Sorry, Cramer, Apple Should Definitely Not Buy Yelp for $75

Ever since reporting solid second-quarter earnings earlier this week, Yelp (NYSE: YELP  ) has been on a tear, gaining 23% the following day and enjoying gains as high as 12% today. Fueling the rally further is none other than Jim Cramer, who boldly proclaimed yesterday morning that Apple (NASDAQ: AAPL  ) would acquire the review service for -- wait for it -- $75 per share!

Here's his initial thesis for such a premium price tag: "This is social. It is mobile. It is cloud. It is the Holy Grail Trinity of tech. Social, mobile, cloud."

Whatever that means.

Cramer predicts that Yelp will never become profitable, because the Mac maker will acquire it before it gets a chance to generate black ink. Speaking figuratively to Tim Cook, Cramer continues, "Mr. Cook, here it is. You get social, you get mobile, you already have cloud."

Presumably, Apple only has one element of said Holy Grail Trinity at present time.

Sadly for Yelp investors, this deal will never happen. Speculating on Apple acquisitions is a popular hobby among investors, and the proposed deal has all the typical surface signs that lead to speculation. Apple and Yelp are existing partners, with Yelp providing data for Apple Maps, and Apple could theoretically get something it wants by integrating the smaller company. The reality, though, is that Apple simply never makes big and flashy purchases.

At $75, Yelp would be valued at $4.8 billion. For perspective, that's nearly ten times the upper limit of what Apple pays for acquisitions. The Anobit acquisition in 2011 was upwards of $500 million, and the only reason that purchase was flashy was because Anobit specializes in flash memory.

Apple's acquisition strategy is to buy smaller companies with innovative technology that can be integrated into future products. Tim Cook has said flat out that Apple never buys revenue streams, and the company frequently shuts down an acquisition's core operations.

Yelp has generated approximately $178 million in trailing-12-month sales, so at $75 Apple would be paying 27 times sales for a company that inherently does not have innovative technology. Yelp has a strong brand position in consumer reviews and a growing user base, but Apple can get precisely what it needs by doing exactly what it's already doing: partnering with Yelp.

Hopefully, you already knew not to listen to Jim Cramer. If you didn't, here's another reason: Apple will never buy Yelp for $75.

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Read/Post Comments (22) | Recommend This Article (35)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 02, 2013, at 6:43 PM, henrystar wrote:

    Thanks, that did sound nuts.

  • Report this Comment On August 06, 2013, at 5:14 PM, longinvest wrote:

    Not only do I listen to Cramer, I have made huge profits from investing with his system. I am getting real tired of Fool's negative reporting and now bashing others that don't think in their camp.

  • Report this Comment On August 07, 2013, at 3:09 PM, jfjftmyers wrote:

    I just wonder how old Evan Niu might be but he DOES have a CFA behind his name - whatever that is. Cramer on the other hand has years of experience and while not running at 100%, he certainly has helped a lot of us to beat the averages. I'll stick with Cramer.

  • Report this Comment On August 08, 2013, at 8:54 AM, hiddenflem wrote:

    no way apple buys yelp. cramer sounds like kramer.

  • Report this Comment On August 08, 2013, at 10:15 AM, boomlikethat wrote:

    I just watch the stock for a while, and look at a few things.

    I did take the Fool's advice on F, NUAN, TIBX, and DIS. Not getting the returns I thought I would since 6/28.

  • Report this Comment On August 08, 2013, at 10:24 AM, OceanJackson wrote:

    I'm sensing a lot of groupthink at the Fool, a sign that the company has gotten too big, with all Fool employees running around repeating and mimicking what they believe to be the Gardner Bros mantra, whatever it is...and it usually comes in the basic form of: Warren Buffet is God, Jim Cramer is the Devil.

    Well, that is foolish, not Foolish, sorry to say.

    Evan, do you not know what social, mobile, and cloud are, or do you simply revile Cramer...or, just think you do.

  • Report this Comment On August 08, 2013, at 10:42 AM, OceanJackson wrote:

    I've followed The Mötley Fool since 2000 or so and lean the Fool's way generally in investing.

    I also occasionally watch Cramer. And, I happen to have seen the episode you're referencing. Evan you should be kind of embarrassed about this article, because you and I both know Cramer said the Yelp - Apple statement in passing, in a non-serious way, in the CONTEXT of how mobile, social, and cloud focused companies are seeing enormous amounts of investment money thrown at their feet right now.

    If I had a Jon Stewart type show focused on investing pundits - I'd call you out on TV by playing the Cramer clip.

    This really shouldn't be a Fool headline.

  • Report this Comment On August 08, 2013, at 11:17 AM, CommonScents wrote:

    Here is Cramer's track-record. For every $1 you put behind his calls, you get $0.90 back. Following him has not made people money, and certainly hasn't helped people beat the market.

    http://www.pundittracker.com/pundits/profile/jim-cramer

  • Report this Comment On August 08, 2013, at 11:48 AM, Phrostee wrote:

    OceanJackson, the headline on CNBC says "Cramer: Apple Should Buy Yelp for $75 a Share", so if anyone is quoting him out of context it's CNBC.

