Evan Swanson

Finance 305W
October 19, 2012
Yelps IPO
In 200, !ere"# Stoppel"an an$ %&ssel Si""ons starte$ t'e co"pan# (nown as Yelp)
Yelp is a website t'at allows &sers to rate an$ review b&sinesses all aro&n$ t'e *nite$ States)
*nli(e ot'er &ser review sites, Yelp &ses social networ(in+ to en+a+e &sers wit' eac' ot'er,
+ivin+ t'e" an incentive to co"e bac( to t'eir site) It ,irst +ot its roots in t'e cit# o, San
Francisco) -'ese citi.ens were /&ic( on acceptin+ t'is new social "e$ia crave, an$ it soon
beca"e t'e 'ip new wa# to $iscover an$ review b&siness aro&n$ t'e cit#) 0,ter 'ittin+ it o,, so
well in San Francisco, Yelp be+an to e1pan$ across t'e nation +ainin+ t'e "a2orit# o, its
pop&larit# in "a2or cities s&c' as 3ew Yor(, 4'ica+o, 5os 0n+eles, an$ "an# ot'er cities)
-o$a#, Yelp attracts aro&n$ 67 "illion &ni/&e visitors "ont'l# an$ s&pports over 30 "illion &ser
reviews 8Yelp9) -'ese n&"bers 'ave contin&e$ to +row t'ro&+'o&t t'e li,e o, Yelp an$ are
e1pecte$ to contin&e +rowin+) Yelp 'opes to e1pan$ its co"pan# internationall# an$ beco"e t'e
best reso&rce ,or $iscoverin+ new b&sinesses)
On Fri$a# :arc' 5, 2012 Yelp "a$e its p&blic $eb&t, 2&st two "ont's be,ore t'e "assive
social networ(in+ (in+ Faceboo( release$ its IPO) It 'a$ been esti"ate$ to sell aro&n$ 6)15
"illion s'ares at ;12<1 per s'are an$ 'a$ a potential "ar(et cap as 'i+' as ;737)= "illion
8Wasser"an9) 0 "ere spec w'en co"pare$ to Faceboo(s ;10= billion "ar(et cap, b&t ,or an 7
#ear ol$ co"pan# t'is is still an i"pressive ,eat ,or Yelp) -'e $a# be,ore t'e IPO, Yelp $eci$e$
to &p its s'are price to ;15 a s'are) ># t'e en$ o, t'e IPO, Yelp sol$ 6)1 "illion s'ares raisin+
;10=)5 "illion ,or t'e co"pan# 8Pepitone9) Yelps s'are price 2&"pe$ =? to a price o, ;2)57
to close o&t t'e $a#) -'is p&s'e$ Yelps :ar(et 4ap &p to over ;1) billion 8O++9) -'ose
a,,iliate$ wit' Yelp were please$ to 'ear o, t'ese res&lts even t'o&+' t'e# were lar+el#
&n$erval&e$, an$ were i"presse$ to see so "&c' ent'&sias" ,ro" t'e p&blic ,or t'eir co"pan#)
!&st li(e "ost co"panies, Yelp $eci$e$ to +o p&blic in an e,,ort to raise capital ,or t'eir
co"pan#) Yelp is be+innin+ to increase its +lobal reac' an$ wit' e1pansion co"es 'i+' costs in
sales, "ar(etin+, an$ b&il$in+ new $ata centers to 'ost t'eir new clients) :eanin+ t'is capital
raise$ will 'elp ,&n$ t'ese new e1pansions an$ 'ope,&ll# "a(e Yelp a worl$wi$e 'it) In "# own
opinion, I also believe t'at Yelp 'a$ +one p&blic to b&il$ &p '#pe an$ cre$ibilit# ,or t'e
relativel# #o&n+ co"pan#) Possibl# tr#in+ to +et so"e reco+nition $&rin+ a ti"e w'en
Faceboo(s IPO was t'e "ain topic on "ost peoples "in$s)
>e,ore t'e IPO, Yelp 'a$ been welco"e$ b# increasin+ reven&es, w'ic' were &p 62)9?
