Yelp Shares Surge In Stock Market Debut

Yelp's stock opened to five-star reviews from investors on Friday, soaring 63 percent even though the company has yet to prove it can make money from its online recommendations.

After Yelp's initial public offering priced at $15, the shares gained $9.52 to close at $24.52 in their trading debut. In an indication of the strong investor interest in the 8-year-old reviews site, the IPO sold above its targeted range of $12 to $14 per share.

It's the biggest first-day gain for an Internet IPO since online real estate service Zillow Inc. surged 79 percent in its stock market debut last July. Yelp's gain wasn't the biggest for an IPO so far this year, though. Those bragging rights still belong to Proto Labs Inc., a Maple Plain, Minn.-based provider of customized parts. Proto Labs' shares soared 81 percent in their first day of trading a week ago.

Yelp's IPO is the latest in a series of Internet stock offerings that are serving as a prelude to Facebook's coming out party on Wall Street this spring. Facebook's IPO is expected to raise at least $5 billion and anoint the owner of the Internet's largest social network with a market value ranging from $75 billion to $100 billion.

After expenses, Yelp Inc. estimates it will get about $96 million from its IPO. The company sold 7.1 million shares and its charitable foundation another 50,000. Investment bankers also have an option sell an additional 1.07 million shares, depending on investor demand. If those shares are sold, Yelp expects net proceeds of $111.2 million.

With Friday's stock price jump, the San Francisco company has a market value of $1.47 billion. Such a big first-day jump is common, especially for high-profile Internet companies such as Yelp. LinkedIn Corp., the professional networking service, saw its stock nearly triple on its first trading day last May, reaching $122.70 after pricing at $45.

The biggest individual winners in Yelp's IPO are its chairman, Max Levchin, and its CEO and co-founder, Jeremy Stoppelman. Levchin, 36, owns 7.1 million shares now worth $175 million and Stoppelman, 34, owns 5.9 million shares now worth $145 million. Both Levchin and Stoppelman made $15 million by selling some of their stock before the IPO.

The IPO also will enrich many of Yelp's 900 employees who received stock incentives as part of their compensation packages.

Though it's best known for restaurant reviews, Yelp's users have reviewed churches, strip clubs, hospitals, hotels and high schools. The company makes money from advertising. Most of the ads come from the local businesses that its users review. In 2011, it booked revenue of $83.3 million, up 74 percent from 2010. It had a net income loss of $16.7 million last year and $9.6 million the year before. Yelp's losses since its inception total $41 million.

"Yelp's active community of users writing reviews of local businesses is difficult to replicate," said Morningstar analyst Rick Summer. "Unfortunately, the company faces challenges translating the small advertising budgets of local businesses into profitability, as about 70 percent of ad revenues are eaten up by sales and marketing expenses."

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AP Technology Writer Michael Liedtke in San Francisco contributed to this report.

Take a look through the slideshow to see how 10 tech juggernauts fared after IPO.

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• Apple -- $100 Million In December 1980

  The technology giant raised about $100 million when it <a href="http://investor.apple.com/faq.cfm" target="_hplink">went public</a> in December 1980, <a href="http://blogs.wsj.com/deals/2011/10/06/flashback-to-apples-1980-ipo/" target="_hplink">according to <em>The Wall Street Journal</em></a>. Apple, which duels with ExxonMobile as <a href="http://techcrunch.com/2012/01/25/apple-overtakes-exxon-as-most-valuable-traded-company-in-the-world-again/" target="_hplink">the world's most valuable publicly traded company</a>, had a market value <a href="https://www.google.com/finance?q=AAPL" target="_hplink">of $426 billion as of February 1, 2012</a>.

• Google -- $1.67 Billion In August 2004

  According to The Washington Post, Google raised $1.67 billion in its IPO in August 2004, valuing the company at $23 billion when shares began to trade on the public market. After its first day of trading, <a href="https://www.google.com/finance?client=ob&q=NASDAQ:GOOG" target="_hplink">shares closed at $108.31</a>. As of February 1, 2012, Google has a market capitalization of $189 billion.

• Microsoft -- $61 Million in March 1986

  Microsoft raised $61 million in its IPO in March 1986, valuing the company at $350 million, <a href="http://features.blogs.fortune.cnn.com/2011/03/13/inside-the-deal-that-made-bill-gates-350000000/" target="_hplink">according to <em>Fortune</em></a>. As of February 1, 2012, Microsoft had a market value of $251 billion.

• Netscape -- $140 Million In August 1995

  <a href="http://money.cnn.com/magazines/fortune/fortune_archive/1995/09/04/205894/index.htm" target="_hplink">Netscape raised </a>$140 million ahead of its IPO in 1995. By the end of the first day of trading, the company was valued at $2.9 billion. Netscape <a href="http://news.cnet.com/2100-1032_3-1011356.html" target="_hplink">was acquired by AOL</a> (which also owns The Huffington Post) in 1998 but was effectively shut down in 2003, according to CNET. Pictured above is an image, via Flickr, of a Netscape Navigator box at the Computer History Museum.

• Amazon.com -- $54 Million in May 1997

  <a href="http://news.cnet.com/Amazon.com-IPO-skyrockets/2100-1001_3-279781.html" target="_hplink">CNET reports that Amazon.com</a> raised $54 million in its May 1997 IPO, valuing the online retailer at $438 million. As of Feburary 1, 2012, <a href="https://www.google.com/finance?q=amzn" target="_hplink">Amazon.com had a market value</a> of $81.5 billion.

