$heff's $tation of $tocks & $olid DD

[bob smith]

YELP:

http://dealbook.nytimes.com/2012/03/01/yelp-prices-its-offering-at-15-a-share/

should be interesting opening.



Yelp Prices Its Offering at $15 a Share

By EVELYN M. RUSLI


Spencer Platt/Getty ImagesYelp’s market debut will be another critical test of investor appetite for technology stocks.

Yelp, the online hub for local business reviews, priced its initial public offering at $15 a share on Thursday, above its expected range, according to people briefed on the matter.

At that price, the company has raised $107.25 million, at a $898.1 million valuation. Its market debut, set for Friday morning, will be another critical test of investor appetite for technology stocks, ahead of Facebook’s multibillion-dollar I.P.O. expected later this year.

At a market value of $898.1 million. Yelp will be trading at a high multiple, at more than 10 times revenue. Still, the valuation is slightly lower than earlier estimates, reflecting concerns about the market and Yelp’s business model. The start-up, which attracts some 66 million users per month, has a huge inventory of local business pages and user-generated reviews, spanning markets in North America, Western Europe and Australia. The service is free for consumers but local businesses pay to advertise on the site and to add premium features to their Yelp pages.




In 2011, the company generated $83.3 million in revenue and a net loss attributable to common shareholders of $16.9 million.

And that’s the rub with Yelp. Founded in 2004 in San Francisco, the company is still not profitable.

In its most recent prospectus, the company acknowledged that it has “incurred significant operating losses” and warned that its revenue growth will slow as its business matures, while its costs are expected to increase. A lack of profits is far from an anomaly in the Internet sector, but Yelp is facing increasing pressure from upstarts and giants like Google. The Internet company — which has, at times, prioritized its content over Yelp’s– recently bought Zagat, another popular aggregator of reviews and business ratings. In its filing, Yelp noted that Google is its “most significant source of traffic.”

Though demand is expected to be high for Yelp’s debut, many investors are still skeptical.

“The revenues are excellent right now, but their losses are high,” said Scott Sweet, a managing partner of IPOboutique.com, an I.P.O. advisory firm. “My primary concern is the current competition and the new players that will enter this space.”

The equity markets have been choppy for technology offerings, though more stable compared to the second half of last year. On Thursday, GCT Semiconductor, a maker of wireless chips, postponed its offering.

Meanwhile, Demandware, an enterprise software business, pushed ahead with its I.P.O. plans, setting its price target at $12.50 to $14.50 per share, putting it on track to raise about $74 million at the mid-point of the range. Angie’s List, another online reviews site that went public last November, rose nearly 1 percent on Thursday to close at $16.12, about 24 percent above its offering price.

Yelp’s largest shareholders, including Jeremy Stoppelman, the company’s chief executive, will not sell any shares in the offering. The sole entity selling shares is the Yelp Foundation, the company’s nonprofit arm, which plans to sell 50,000 shares in the I.P.O. Yelp’s largest venture capital backers, Bessemer Venture Partners, Elevation Partners and Benchmark Capital Partners, own roughly 60 percent of the company, with Bessemer and Elevation each holding a 22 percent stake.

According to its prospectus, Yelp plans to use the proceeds from the I.P.O. for general expenses, including sales and marketing activities, and for acquisitions or technologies that complement its business.

Its shares will trade on the New York Stock Exchange under the ticker “YELP.”

For its offering, Yelp is selling 7.15 million shares. But its underwriters, led by Goldman Sachs, Citigroup and Jefferies, have the option to sell an additional 1.1 million shares, based on demand.



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