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Saturday, March 3, 2012 - Page updated at 04:30 p.m.
Investors give thumbs-up to Yelp IPO
By Walter Hamilton
Los Angeles Times
LOS ANGELES — Investors gave Yelp a good review on its first day of trading.
Shares of the local business-ratings site leapt 64 percent in trading volume that was heavy even by the frenzied standards of hot IPOs.
The stock closed at $24.58, up $9.58, after being priced Thursday night at $15 and opening trading at $22.
It's the biggest first-day gain for an Internet IPO since Seattle-based online real-estate service Zillow surged 79 percent in its stock-market debut in July.
Yelp's gain wasn't the biggest for an IPO so far this year, though. Those bragging rights still belong to Proto Labs, a Maple Plain, Minn.-based provider of customized parts. Proto Labs' shares soared 81 percent in their first day of trading a week ago.
The debut is good news for the social-media sector, which has had mixed performance from some other initial public offerings in the past year. And it's likely to only further whet the appetite of investors who are eagerly awaiting the expected coming-out party of Facebook later this year.
More than 17 million Yelp shares changed hands — about 2.5 times the amount that the company sold.
That's a lot of action, and it underscores the rampant "flipping" that typically goes on in coveted IPOs. Institutional investors who get IPO shares often sell out for quick profits to the hordes of individual investors who clamor for them on the first day.
In a positive sign, the stock ended fairly close to the high it hit in the opening moments of trading. The shares peaked at $26 as brokers began executing the crush of investor orders that had built up on their books before the IPO.
Given that new offerings often fall back in the days after an IPO, it remains to be seen whether investors will continue to hold Yelp in such high esteem.
Meanwhile, after expenses, Yelp estimates it will get about $96 million from its IPO. The company sold 7.1 million shares and its charitable foundation another 50,000. Investment bankers also have an option sell an additional 1.07 million shares, depending on investor demand. If those shares are sold, Yelp expects net proceeds of $111.2 million.
With Friday's stock price jump, the San Francisco company has a market value of $1.47 billion. Such a big first-day jump is common, especially for high-profile Internet companies.
LinkedIn, the professional-networking service, saw its stock nearly triple on its first trading day last May, reaching $122.70 after pricing at $45.
The biggest individual winners in Yelp's IPO are its chairman, Max Levchin, and its CEO and co-founder, Jeremy Stoppelman. Levchin, 36, owns 7.1 million shares now worth $175 million and Stoppelman, 34, owns 5.9 million shares now worth $145 million.
Both Levchin and Stoppelman made $15 million by selling some of their stock before the IPO.
The IPO also will enrich many of Yelp's 900 employees who received stock incentives as part of their compensation packages.
Though it's best known for restaurant reviews, Yelp's users have reviewed churches, strip clubs, hospitals, hotels and high schools. The company makes money from advertising. Most of the ads come from the local businesses that its users review. In 2011, it booked revenue of $83.3 million, up 74 percent from 2010. It had a net income loss of $16.7 million last year and $9.6 million the year before. Yelp's losses since its inception total $41 million.
"Yelp's active community of users writing reviews of local businesses is difficult to replicate," said Morningstar analyst Rick Summer. "Unfortunately, the company faces challenges translating the small advertising budgets of local businesses into profitability, as about 70 percent of ad revenues are eaten up by sales and marketing expenses."
Material from The Associated Press is included in this report.
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