Yelp Surges as Growth Potential Counters Lockup Expiry

Yelp Shares Fall After Lockup Expiration: San Francisco Mover
Yelp Inc., based in San Francisco, lets users post reviews of neighborhood businesses ranging from plumbers to pet shops on the Web. Photographer: Scott Eells/Bloomberg

Yelp Inc. surged as much as 23 percent as investor confidence in its growth prospects outshined concern over stock sales by some of the largest investors in the online review website.

San Francisco-based Yelp climbed 23 percent to $22.37 at the close in New York. The stock has gained 49 percent since a March 1 initial public offering. Inside investors are eligible to sell about 53 million shares of the company 180 days after its IPO, a period that extended through yesterday.

Yelp lets users post reviews of neighborhood businesses ranging from plumbers to pet shops on the Web. As rivals Google Inc. and Facebook Inc. boost local content, Yelp is adding mobile features and using a partnership with Apple Inc. to integrate local content into software for the iPhone and iPad.

“Yelp is on its way to becoming a household name because of this Apple integration,” Brian Blair, an analyst at Wedge Partners Corp. in New York, said in an interview today.

Some investors speculated that Yelp would plunge following precedents set by social network Facebook, coupon-provider Groupon Inc. and online-review compiler Angie’s List Inc. -- all of which sank to record lows after stock-lockup expirations earlier this month.

“There was exaggerated concern about Yelp selling off,” Blair said. Instead, “the selloff into the lockup was creating an opportunity.”

Shareholders who used so-called short sales to benefit from an expected drop in Yelp’s stock after the lockup expiration later bought back those shares -- in what’s known as a short covering -- when the decline failed to materialize.

Sales Surge

In the second quarter, Yelp’s revenue rose 67 percent to $32.7 million, the company said Aug. 1. That beat the $30.5 million average analyst prediction compiled by Bloomberg. The company’s net loss was $1.98 million, or 3 cents a share. Analysts on average were projecting a loss of 5 cents.

“It’s pretty strong revenue growth,” Aaron Kessler, an analyst at Raymond James & Associates in San Francisco, after Yelp’s earnings report. “Mobile is definitely helping drive traffic.”

Yelp’s revenue is expected to more than double to $197.40 million next year from $83.3 million in 2011, according to the average analyst estimate compiled by Bloomberg. The company’s 2013 earnings excluding some items will be 8 cents a share, compared with a loss of $1.12 a share Yelp reported last year.

San Francisco-based Yelp raised $107.3 million in its IPO, pricing shares at $15 each. Bessemer Venture Partners and Elevation Partners are among Yelp’s shareholders, regulatory filings show. Goldman Sachs Group Inc., Citigroup Inc. and Jefferies Group Inc. were the lead underwriters.

Facebook, operator of the world’s largest social network, has lost about half its value since an IPO in May as it struggled to make money from the growing slice of users who access the service over mobile devices. Since IPOs in November, Groupon has lost 78 percent, while Angie’s List has retreated 21 percent.

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