  • Report this Comment On August 08, 2013, at 11:57 AM, jordanwi wrote:

    Okay, guys, you like Cramer's personality, but the numbers don't lie. Last time I checked, TMF was in the TOP 3 spots for investing newsletters over the past 5 years. You think you've made money with Cramer? If you haven't made money in the markets over the last 3-4 years, that's embarrassing. However, the Fool has every right to criticize JC, since they're wiping the floor with him.

  • Report this Comment On August 08, 2013, at 1:21 PM, Risky88 wrote:

    cramer doesn't know the definition of investor

    just

    trader

  • Report this Comment On August 08, 2013, at 1:21 PM, StockGamingCom wrote:

    This is deja vu of Inktomi.

  • Report this Comment On August 08, 2013, at 1:39 PM, OceanJackson wrote:

    Jim Cramer is one of the best stock pickers according to Mötley Fool CAPS.

    Just open up the Top 10 list for best Outperform Players, and you'll see TrackJimCramer near the top.

    More evidence of groupthink anti-Cramer sentiment rampant within the Fool.

    Also - if this article is based on a CNBC report, there's the journalistic problem right there. Go the source, and verify your facts first.

  • Report this Comment On August 08, 2013, at 2:17 PM, bobgraham1 wrote:

    This is not the type of article I would expect from MF. I hope MF is not directing their focus at tearing apart rival opinions. Stick with analysis, and good sound advice on investing.

  • Report this Comment On August 08, 2013, at 2:39 PM, mikecart1 wrote:

    OceanJackson,

    I'm not pro/against author or Jim Cramer but your post "Jim Cramer is one of the best stock pickers according to Mötley Fool CAPS." is incorrect outside of his total score which is easily explained by the fact that the tracker has nearly 2,400 picks.

    Instead what you should look at if you want to see great CAPS players is their accuracy. His is 44.86% according to the CAPS system. His player rating is also just above 80.

    Not trying to say I'm better but my accuracy is over 75% and my CAPS score is nearly 99.50.

    The CAPS score IMO shows the better player in quality of picks, not quantity.

  • Report this Comment On August 08, 2013, at 2:46 PM, cooter1127 wrote:

    Does this comment thread remind anyone else of the "cocktail party test" described by Peter Lynch? When there is this much confidence in the markets and the pundits and people think that they can do good buying just about anything as long as it has a buzzword or new technology attached to it. Take it as a good sign to run for the hills.

    I remember last time Jim Cramer was the smartest guy around was sometime in 2007.

    It is good to see that there are still some rational articles and good investing principles sprinkled into this site among the countless love songs for companies trading at 100s of times earnings, if any all.

    As a disclaimer: I hold Apple (personally I see its value in the $530 range, assuming no growth and no value on intangibles) But I will be running to sell if this plan every starts to materialize, And if I was Tim Cook with $4.8 billion in my pocket and trying increase shareholders value, the only thing I would do is buy back more Apple.

  • Report this Comment On August 08, 2013, at 6:10 PM, buddyglee wrote:

    if they were going to buy it they would have before they baked it into their mapping system DUH!!!!!!

  • Report this Comment On August 08, 2013, at 8:04 PM, OceanJackson wrote:

    mikecart1 -

    I'm just referencing Cramer's Outperform record. Since the Fool has chosen to track him, and he's not an active CAPS player, and it's not entirely clear the method the Fool uses to enter his calls, it doesn't make sense to look at his overall CAPS score.

    We know that Cramer is an Outperform style investor - he's a Bull, by and large, right? He recommends Outperform stocks. That's his thing. He has no control over how a place like the Fool interprets what he says, or enters it into some game.

    But the fact that he's pretty much a better CAPS Outperform player than anyone here...presents a problem for the Fools who want to string-up Cramer and his investing style, that is not easily accounted for.

    It's really a state of cognitive dissonance to thrash the guy, and then demonstrate via a score and a list, on your own website...that actually, he's a pretty good stock picker.

    For the record I'm not a huge fan of Cramer, I've never made a stock purchase based on anything he's ever said. But I've watched enough of him to know what he's all about. And I think it's folly to completely brush the guy off.

  • Report this Comment On August 08, 2013, at 11:21 PM, ericnb wrote:

    Just over two years ago I started handling my own stocks. I picked one of Cramers recommendations. He said that Alcoa was the most underrated stock of the DOW. It has turned out to be the worst pick of over 30 stocks of mine. Do the opposite and you will be fine!!

  • Report this Comment On August 09, 2013, at 12:03 AM, mikecart1 wrote:

    ericnb,

    In 10-20 years, Cramer might be right about Alcoa if you hold on to it. The question you should ask yourself, "who can do what Alcoa does better than Alcoa?" I can't think of a single company, organization, person, or persons that can do what they do better. They are a rare stock overlooked for now due to the economy and price of aluminum. But have no doubt that when aluminum prices go up (not 'if' but 'when'), you will cherish Cramer with all your heart (maybe just respect him a little more lol).

    BTW, I own big AA for the long-term score!

  • Report this Comment On August 09, 2013, at 10:07 AM, rogreu wrote:

    Ericnb I totally agree with you...you know why I love Cramer? Because I love that his followers are selling what I want to buy and buying what I want to sell.

  • Report this Comment On August 26, 2013, at 5:01 PM, dstb wrote:

    Cramer is entertainment only. There is no way you could make consistent money only listening to what he says on TV. With that being said, never say never. If Apple thought an acquisition was worth it, they would pay $4 or $5 billion.

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