Yelp.com offers visitors a way to find and review local businesses. The site receives 61 million unique monthly visitors, hosts 22 million reviews and has 529,000 local business locations that have been claimed by their owners. On March 2, 2012, Yelp started its first day of public trading at $15 per share. The stock price jumped quickly; at 10 a.m. it was trading at around $26 per share. Yelp finished out that first day at $24.58.
SEE: IPO Basics
Two former PayPal employees, Russell Simmons and Jeremy Stoppelman, founded Yelp in 2004. After PayPal was acquired by eBay, Stoppelman and Simmons joined an incubator to brainstorm ideas for new startups. Yelp began as an email recommendation service, but was transformed into a local business review site for San Francisco after just a few months.
Google made an offer to buy Yelp for $550 million in 2009, but the deal fell through due to a competing offer from Yahoo. Since then, Google has developed a competing product in Google Places, which in 2010 and 2011 actually included content from Yelp. Google no longer incorporates content from Yelp, but the two companies have a difficult on-going relationship: Yelp received more than half of its traffic from Google searches in 2011.
Yelp filed with the SEC in November 2011, announcing its intention to raise as much as $100 million in its IPO. After expenses, Yelp netted approximately $96 million in the offering, valuing Yelp at about $900 million.
In 2011, Yelp brought in $83.3 million in revenue from its advertising platform. Most of the ads that the site runs come from the same local businesses that Yelp's users review. Ads are displayed next to and within the reviews and other content that the site provides to visitors. However, despite reporting revenue up 74% from 2010, last year Yelp had a net loss of $16.7 million; in 2009, the company had a net loss of $9.6 million.
Yelp's Present and Future
One of Yelp's key competitors, Angie's List, held its IPO in November 2011. Angie's List has been valued similarly to Yelp, at approximately $900 million. Its initial stock price was set at $13 per share. So far, Angie's List hasn't broken $20 per share. Does this mean we can expect more of the same for Yelp?
Yelp now operates in multiple international markets: Austria, Canada, France, Germany, Ireland, Italy, the Netherlands, Spain and the United Kingdom. The company has expanded in the U.S. city by city, and has taken a similar approach to adding new communities in other countries. The site has also seen accelerated growth due to the popularity of its mobile app. Yelp reports over 5 million unique mobile users in an average month; so far the app has not been monetized, but Yelp sees mobile advertising as an opportunity for growth.
Overall, Yelp describes its current strategy as focusing on the long-term. By making investments in both market and product development, the company expects to increase revenues. In particular, international sales will be a factor in 2012. Yelp has budgeted $15 million to spend on acquiring international advertisers in the next year.
The Bottom Line
Yelp faces its fair share of challenges now that its IPO has taken place. The company relies heavily on forces it can't control for growth, such as the millions of users that write the reviews that Yelp offers on its website. With each new market Yelp enters, it has to persuade new users to provide content before it can consider selling advertising. The website's heavy reliance on search traffic for bringing in visitors also presents a potential problem. Combined with the fact that Yelp continues to operate at a net loss, the IPO is just a beginning for this company.
SEE: How An IPO Is Valued