Yelp Surges in Debut After IPO Raises More Than Forecast
Yelp Inc. (YELP), the site that lets users review businesses ranging from diners to dentists, surged 64 percent in its first day of trading after selling shares for more than planned in an initial public offering.
The stock climbed to $24.58 today in New York, giving Yelp a market valuation of $1.47 billion. That price is about 18 times Yelp’s annual revenue. The San Francisco-based company raised $107.3 million in the IPO, pricing the shares at $15 each, according to a statement yesterday.
By letting users post reviews of small, neighborhood businesses on the Web, Yelp took an early lead in the online- local advertising market, more than tripling sales since 2009. To help the company reach profitability while contending with competition from larger companies Google Inc. (GOOG) and Facebook Inc. (FB), Chief Executive Officer Jeremy Stoppelman, 34, plans an overseas expansion this year.
“They’re a first mover, and they definitely have a following,” said Tim Ghriskey, who oversees $2 billion as chief investment officer of Solaris Group in Bedford Hills, New York. Still, the prospect of rivalry from other Internet companies “is a big issue,” he said.
Yelp offered 7.1 million shares, while the Yelp Foundation offered 50,000. The stock is listed on the New York Stock Exchange under the symbol YELP. The company planned to offer the shares for $12 to $14 each. Goldman Sachs Group Inc., Citigroup Inc. and Jefferies Group Inc. led the offering.
Yelp’s biggest investors, including Stoppelman, didn’t plan to sell shares in the IPO. The former PayPal Inc. executive will hold about 11 percent of the voting power in Yelp following the share sale, according to a regulatory filing. At today’s closing price, the stake is worth about $145 million. Bessemer Venture Partners (PEF2883) and Elevation Partners each will have about 22 percent, the filing shows.
Revenue rose 74 percent to $83.3 million last year, with local ads accounting for 70 percent of that and brand advertising making up most of the rest. The company hasn’t posted a profit since at least 2007, according to the prospectus. The proceeds will go toward general corporate purposes and expanding Yelp’s financial flexibility, according to the filing.
The company said in its IPO prospectus that it had 66 million monthly unique visitors and that it had 25 million published reviews at the end of last year. The online local advertising market may rise to $37.9 billion in 2015 from $26.4 billion this year, according to BIA/Kelsey.
Stoppelman predicted that Yelp’s reviews will be as prominent in users’ daily Web browsing as content from Amazon.com Inc. (AMZN) Amazon, the world’s largest online retailer, had 87.9 million unique U.S. visitors in December, who spent an average of about 42 minutes on the site, according to Nielsen.
“We see a huge opportunity to become the strongest brand in local, much like you see with Amazon,” Stoppelman said in a Bloomberg Television interview on “InBusiness With Margaret Brennan.” “We see Yelp occupying that space with content. Whatever business you need to go to, we’re going to have the best content for that. You’re going to go to us day in and day out.”