Shares of Yelp give back 15% on second day of trading

The market bumps Yelp off its exceptional debut pop to $21 stock price

After a rocking first-day debut, day two on the stock exchange wasn't as exciting for Yelp (NYSE: YELP) as shareholders pushed the stock of the newly-public company down a few bucks. After experiencing a substantial 63% spike from the initial $15 pricing on its Friday debut (shares closed at $24.50), shareholders took some money off the table, pushing the stock down 15% to $21.

At a market cap of $1.26 billion, the multiple is still relatively high at 13 times estimated revenue of $100 million in 2011. Most analysts would agree that any multiple above 10 using trailing revenue is a rich multiple.

The San Francisco-based review website Yelp experienced the Friday pop due to a great deal of market demand and what analysts were assuming was optimism ahead of Facebook's IPO, which is expected within two months. Even after the company set the IPO price at $15, which was higher than the expected $12 to $14 a share, shares went on a tear.

This latest action still puts the trading price 30% above the debut price -- an exceptional value for a company that has yet to turn a profit and is only bringing in around $83 million for the first nine months of last year -- far below the $200 million that most Internet companies are generating on an annual basis around the time of their IPO.

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.

Analysts were not surprised by the interest that investors had in the company but remained cautious about the company and were not suggesting that people jump into the game in with any sustained long-term idea in mind.

Sam Hamadeh, the CEO of a the financial data company PrivCO, believes that there will be enough demand but it the market will adjust itself and the company still needs to address its strength in the mobile market before its can prove independence from the Google search engine results.

"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. "Yelp can't seem to be able to lose less as it grows, showing the unattractiveness of a business model based primarily on local advertising salespeople to sell to small local merchants."

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-subscribed, so pricing at $15 above the range makes sense," Hamadeh explained to me.

Other social networking stocks were also felt a pinch (though remarkably smaller than Yelp) on. LinkedIn (NYSE: LNKD) closed Monday at $86.37, down 1.3% for the day, Zynga (NASDAQ: ZNGA) dropped almost 5% for the day to $13.97 (after experiencing an all-time high at the end of last week thanks to the announcement that the company would debut its own gaming platform in the coming days. The only company that closed out the day in positive territory was Angie's List (NASDAQ: ANGI), which saw a slight 2.7% bump Monday and closed at $15.61.