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Yelp surges 63% on debut day, closes at $24.50

As the last significant tech IPO before Facebook, investors pause to see Yelp command the market

Technology trends and news by Krystal Peak
March 2, 2012 | Comments
Short URL: http://vator.tv/n/24c2

 

Clearly, there's some pent-up demand for shares of hyper-growth Internet companies out there.

Shares of Yelp (YELP) rocketed nearly $10, or 67%, to $24.58, after the online destination for for local business reviews and dining suggestions, priced its IPO at $15, and finally closed for the day at $24.50. That's a whopping 63% pop on opening day.

Initially the price the stock was expected to debut at was $12-$14 but at the new $15 marker and $24.50 closing price spured Yelp to raise $171.5 million for more than a $1.2 billion valuation. 

This IPO is also expected to be the only big tech IPO in 2012 ahead of Facebook’s multibillion-dollar public offering expected in coming months.

Yelp was trading at a relatively high multiple right out of the gate -- at more than 10 times revenue, then popping up to 19 times. This is substantial for a company that has not recorded a profitable quarter since its inception in 2004. 

This 63% pop on its first day of trading puts the company just behind LinkedIn in the most opening day growth for a Internet tech company in the last year. 

LinkedIn entered the market on May 19 with a 155% pop and is still trading at almost double its IPO price of $45. Groupon opened on the exchange a substantial 30% above its initial price and even the, now troubled, Pandora saw a 31% pop for its stock upon it debut. 

But not all tech companies in our recent history has felt that pop upon first day closing. On December 16, Zynga broke through its IPO price after only a moderate 10% trading bump, to close 5% below its inital pricing.

 

The San Francisco company, which gains nearly 66 million users a month, has found its strength in dining suggestions and reviews in the US but has seen growth into many other industry reviews and has expanded its reach through North America, Western Europe and Australia. The Yelp service is free for consumers but local businesses pay to advertise on the site and to add premium features/subscription to their profiles.

Last year Yelp was able to generated $83.3 million in revenue but also disclosed a net loss of $16.9 million.

While no experts I spoke with expect there to be a lack of demand, investors are skeptical of the company since it lack profitability at this point and has struggled with its SEO returns since it declined to sell to Google.

Sam Hamadeh, the CEO of a the financial data company PrivCO, credits much of the poor buzz around the Yelp IPO on the crowing competition mounting up online and the relatively low revenue recorded by the company compared to most companies embarking upon their IPO.

"Yelp has substantial competition from giants including Google and Facebook, which can already do micro-local ad targeting, and Google itself has moved into the local review space with Zagat," Hamadeh explained to me in an interview. "And, [with] about $80 million in revenue, [Yelp is] far below the minimum $200 million annual revenue size that makes it profitably able to be a public company."

These factors spell some trouble for any sustained market growth for Yelp on the NYSE.

Hamadeh also cautioned that this stock is not the wisest to jump in on, simply based on a favorable debut day.

"Our information is that the offering was very over-subsribed, so pricing at $15 above the range makes sense," Hamadeh explained to me. "We'll see where it closes, but so far the pop is quite strong, brings Yelp's valuation to well above $1 billion, and we don't think it would be wise to jump in now and try to join."

And since Yelp only disclosed it advertising revenue, there is still a lot of anxiousness around the companies other revenue drivers and how it will use mobile to make its business less Google-dependent. 

 


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