March 2, 2012 at 9:32 AM ET
Consumer reviews website Yelp made its first appearance on the stock market Friday, joining a list of new social media companies that have made their market debuts in recent months, including LinkedIn, Groupon and Zynga.
Yelp, which trades on the New York Stock Exchange under the ticker name “YELP,” soared out of the gate Friday, at one point rising over 70 percent. The company priced its initial public offering of class A common stock at $15 a share late Thursday, coming in above the expected price range and valuing the seven-year-old company at nearly $900 million.
That valuation is raising eyebrows on Wall Street, given that Yelp has never reported a profit. The company’s valuation is above most of the companies in the Standard & Poor’s 500-stock index, a broad market index, and it’s almost 11 times Yelp’s full-year annual revenue for 2011.
Yelp saw an operating loss of $16.2 million in 2011 on revenue of $82.3 million, up 73 percent from 2010 revenue of $47.7 million with an operating loss of $9.6 million. In its registration document for an IPO, Yelp said the company does not “expect to be profitable in the near term as we continue to invest in our future growth.”
Still, Yelp may well be worth its lofty valuation. Bloomberg reports that the company has forged its own path to IPO, rejecting takeover offers that other technology startups would have found hard to resist, including a $550 million bid from Google and a $1 billion overture by Yahoo.
Yelp is known best for its reviews of restaurants, and also hotels, stores, and other retail establishments. The company makes money from advertising, which is sells to local businesses and big companies that seek to reach its growing audience of users.
The company faces competition from Internet heavyweights Google, Facebook and Yahoo, which also sell online ads to local businesses. Web property Foursquare recently upgraded its search and discovery of local businesses, setting itself up as a Yelp competitor too.
Max Wolff, an analyst at Greencrest Capital Management, said he has concerns about the outlook for Yelp. Its valuation is too high, mobile applications are not yet monetized and he doesn’t expect the company to make a profit until 2013, he said.
“This company is going to face competition in all three of its basic money generating operations,” he told CNBC Friday, adding that, while he thinks the company will be profitable in 2013, paying for profits before they arrive “has been a dangerous undertaking, both in this space and writ large in the history of trading.”
Yelp’s IPO is part of a rash of Internet offerings over the past several months, with social media companies Groupon, Zynga and LinkedIn making their stock market debuts with mixed results.
Zynga, a developer of online games, went public on Dec. 16, 2011. Since then its share price has risen 52 percent.
But shares of LinkedIn, an online professional network, have slipped 8 percent since its first day of trading on May 19. And shares of online deals company Groupon’s are down 25 percent since the company’s first day of trading on Nov. 4.
Yelp’s CEO, Jeremy Stoppelman, appeared on CNBC Friday to discuss the company’s outlook:
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