Yelp: Investors Grab Shares of Money-Losing Online Directory

Shares of Yelp soared 47 percent above its IPO price.

ByABC News
March 2, 2012, 10:06 AM

March 2, 2012 — -- In one of the most highly anticipated IPOs of the year, shares of the unprofitable online local business rating and directory service Yelp soared Friday.

After Jeremy Stoppelman, co-founder and CEO of Yelp, rung the opening bell at the New York Stock Exchange Friday morning, he made the first trade for his company according to tradition at the exchange. Investors crowded around the floor, watching Stoppelman begin arguably the hottest tech IPO this year after Facebook.

The online review site priced its IPO at $15 a share, above its expected range, last night. The tech company, based in San Francisco, raised $107.25 million, valuing it at $898.1 million.

By 10:50 a.m., the shares had surged to $24.15, or 61 percent, on the New York Stock Exchange. This comes even though competition in the local ad and listings market is fierce and Yelp hasn't had a profit since at least 2007.

PricewaterhouseCoopers expects a busy year for IPO activity in 2012, noting that 274 companies filed initial registration statements in 2011 and 171 remained in the IPO pipeline at the end of the year. In 2011, 134 IPOs generated $35.5 billion compared to 168 which raised $39 billion in 2010.

Like Facebook and Twitter, Yelp makes money by selling ads to businesses. But even after eight years, Yelp is not yet profitable. Its revenues are strong but its losses are high, leaving some investors skeptical about its future, the New York Times reports. Competitors like travel site TripAdvisor and Google, which bought restaurant-review site Zagat in September, have been hot on Yelp's heels.

Founded in 2004, Yelp reportedly rejected a $550 million bid from Google Inc. and $1 billion from Yahoo about two years ago, according to people familiar with the negotiations, Bloomberg Businessweek reported.

Stoppelman has said the company is still in "growth-mode."

Yelp said it had an average of 66 million monthly unique visitors in the first three months of 2012. "Yelpers" have written over 25 million local reviews, according to the company.

A handful of milestones, many in the tech industry, took place in trading this week. The tech-heavy Nasdaq index reached the 3,000 mark on Wednesday, its highest level since December 2000, while Microsoft introduced its latest Windows operating system and Apple reached a market capitalization of $500 billion.