% of its revenues.

 People also claimed that paying Yelp monthly dues positively influenced their reviews. And business owners who didn't pay suffered the consequences – including "fake" reviews from competitors or people who actually write negative reviews for a fee (which you can find on Craigslist).
 

In addition, while Yelp is currently operating within the law, one business owner in the Washington, D.C. area is asking the courts to force Yelp to turn over the information of its anonymous reviewers so he can essentially sue them for defamation. The lower courts ordered Yelp to turn over the information... which would be a disaster for the company. After all, how many negative reviews would users give if they knew they could be liable for defamation?
 

 Yelp reported disappointing revenue and earnings for the first quarter. Shares plunged nearly 25% today to a new 52-week low.
 

In addition, the company's average monthly unique visitors only rose 8% in the quarter, down from 30% in the same period a year ago and 13% in the fourth quarter of 2014.

Yelp also gave current-quarter and full-year forecasts that came in below expectations.

 Missing revenue estimates and slowing growth is a death knell for a company like Yelp... so shares are tanking as a result.

Short-selling is never easy, especially when the broad market is hitting all-time highs. Kudos to Porter and his team for a solid call. Readers are up nearly 20% on the short sale in less than two months.

 Suffering from low oil prices, oil giant BP (BP) this week reported $2.6 billion in profits in the first quarter, a 20% drop from $3.2 billion in the same quarter a year ago.

Still, the company announced earnings per share of $0.09 – more than double analyst estimates. BP also pledged to maintain its current dividend of nearly 6% at today's levels.

In a statement this week, CEO Bob Dudley said the company would "take advantage of any opportunities presented by the lower [oil] price environment to further reduce capital expenditure or costs," noting that BP cut first-quarter capital expenditures more than 25%. According to the New York Times, BP plans to sell another $3 billion worth of businesses before year-end.

All told, it was a surprisingly bullish quarter for BP, considering oil-services companies had laid off nearly 60,000 employees as of last month, according to Forbes. Oil exploration and production companies like BP had laid off more than 10,000 employees – though BP's numbers were significantly lower than some of its primary competitors.

Dr. David "Doc" Eifrig recommended BP shares in Income Intelligence in July 2013. Shares are up 9% since then... and Doc's subscribers have collected more than $4 per share in dividends.

 We discussed BP in-depth in the January 7 Digest. The company was yielding 6.4% after shares had pulled back following a controversy with Russian-owned oil giant Rosneft. Doc wasn't worried, though... He told his Income Intelligence subscribers to stay the course. Shares are up more than 20% since that Digest.

 Meanwhile, fellow oil giant ExxonMobil (XOM) reported bullish earnings despite a 46% drop in profits.

Exxon's first-quarter profits fell from $9.1 billion ($2.10 per share) in 2014 to $4.9 billion ($1.17 per share) this year. Still, that crushed analyst expectations of $0.83 earnings per share.

The story was the same for Exxon's revenue, which was down from $106.8 billion in the first quarter of 2014 to $67.6 billion this past quarter... easily topping analyst expectations of $56.4 billion.

Still, despite falling revenue and profits, Exxon increased its upcoming dividend by 6%, from $0.69 a share to $0.73. The company has grown its dividend every year since 1983.

 And while oil prices are still down more than 40% since last April, they're up nearly 40% in the last six weeks – a good sign for BP and Exxon going forward.

We asked Stansberry Resource Report editor Matt Badiali to comment on the recent move higher in oil prices...
 

Oil prices are recovering due to higher demand (thanks to the low prices) and massive cuts in capital investment. According to the Canadian Association of Petroleum Producers, production in the Canadian oil sands will be flat this year. When Saudi Arabian Oil Minister Ali al-Naimi decided not to cut production, he was aiming at inefficient production around the world, not just at U.S. shale producers.   His plan is succeeding. According to the Financial Times, the drop in oil prices threatened $1 trillion in future projects. The market recognizes that the loss of those projects will lead to much higher oil prices down the road. That doesn't mean oil prices have to go back to $100 per barrel right away... But sub-$50 oil is unsustainable for long.

 Matt noted that the recent spike in oil prices has been a boon to the Stansberry Resource Report portfolio...
 

We are seeing a recovery in all of our oil and gas positions. Marcellus Shale-based Range Resources (RRC) had record quarterly production, lower costs, and is one of the best-hedged companies on the market. Our subscribers are up 24% on Range since we recommended shares in March.   We're also seeing a jump in our oil-based master limited partnerships like Scorpio Tankers and TC PipeLines. They are up 25% and 20%, respectively, since we recommended them in October. Our other October recommendation – oil refiner Valero – is up 30% since October. On average, our oil and gas companies are up 10% over the past month.

 Changing resource sectors, Porter recently interviewed David Harquail – CEO of gold-royalty company Franco-Nevada – on Stansberry Radio Premium.

Longtime Digest readers know royalty companies have among the best business models in the world. Matt explained them in the April 24 Growth Stock Wire...
 

These companies mine no metals of their own. Instead, they finance early stage mining projects or buy existing royalties. When the mine begins producing, the royalty company gets a cut of the cash flow.   Think of it this way... One company finds raw land, builds a new housing development, and then draws in people to rent. It manages the development and chases down delinquent payers. This company takes enormous risks. It lays out huge investments and hopes that it will eventually get its money back.   Royalty companies aren't like that. Royalty companies essentially invest after the houses are full of renters... they just show up on rent day and get a check for their share.

