EconomyWritten by Havre On 05 March 2012
YELP IPO Surges, But Is It Real?

Yelp (YELP, NYSE, 20.90 – 26.00), the online urban guide to restaurants, shopping, etc., based on reviews from locals in the community, executed a very successful Initial Public Offering (IPO) on March 2, but is it for real?

The company’s bankers, led by Goldman Sachs, originally priced the offering between $12 and $14 per share to raise approximately $100 million in new equity. The demand was very high for the shares, ultimately driving the price to $15.

When the shares actually started trading they opened at $22 per share, closing the afternoon at $24.58, up 64 percent from the initial offer price. Some shares traded as high as $26.

Let’s look at some of the facts about Yelp: The company was founded in 2004 and is based in San Francisco. It currently has about 25 million reviews posted on its website and is getting approximately 66 million unique visitors a month. It competes with other review sites like TripAdvisor, Zagat, etc., and for online ads with Facebook, Google, etc., two sources of revenue for Yelp. It is, however, definitely at the head of the pack of review sites.

Yelp has never been profitable. It reported revenue of $83 million in 2011 but lost $17 million in the fourth quarter of 2011. Despite this, Yelp experiences a 63 percent growth rate, year-on-year. Its current market capitalization is about $1.2 billon, 15 times its revenue. (Apple trades at 15 times its profits.) On Sept. 8, 2011 Google purchased Zagat for $151 million.

It’s obvious that IPOs like LinkedIn, Zynga, Pandora and the anticipated Facebook helped to propel the lofty valuation. But you wonder how many investors on Wall Street have even used the online service to find a restaurant or service. Make up your own mind on this one but buyer beware.

 

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Havre

Randy Havre has a wealth of experience in the financial industry. In 1987, he established his own full-service stock brokerage firm, which was also registered with the SEC as an Investment Advisory Firm, managing money for the State of Hawaii’s pension fund, among other portfolios. In 1994, he started his first of three Hawaii based Venture Capital Funds. Additionally, he wrote a weekly stock column in the Pacific Business News for 21 years, taught Finance 315 Portfolio Management and Investment Strategies at the University of Hawaii for five years and is on KHON’s Morning News as a business/financial analysis twice weekly. Over the past nine years, Havre has been active in South America doing business development work for some of his portfolio companies, mentoring entrepreneurs and advising investors.

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