Yelp Going Public, Seeks 5 Stars and $100M

Yelp, the service you can't visit a restaurant without, goes public later in the week. 7.15 million shares go on sale for $12-$14 each under the YELP ticker, putting the expected raised capital between $86 and $100 million. Yelp is expected to be the last online business to go public before Facebook does sometime this spring or summer. As is anything reviewed on Yelp, there are things to like and things to dread on the company's registration statement with the SEC, if you are considering Yelp for your portfolio. The company enjoys a great following in the armada of online review hunters. As is often said, “you know you have made it when you become a verb”. There are a lot of people who “yelp” on a regular basis. With about 25 million reviews on the site--up 64 percent from 2010--Yelp is a great go-to place to find immediate feedback on an ever-increasing portfolio of reviewed businesses in your area. Unique monthly visitors averaged 66 million for 2011, which was up 64 percent from 2010. There is a lot to monetize in the treasure trove of information Yelp contributors offer on what they like, don't like, or would like to see in the local businesses they review. Therefore, the company can conceivably add new streams to its current revenues that come mainly from local business advertisement. That is something it is going to have to be done sooner rather than later. Because for all its growth thus far, the company has yet to turn a dollar in profit. So far, its revenues have seen the stratospheric rates of growth seen in other Internet start-ups--$83.3 million were booked in 2011, up 74 percent from 2010. However, expenses have seen similar growth, while at the same time outgrowing them in dollar terms. Net loss for 2011 increased to $16.7 million from $9.5 million in 2010, an increase of 75 percent. No wonder the company needs to raise some funds, and fast. While current losses may not be enough to offset potential investors, competitive risks are. To this front, Yelp faces a major risk from its significant traffic dependency from Google. The search giant was responsible for more than half of Yelp's traffic in 2011, and it has shown signs that it may favor its own competing services over Yelp. Assuming Google chooses to maintain its integrity as a content linker rather than creator, and would like to give Yelp a fair chance, Yelp would still have to keep its reviews pristine enough to warrant top-placements in search results. Competitive difficulties notwithstanding, Yelp is in a fast growing market. For example, according to the 2011 Cone Online Influence Trend Tracker, 64 percent of people said they look online for customer reviews. In a 2010 survey from BrightLocal, a local search engine marketing company, 71 percent of U.S. consumers who responded said that they have read online customer reviews to determine whether a local business is a good business or not. The company also has a front row to an increasing pool of online advertising revenue, which according to BIA/Kelsey, is expected to increase from $15.5 billion in 2008 to $35.2 billion in 2014. Within these numbers, mobile advertising, ads delivered through smart-phone apps, are expected to increase at a barely-credible 76 percent compound annual rate, according to Gartner. Ad revenue from mobile apps are expected go from $1.6 billion in 2010 to $15.6 billion in 2014. As Yelp's app for iPhone is among the top-rated free apps, its shares may be looking none too shabby after all.