This business model allows royalty companies to generate some of the best profit margins in the business – sometimes up to 90%.

 Another advantage for royalty companies – as Harquail pointed out during the interview – is that once his company buys a royalty on a piece of land, nobody can take it away from them. Even if the operating company goes bankrupt, the royalty company keeps its revenue stream.

And unlike mining companies, which typically can't raise funds at market bottoms to take advantage of low-priced opportunities, royalty companies can maintain a cash hoard (and use their cash flows) to take advantage of market bottoms.
 

 As you can see from the chart below, the market rewards royalty companies...
 

 During the interview, Harquail explained some of the advantages of Franco-Nevada's royalty model...
 

The other thing we found is that the great [mining] discoveries were so rare... From time to time, a mining management would make a great discovery, but then they would piss the money away in some other project and you wouldn't get the benefits of that great discovery.   And that's when we found out that having a royalty was the best thing, because you get paid no matter what the management is trying to do with their company or what their ambitions are going forward. If you got a royalty on a great property, they have to pay you a certain percentage regardless. And there's no way out of it. And that's what we liked having, is the absolute lack of discretion by management teams in terms of when they pay us.

 Harquail further explained why the royalty model is so advantageous at market bottoms, when good deals abound...
 

I think the other thing is that the gold companies themselves, because they have so little access to capital, are willing to sell us a component of their gold production themselves. And that was something that was unheard of back in the '90s [when gold was in the doldrums]. So we've invested just in the last 12 months $950 million, all gold deals, and on about a half-dozen different transactions of size.   And they've been all with gold companies or these arbitrage copper-gold deposits, and so we've never been busier. And so I think – I guess a long way of answering your question is it's lots of investment opportunities for us, but we're doing it despite a gold industry that's in liquidation mode.

 Finally, he explained how his company's diverse portfolio shields it from many of the normal problems in the resource sector – bad management, low production, geopolitical risks, etc...
 

The nice thing about it is then we can start having portfolios where we have hundreds of assets, so we don't have to sweat any individual operation. There might be some production shortfalls at a few mines in a particular quarter, but then you usually get some outperformance. So you can get a very nice, balanced portfolio that's very predictable. We've never once fallen short on any of our guidances because we're running such a broad portfolio that's representative of the entire industry.

 Harquail is just one of the resource experts who will be speaking at the Sprott-Stansberry Vancouver Natural Resource Symposium.
 

You'll also hear from Sprott U.S. Holdings Chairman Rick Rule, billionaire mining magnate Robert Friedland of Ivanhoe Mines, master speculator Doug Casey, resource billionaire Eric Sprott, Porter, and several other top CEOs in the industry.

 We know that spending money on a resource conference today is probably the last thing you want to do. Resources have gotten crushed. But consider what Harquail said: His company is on a buying spree right now. Remember... the biggest profits are made in the worst markets.

And in today's DailyWealth, Steve Sjuggerud said we may be turning the corner in resources today:
 

Commodity prices are down 60% from their 2008 peak... and they've lost a quarter of their value in the past year alone. After nearly seven years of terrible times in commodity prices, I now see a glimmer of hope...   The Bloomberg Commodity Index hit bottom last month (March 2015)... and has been quietly heading higher. You can see it in the bottom right of this chart.

 The smart money in the sector is salivating at the deals right now... And they're going to tell you all about it in Vancouver.
 

You only get an opportunity to buy resources so cheaply maybe once or twice a decade. And I don't know when you'll ever have the opportunity to see a lineup like this in one room at one time again.

We hope you'll join us in Vancouver from July 28-31. And if you buy your ticket today, we'll give you $300 off the regular admission price.

You can get the full details here.

 One last item of note: A quick reminder about Stansberry Short Report editor Jeff Clark's live training session taking place today...

As we previously noted, we had to move the filming of this event to 3 p.m. Eastern time today due to the civil unrest in Baltimore, Maryland (home of Stansberry Research headquarters).

We know that's a difficult time for many of you, so we're doing something we've never done before with one of our training sessions... We'll replay the entire event at 8 p.m. Eastern time tonight.

To make sure you don't miss out, sign up here.

 New 52-week highs (as of 4/29/15): Energy Transfer Equity (ETE).

 One subscriber writes in praising Stansberry Radio Premium and another complains that our publications are too long. You can't please everyone... Send us your e-mails to feedback@stansberryresearch.com.

 "Mr. Stansberry, I just listened to the monthly analysts' review of the current edition [on Stansberry Radio Premium]. I just cannot tell you how much I learn about evaluating stocks. When you hear professionals like yourself, non-professionals like myself get a unique insight into the financial markets that simply is not available anywhere else. Please keep up the good work." – Paid-up subscriber Richard Gagne

 "Stansberry's Investment Advisory articles are too long and wordy. I have to skim through them because I don't have time to read such long articles. Perhaps putting a summary at the end of articles would help. E.g. the secret to beating the market over the next few years is to own these stocks and then list them." – Paid-up subscriber Bernard B.

Porter comment: Some folks want to fish... others just want a fish.

Regards,
 

Sean Goldsmith

April 30, 2015