A Look Inside The Yelp IPO

Yelp.com offers visitors a way to find and review local businesses. The site receives 61 million unique monthly visitors, hosts 22 million reviews and has 529,000 local business locations that have been claimed by their owners. On March 2, 2012, Yelp started its first day of public trading at $15 per share. The stock price jumped quickly; at 10 a.m. it was trading at around $26 per share. Yelp finished out that first day at $24.58.

SEE: IPO Basics

Yelp's Past
Two former PayPal employees, Russell Simmons and Jeremy Stoppelman, founded Yelp in 2004. After PayPal was acquired by eBay, Stoppelman and Simmons joined an incubator to brainstorm ideas for new startups. Yelp began as an email recommendation service, but was transformed into a local business review site for San Francisco after just a few months.

Google made an offer to buy Yelp for $550 million in 2009, but the deal fell through due to a competing offer from Yahoo. Since then, Google has developed a competing product in Google Places, which in 2010 and 2011 actually included content from Yelp. Google no longer incorporates content from Yelp, but the two companies have a difficult on-going relationship: Yelp received more than half of its traffic from Google searches in 2011.

Yelp filed with the SEC in November 2011, announcing its intention to raise as much as $100 million in its IPO. After expenses, Yelp netted approximately $96 million in the offering, valuing Yelp at about $900 million.

In 2011, Yelp brought in $83.3 million in revenue from its advertising platform. Most of the ads that the site runs come from the same local businesses that Yelp's users review. Ads are displayed next to and within the reviews and other content that the site provides to visitors. However, despite reporting revenue up 74% from 2010, last year Yelp had a net loss of $16.7 million; in 2009, the company had a net loss of $9.6 million.

SEE: Biggest Merger and Acquisition Disasters

Yelp's Present and Future
One of Yelp's key competitors, Angie's List, held its IPO in November 2011. Angie's List has been valued similarly to Yelp, at approximately $900 million. Its initial stock price was set at $13 per share. So far, Angie's List hasn't broken $20 per share. Does this mean we can expect more of the same for Yelp?

Yelp now operates in multiple international markets: Austria, Canada, France, Germany, Ireland, Italy, the Netherlands, Spain and the United Kingdom. The company has expanded in the U.S. city by city, and has taken a similar approach to adding new communities in other countries. The site has also seen accelerated growth due to the popularity of its mobile app. Yelp reports over 5 million unique mobile users in an average month; so far the app has not been monetized, but Yelp sees mobile advertising as an opportunity for growth.

Overall, Yelp describes its current strategy as focusing on the long-term. By making investments in both market and product development, the company expects to increase revenues. In particular, international sales will be a factor in 2012. Yelp has budgeted $15 million to spend on acquiring international advertisers in the next year.

The Bottom Line
Yelp faces its fair share of challenges now that its IPO has taken place. The company relies heavily on forces it can't control for growth, such as the millions of users that write the reviews that Yelp offers on its website. With each new market Yelp enters, it has to persuade new users to provide content before it can consider selling advertising. The website's heavy reliance on search traffic for bringing in visitors also presents a potential problem. Combined with the fact that Yelp continues to operate at a net loss, the IPO is just a beginning for this company.

SEE: How An IPO Is Valued



More From Investopedia
Loading...

Editor’s note:Yahoo Philippines encourages responsible comments that add dimension to the discussion. No bashing or hate speech, please. You can express your opinion without slamming others or making derogatory remarks.

Latest News

  • Date without the pressure of hooking up: Peekawoo is the app for you Yahoo Southeast Asia SHE - Thu, Feb 26, 2015 1:51 PM PHT
    Date without the pressure of hooking up: Peekawoo is the app for you

    This female-fueled, Filipina-made app brings old-fashioned courtship into modern dating. …

  • The pursuit of happy-ness: Liz Uy's beauty secret Yahoo Southeast Asia SHE - Thu, Feb 26, 2015 12:24 PM PHT
    The pursuit of happy-ness: Liz Uy's beauty secret

    The celebrity stylist lets us in on how she maintains her happy glow. …

  • You are what you eat: 6 ways to eat mindfully Yahoo Southeast Asia SHE - Mon, Feb 23, 2015 8:31 PM PHT
    You are what you eat: 6 ways to eat mindfully

    Mindfulness can be brought into what you eat and how you eat. …

  • To manage diabetes, eat breakfast like an athlete, dinner like a sloth, study suggests AFP Relax - Wed, Feb 25, 2015 10:24 PM PHT
    To manage diabetes, eat breakfast like an athlete, dinner like a sloth, study suggests

    Type 2 diabetes patients should eat a high-energy breakfast and a low-energy dinner for optimal control over their blood sugar, according to researchers hailing from Sweden and Israel who conducted a small-scale study. In the new study, published in the journal Diabetologia, they worked with eight men and 10 women who have lived with type 2 diabetes for less than 10 years. Ten of the 18 participants were being treated with a combination of diet advice and the drug metformin and the remaining …

  • No need to hit the drive-thru for this seasonal minty shake Associated Press - 22 hours ago
    No need to hit the drive-thru for this seasonal minty shake

    I'm ashamed to admit this, for I am no fan of fast food, but I've always had a soft spot for McDonald's shakes. …

  • How to create an urban tropical home Yahoo Southeast Asia SHE - Mon, Feb 23, 2015 8:20 PM PHT
    How to create an urban tropical home

    Bring the beach to your home with these 10 easy steps. …

  • Research zeroes in on effects of common food additive AFP Relax - Thu, Feb 26, 2015 10:26 PM PHT
    Research zeroes in on effects of common food additive

    Everyone's heard a lot about questionable food additives lately, but a recent study provides new insight on why emulsifiers are something to avoid. Commonly found in packaged and processed foods, emulsifiers add texture and extend shelf life but according to the US-based research team, they could alter your composition of friendly gut bacteria -- or gut microbiota -- and lead to inflammation. "Food interacts intimately with the microbiota so we considered what modern additions to the food …

  • NYC, Orthodox Jews reach deal on circumcision suction ritual Associated Press - Wed, Feb 25, 2015 9:37 AM PHT
    NYC, Orthodox Jews reach deal on circumcision suction ritual

    NEW YORK (AP) — The city said Tuesday it has reached a tentative agreement with members of the ultra-Orthodox Jewish community over a tradition known as oral suction circumcision. …

POLL

My New Year's resolution is to:

Loading...
Poll Choice Options