Yelp Soars in Market Debut on Facebook Optimism

(Reuters) - Consumer review Web site operator Yelp Inc. made a sparkling market debut on Friday, buoyed by optimism ahead of Facebook's public listing and hopes for other successful public listings by Internet companies down the road.

Yelp's stock closed 64 percent higher at $24.58, a day after Yelp priced its initial public offering at $15 a share -- above its indicated range of $12 to $14.

At Friday's closing price, the company is worth about $1.47 billion -- about 17 times its 2011 revenue.

If you look at it, there's been a very high trading volume, much higher than normal, said Scott Rostan, a former Merrill Lynch analyst who founded Training The Street, an investment-banking school in New York.

Yelp could be benefiting from the optimism about Facebook's coming IPO, he added. Investors are getting a little excited; there's a social-media momentum.

Yelp's stellar debut follows those of other Internet sensations like LinkedIn Corp., Groupon Inc., and Zillow Inc. Although those stocks made large first-day gains, they have since declined.

Groupon stock's soared as much as 56 percent on its opening day, but it has since fallen below its offer price of $20.

Like Yelp, Groupon is losing money. Yelp generates revenue by selling advertising on its sites, where it has more than 25 million reviews of a range of local businesses and services -- from plumbers and shoe-repair shops to restaurants and nightlife options.

Yelp also competes with Angie's List, which unlike Yelp charges for memberships and whose stock fell 5.4 percent on Friday.

Angie's List charges for memberships. That will prevent growth. It can maybe grow to 2 million memberships, but there's a finite number of people who want to pay to access this content, said Sameet Sinha, an analyst at B. Riley & Co. Their unique visitor growth accelerated in the past year, and they are forecasting solid growth over the next few years, Sinha said.

However, the company faces stiff competition from Facebook; Google Inc., through its recent buy of restaurant reviewer Zagat; and others such as Groupon.

Yelp co-founder Jeremy Stoppelman told the CNBC cable-television outlet that he was not fazed by competition from the likes of Google.

That's a potentially lucrative market, which could be interesting for some big companies such as Google, Facebook to muscle in, Rostan said. It could make Yelp a takeover candidate. As a public company, it is a little harder to turn down an offer, and it could be a $2 billion morsel for an established company to enter that market, he said.

According to media reports, Yelp has rejected approaches by Google and Yahoo Inc. in the past.

Amazon of Local Advertising

The San Francisco-based company was started eight years ago in 2004 by former PayPal engineers Stoppelman and Russel Simmons, when Stoppelman needed a doctor and online searches turned up only generic lists on health-insurance Web sites.

Stoppelman, a computer engineer by training, told CNBC he wanted his company to become the Amazon.com Inc. of local advertising. We're just scratching the surface of local advertising, he said. It's an enormous market.

Yelp had 66 million unique visitors and was used in 5.7 million unique mobile devices on a monthly average basis in its latest quarter. It was active in 46 markets in the United States and 25 markets internationally at the end of last year.

But the company has incurred losses since inception, and it had an accumulated debt of about $41.2 million as of Dec. 31.

In 2011, Yelp recorded a loss of about $17 million, but saw revenue jump 74 percent to $83.3 million.

Like a slew of recent tech and Internet offerings and the coming Facebook IPO, Yelp will have two classes of stock -- class A shares worth one vote each and class B shares worth 10 votes each. This structure is seen by many as a method to keep voting power restricted to the major stockholders as the outstanding class B common stock will represent about 98.7 percent of voting power following the offering.

Training The Street's Rostan said this may be the time for more Internet companies to seek a public listing. In the IPO market, there's a window of opportunity -- when it's open, you better rush through it before it closes, he said, adding that LinkedIn's IPO last May created a window until about August. There needs to be some kind of event to open it [the window], and Facebook might be that event, he added.

B. Riley's Sinha noted that Yelp was a good investment ahead of Facebook. In general, crowd sourcing, social, and mobile are the key buzzwords for investors -- and Yelp hits them all. Before Facebook comes along, this is a good social and mobile play for investors, Sinha said.

Goldman Sachs Group Inc. is the lead bookrunning manager for the offering, while Citigroup Inc. and Jefferies Group Inc. acted as joint bookrunning managers.