in 2011 ,ro" t'e previo&s #ear 8>roens9) Yelp "a$e t'e "a2orit# o, t'is reven&e b# sellin+ a$
space to local b&sinesses) Ot'er so&rces o, reven&e ca"e ,ro" bran$ a$vertisin+ an$ ot'er
services s&c' as Yelp $eals) @owever, Yelp 'a$ not "a$e a positive pro,it on its b&siness, an$
costs contin&e$ to rise alon+ si$e reven&es)
-'e reason ,or Yelps contin&in+ ne+ative pro,its is lar+el# $&e to Yelps b&siness
"o$el) -'is "o$el states t'at as Yelp beco"es "ore pop&lar it will create a networ( e,,ect
w'ic' in t&rn will brin+ in lar+er reven&es an$ 'elp "a(e Yelp a pro,itable co"pan# in t'e lon+
r&n) -'e networ( e,,ect is w'en a pro$&ct or service beco"es "ore val&able as "ore people
be+in to &se it, accor$in+ to 0le1 4ocotas ,ro" >&siness Insi$er) -'is e,,ect is believe$ to occ&r
beca&se wit' "ore people, co"es a +reater n&"ber o, reviews bein+ written) Wit' an e1pan$in+
n&"ber o, reviews a +reater a"o&nt o, people will want to &se t'eir site) -'is increase in &sers
"a(es Yelp a better place ,or local b&sinesses to a$vertise t'e"selves) -'e res&lt is "ore
b&sinesses pa#in+ Yelp ,or a$vertise"ent space an$ Yelp receivin+ "ore an$ "ore reven&e)
Event&all# "a(in+ Yelp t'e nor" ,or $iscoverin+ +reat b&siness all aro&n$ t'e worl$) So w'ere
$oes t'e proble" arise in t'is b&siness "o$elA Well t'e "ain iss&e is t'at &ser reviews "i+'t not
provi$e Yelp wit' t'is so calle$ Bnetwor( e,,ectC) It 'as proven to provi$e a networ( e,,ect in
t'eir 'it cit# o, San Francisco w'ere it 'as beco"e one o, t'e top wa#s to ,in$ new b&sinesses,
b&t it so ,ar 'asnt s'own /&ite as "&c' s&ccess in ot'er "ar(ets) I, t'is networ( e,,ect $oesnt
e1ist Yelp "i+'t 'ave a 'ar$ ti"e at "aintainin+ a pro,it i, it ever $oes beco"e pro,itable)
0not'er bi+ iss&e is t'at Yelp 'as to spen$ a lot on sales an$ "ar(etin+ in or$er to +et t'ese local
b&siness owners to a$vertise on t'eir site) It ta(es a lot o, sales reps to +et in to&c' wit' t'ese
local b&sinesses an$ to "aintain t'ere partners'ip wit' t'e", &n,ort&natel# p&ttin+ a bi+ cost on
Yelp) 0s Yelp contin&es to e1pan$ to new "ar(ets, li(e it 'as been $oin+, t'e# will nee$ to
spen$ "ore an$ "ore in t'e sales an$ "ar(etin+ $epart"ent) -'e onl# wa# ,or Yelp to "a(e a
pro,it $oin+ t'is is ,or t'e" to earn "ore "one# ,ro" a$vertisin+ t'en co"pare$ to t'eir sales
an$ "ar(etin+ costs) -'e ,inal iss&e wit' Yelp is t'at t'e# are in a ver# co"petitive "ar(et wit'
little barriers ,or new co"petitors) -'ere are "an# ot'er review sites li(e Yelp o&t t'ere an$ at
an# ti"e one co&l$ potentiall# o&t per,or" Yelp) 5&c(il# ,or Yelp t'e# 'ave been t'e ones o&t
per,or"in+ all t'e ot'er review sites, b&t t'at co&l$ easil# c'an+e) Doo+le is one o, t'ose
co"petitors an$ it is beco"in+ a +reater t'reat as it ac/&ires ot'er review sites li(e Ea+at) -'e
