After Yelp announced a deal Monday to put its business listings in Apple’s new mobile maps, we started wondering why the stock had spiked over the previous week.
But that seems crazy. Apple CEO Tim Cook has promised to “double down” on product secrecy. Not ony would Yelp get scorched by the SEC, it would get torched by Cook.
Yelp hasn’t reported any SEC inquiries into its stock price, by the way.
So we took a closer look at Yelp’s stock chart and the short interest ratio over the last two weeks.
Here’s YELP bottoming out near $15, via Yahoo Finance. That’s the price institutional investors paid for their shares in Yelp’s IPO—so there’s naturally going to be buying at that level to support the stock price.
As doubts about Yelp’s path to profitability grew in recent months, so did short interest in the stock, as this chart via Schaeffer’s Investment Research shows:
What happens when you have a lot of shorts on a stock, institutions coming into the market to buy, and relatively little float?
You have a classic short squeeze. And that’s exactly what Yelp’s chart looks like.
To be clear, no one really can say for sure why stocks move the way they move. But institutional buying leading to a short squeeze seems like a reasonable explanation—more reasonable than someone foolish taking the extraordinarily risky, potentially career-ending step of leaking insider information.
OK. So why are Yelp shares hanging tough near $20 since the Apple announcement?
For one thing, Yelp inked a deal with Microsoft’s Bing search engine. So that should reassure investors worried about Google cutting Yelp out of the local-search market.
Yelp still has to deliver the numbers that show it can profit off its business-reviews franchise. But there are reasons why people might be getting more bullish about the stock.
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