Yelp (YELP) IPO Should Garner a Lot of Attention Today « Market Montage

I'm sure many readers have used Yelp's reviews to find a good restaurant or other service oriented business; well as of today you can now invest in the stock.  As with almost every flashy offering it will be mispriced with a low float so that "smart money" can flip it for a big profit on day 1.  (as an aside did you know the U.S. is the only country that has this sort of system of massive favoritism for allocating IPO shares?)  This 8 year old firm still does not make money but that won't stop the retail horde from grabbing on to it, since it is an easy story to understand with very good revenue growth.  That said there is a lot of competition crowding in on its space…

More from AP:

  • San Francisco-based Yelp Inc. late Thursday priced its initial public offering of stock at $15 a share. That's above its expected range of $12 and $14 per share. Yelp is selling 7.1 million shares, while its charitable foundation will sell 50,000. Investment bankers also have an option sell another 1.07 million shares, depending on investor demand.  The offering could raise as much as $123 million before expenses. It values Yelp at $900 million.  (keep in mind that is at the IPO price of $15, not the value at what is certainly going to be an early spike price)
  • That's a lot for a company that hasn't turned a profit since its 2004 founding. Rick Summer, an analyst at Morningstar, says that while Yelp is at "the head of the pack" compared to other review sites, he's concerned that businesses "may not see enough value in (Yelp's) advertising platform to increase spending and justify the expected price of this IPO."
  • 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.
So even at the IPO price we are talking a price to sales on 2011 of well over 10.  Assuming they can grow say another 50% year over year in 2012 on the top line to $125M, its still going to be a price to sales of well over 7 – and again that's assuming there was no pop in price.
  • By 2009, Yelp had grown to 17 million monthly users and 4.5 million reviews. It has expanded overseas, to the U.K., Ireland, France, Germany and beyond.  Yelp.com attracts 66 million monthly unique visitors and is home to 25 million reviews as of the end of 2011, according to its regulatory filings.
  • People used the company's mobile application, meanwhile, on 5.7 million mobile devices a month, on average. That's an impressive run, but Summer is worried that Google and Facebook "could grab more of the local advertising pie" and take business away from Yelp, constraining the company's potential growth and profitability.  Foursquare is also edging in on Yelp's territory. The New York-based company best known for letting users check in to venues using their mobile phones, offers local recommendations and user tips on what to eat or do once you've checked in to a restaurant, store or other business.

Probably the most similar comparable in public market's is last year's IPO, Angie's List (ANGI)…

  • Francis Gaskins, president of IPOdesktop.com, expects Yelp's IPO to price above the expected range and thinks "there will be a lot of happy users who don't know valuation metrics" who will buy the stock on its first trading day. Even so, Gaskins says he's a "little bit skeptical" about Yelp's long-term prospects.  "Sooner or later people will be wanting them to make money," he said. "They won't go away, it's not like the dot-com bust. (But) at some point in time, people are going to get tired of them losing money all the time."

 

Disclosure Notice

Any securities mentioned on this page are not held by the author in his personal portfolio. Securities mentioned may or may not be held by the author in the mutual fund he manages, the Paladin Long Short Fund (PALFX). For a list of the aforementioned fund's holdings at the end of the prior quarter, visit the Paladin Funds website at http://www.paladinfunds.com/index.php/the-fund/holdings