real tro&ble wit' Doo+le is t'at t'e# c&rrentl# acco&nt ,or 65? o, all Yelps tra,,ic 84ocotas9) I,
Doo+le were to inter,ere wit' t'is tra,,ic t'e# co&l$ si+ni,icantl# a,,ect Yelps pop&larit#) Even
wit' all t'ese possible iss&es, "an# investors still 'ave ,ait' in Yelps b&siness "o$el an$ abilit#
to "a(e a pro,it, as s'own b# t'e o&tstan$in+ res&lts o, t'eir IPO)
0,ter t'e IPO, Yelp is still "ana+in+ to increase reven&es b&t at t'e sa"e ti"e is still not
pro,itable) Yelp c&rrentl# is not overl# concerne$ abo&t bein+ pro,itable at t'is ti"e lar+el# $&e
to t'e ,act t'at it is still a relativel# #o&n+ co"pan#) Its "ain ,oc&s is on e1pan$in+ t'eir c&rrent
"ar(ets to all over t'e +lobe an$ t'e# are investin+ a lot o, t'eir "one# into t'ese e1pansions)
Investors to$a# still appear to be 'app# wit' Yelp even t'o&+' t'e# 'ave #et to be pro,itable, an$
t'is is evi$ent in t'e c&rrent stoc( price o, ;2)57 per s'are w'ic' is ri+'t aro&n$ t'e closin+
price ,ro" t'e IPOs ,irst $a#) One t'in+ a,ter t'e IPO t'at was tr&l# re"ar(able was t'at t'e
stoc( price $i$nt $rop a,ter t'e loc(<&p perio$ en$e$) F&rin+ t'e loc(<&p perio$ insi$ers ,ro"
t'e iss&in+ co"pan# are prevente$ ,ro" sellin+ t'eir s'ares o, stoc( ,or a speci,ie$ ti"e perio$
a,ter an IPO 8Pearson9) W'at "a(es t'is i"pressive ,or Yelp is t'at t'e "a2orit# o, stoc(s ,all
w'en t'e loc(<&p perio$ r&ns o&t, b&t w'ats even "ore s&rprisin+ is t'at t'eir stoc( en$e$ &p
23? b# t'e en$ o, t'e $a# 8Pepitone9)
0s o, to$a# Yelp appears to be an alri+'t stoc(, an$ i, t'eir b&siness "o$el is s&ccess,&l,
t'e# "a# one $a# stan$ alon+ si$e t'e +reat co"panies o, o&r nation) -'is San Francisco base$
co"pan# "i+'t e1pan$ all t'e wa# across t'e +lobe an$ be t'e ,irst cite ever#one c'ec(s to ,in$
o&t w'ere t'e# are +oin+ to eat $inner) Yelp will 'ave en$less possibilities i, its networ( e,,ect
sprea$s t'ro&+'o&t t'e worl$ an$ can tr&l# be a ver# pro,itable or+ani.ation) *ntil t'en Yelp will
strive to e1pan$ its "ar(ets an$ be as econo"icall# e,,icient as it possibl# can in ti"es o,
+rowt') W'ile investors will atte"pt to pre$ict Yelps ,&t&re, b&t onl# ti"e will tell 'ow well
Yelp will $o in t'e lon+ r&n)
Wor(s 4ite$
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>roens, %obert) GYelp IPO Dets 0 Positive %eview)G Seeking Alpha) See(in+ 0lp'a, 5 :ar)
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4ocotas, 0le1) G@ow YelpLs >&siness Wor(s)G Business Insider) >&siness Insi$er, 01 :ar) 2012)
Web) 19 Oct) 2012) H'ttpIJJarticles)b&sinessinsi$er)co"J2012<03<
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Deron, -o"io) GYelp -o IPO On 3YSE, 5oses ;1=: On ;73: %even&e In 2011)G Forbes)
Forbes :a+a.ine, 03 Feb) 2012) Web) 19 Oct) 2012)
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Business) :as'able, 16 Feb) 2012) Web) 19 Oct) 2012)
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