• Yahoo! -- $32.5 Million in April 1996

  Yahoo! raised $32.5 million in its April 1996 IPO, <a href="http://news.cnet.com/2100-1033-209413.html" target="_hplink">CNET reports</a>. The IPO, according to a <a href="http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/1996/04/13/BU30442.DTL" target="_hplink">1996 article in the <em>San Francisco Chronicle</em></a>, valued the company $848.1 million. As of February 1, 2012, Yahoo had <a href="https://www.google.com/finance?q=NASDAQ:YHOO" target="_hplink">a market value of $19.5 billion</a>.

• Groupon -- $700 Million In November 2011

  Groupon, the online coupon company, raised about $700 million in its IPO in November 2011, <a href="http://www.huffingtonpost.com/2011/11/04/groupon-ipo-biggest-since-google_n_1075374.html" target="_hplink">valuing the company at $12.8 billion</a>. As of February 1, 2012, <a href="https://www.google.com/finance?client=ob&q=NASDAQ:GRPN" target="_hplink">Groupon's market capital</a> was $13.57 billion.

• eBay -- $63 Million in September 1998.

  The online auction site raised $63 million in its September 1998 initial public offering, <a href="http://money.cnn.com/1998/09/24/technology/ebay/" target="_hplink">CNN reports</a>, valuing the company at $1.88 billion. As of February 1, 2012, eBay <a href="http://www.google.com/finance?cid=662654" target="_hplink">had a market capitalization</a> of $41.68 billion.

• Zynga - $1 Billion In December 2011

  The social gaming company behind <em>FarmVille</em> and <em>Mafia Wars</em> raised around $1 billion in its initial public offering in December, valuing the company <a href="http://www.huffingtonpost.com/2011/12/16/znga-ipo-nasdaq_n_1153518.html?ref=technology" target="_hplink">at about $7 billion</a>. As of February 1, 2012, Zynga <a href="https://www.google.com/finance?q=Zynga" target="_hplink">had a market capital</a> of 7.33 billion.

• Pandora -- $235 million In June 2011

  Pandora, an internet radio company, raised about $235 million in its IPO in June 2011, valuing the company at $2.56 Billion, <a href="http://blogs.wsj.com/venturecapital/2011/06/14/pandora-ipo-prices-at-16-well-above-range/" target="_hplink">according to <em>The Wall Street Journal</em></a>. As of February 1, 2012, Pandora Media Inc <a href="https://www.google.com/finance?q=NYSE%3AP" target="_hplink">had a market capitalization of</a> $2.07 billion.

Comments

[corte33]

03:12 AM on 03/11/2012

YELP stock will probably drop like a rock when people discover YELP's real business model. There's a piece published on EastBayExpress.com called "YELP and the Business of Extortion 2.0."
People, usually anonymous, publish reviews on YELP, and often engage in personal attacks and character assassination on business personnel. YELP salesmen call business owners and offer to remove negative reviews. But you need to buy advertising space on YELP. If you refuse, negative reviews are prominently displayed, while positive reviews are buried. There are several class action lawsuits pending against YELP. Even if your business has an excellent rating by the Better Business Bureau, YELP will publish negative reviews, by anonymous reviewers. YELP doesn't vet the reviews, and will publish fact or fiction.

[teryflwr4u]

05:53 PM on 03/02/2012

Just another part of the internet bubble before it bursts, leaving millions of investors out in the cold. A company with no plan to make money and such a high percentage of expenses related to income cannot grow. Once the funds from the IPO are used up......look for the short sellers to step in.

[GRNTCKS]

05:04 PM on 03/02/2012

Yelp is simply put, a sounding board mostly for losers who cannot interact man to man in the real world - they feel powerful hiding behind a computer screen, pretending to have many "followers" and feeling "important." Sort of like Rants and Raves on Craigslist. Yelp can and does have some positive value, but overall it is just another place where anyone can post negative & false comments that Yelp is unwilling to monitor. If you are a "serial" poster on Yelp then you are allowed by Yelp to continue to post anything you want to, true or not - yet Yelp will intentionally "filter" out positive reviews made by non-regular Yelp posters.

My feeling is this - If you are a serial Yelpster posting negative + untrue content about a business and think you are hurting that business then you need to think about this: You are simply doing that business a favor because any reasonable person is NOT going to take your Yelp post at face value - and anyone that does believe the lies that you post, well, that is good because that is just one more undesirable idiot that business WILL NOT have to deal with.
Yelp, just like all the other loser websites, will sooner or later follow them down the drain.
Make your stock $$$'s while you can, but watch Yelp carefully and pull out before your $$$'s end up in the sewer with Yelp when they eat crow and bark at the moon!!!

[geckofan]

02:42 PM on 03/02/2012

yelp what a colossal joke

[theaetetus]

01:59 PM on 03/02/2012

the prob with yell is that of Facebook. they are driven by consumer produced content. if and when they decide to publish their content elsewhere they're out of luck. that said get it while its hot

[Really I B Waiting]

01:48 PM on 03/02/2012

"70 percent of ad revenues are eaten up by sales and marketing expenses" ... this isn't a company but a feeding trough for salesmen.

[treabeton]

12:33 PM on 03/02/2012

Not a good sign. Watch out below.

[the truth leans left]

11:14 AM on 03/02/2012

kinda reminds me of the lte 90`s, "start-ups" with no plan for profitability but with huge backing from "investment bankers" who will get out or sell short before they crash, leaving the pension funds raped and pillaged once again.

[cafecat]

12:20 PM on 03/02/2012

I hear you, but I'm not sure that's true here since even businesses are using Yelp now to promote themselves. Also, I think print advertising is now dead. Since Yelp covers all types of business models, it has a wide range of opportunity. I just wish we could Yelp media outlets and bloggers. I haven't seen that yet.

[corte33]

03:14 AM on 03/11/2012

YELP is a scam. See my comment above.