Yelp Proves Social Media IPOs Are Strong With a Five Star Debut

Everyone with an iOS, Android, or Windows Mobile device living in an urban area uses Yelp. If you are reading this right now and thinking to yourself that not everyone does, YOU are the only one. Trust me. Their IPO has proven that social media is bullet-proof, even in the middle of the Great Recession.

Yelp’s IPO soared almost 64% to close at $24.58 after an initial valuation of $15 per share that initially led some analysts to cry overvaluation. Investors thought otherwise and took the company’s worth over $1 billion.

What piqued investors’ interest was the $83.3 million in revenue, a 74% increase says Reuters. This, combined with their presence in 190 cities spread out over 13 countries in North America and Europe, gives them a diverse enough user base to provide the consistent uptick in revenue needed to become solvent according to SEC filings prior to the issuance of the IPO.

When the company announced it would price shares at $15, giving it a valuation of $900 million, many worried it was overvalued with an accumulated debt of $41.2 million at the end of 2011 and $17 million in losses for FY 2011 says Reuters. Yelp, though wildly popular, faces the same monetization issues that plague other social media sites not named Facebook.

The first two apps I downloaded when I bought my first iPhone, a 3G, were Facebook and Yelp. My profiles on Facebook and Yelp were the two most important in my life until I became addicted to the drug that is Twitter. I still will not go to a restaurant or bar I haven’t heard of until I read the reviews on Yelp. The genius of Yelp is that it engages businesses and their customers like never before.

When I went to Chicago for a job interview in 2007 I was told by a colleague to try Frontera Grill. I went based solely on his word. This is how the world used to operate. A few months ago I saw a Cuban restaurant in Queens featured on TV. Before I even considered going there I checked out their rating on Yelp. Not that I don’t trust Guy Fieri, but 96 reviews adding up to a 4 ½ star rating out of 5 has more weight with me.

The first day performance of social media IPOs is not uncommon. Groupon also experienced a first day jump but has dropped significantly since. The problem with sites like Yelp and Groupon is that they rely heavily on advertiser revenue. Yelp’s concern about that dependence was reflected in its SEC filings.

Now that Yelp has cash on hand, they can expand to fertile Asian markets and beyond starving to Yelp about their favorite restaurants, bars and spas. It remains to be seen whether this can translate into a viable business model, but at least it was able to convince investors of its potential.

"We want to bring Yelp to the world. We want to manage this mobile transition that’s happening," CEO Jeremy Stoppelman told CNBC earlier today. "We want to be the broadest and deepest content source for local information, really the Amazon of local."

Photo Credit: Yelp.com

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Ryan Gorman

Ryan's work has been featured in the NY Daily News, Gothamist and the Wall Street Letter. His work has been cited by both the Colbert Report and Time Magazine's website. Ryan worked on Wall Street for five years before returning to school to finish a degree in journalism at St. John's University.

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