Facebook (FB) may be getting most of the headlines and attention, but another social media company has not been lost on the institutional investors. Yelp Inc. (YELP) opened Friday morning at $22.01, after pricing their 7.15 million share IPO at $15.00, above the indicated range of $12-14. The majority of the shares, 7.1 million, are being sold by the company, with the additional 50,000 shares being sold by the selling shareholder, The Yelp Foundation. Based on the $15.00 pricing, the company will have a market capitalization of approximately $898 million. Goldman Sachs, Citigroup, and Jefferies are leading the offering. Bessemer Venture Partners, Elevation Partners, and Benchmark Capital are not selling on the offering and will own approximately 22%, 22% and 16% respectively post offering.
Yelp is a leading social media site connecting consumers with local businesses. The website offers users free reviews (also written by users) for a variety of businesses from restaurants to dentists to plumbers, etc. After starting their operation in San Francisco in 2004, the company has grown to 71 cities in 13 countries. In the last quarter they had approximately 66 million unique visitors to their website and 5.7M users of unique mobile devices. Yelp monetizes their platform primarily through targeted advertising, comprised of Local Ads (typical text based search advertisements) and Enhanced Listings. Local revenue is typically 3, 6, or 12 month programs that range from approx $300-1000 per month. Brand Advertising is for larger or national operators and is impression based and CPM. Other services include: Deals, Partners, and Remnant Advertising.
The company competes with companies such as Angie's List, Citysearch and Google places. Angie's List (ANGI) is a good comp based on the size of the company (in revenue terms) as well as the fact that they just went public in Nov. 2011. ANGI priced at $13.00, opened day one at $18.00, closed day one at $16.26, and is currently about the same level at $16.12. The big difference between ANGI and YELP is that ANGI charges their users a subscription fee, where as YELP is free. Both receive a large portion to majority of their revenue from advertising. ANGI believes the paid subscription makes their user base more engaged. Regardless if this claim is true or not, both have shown that as their markets age: reviews increase, revenues increase, and profits follow. Both companies are losing money at this stage, but that is primarily due to their increased expenses from expanding into new markets.
Revenue has grown from $12.1 million in 2008 to $83.3 million in 2011 (the 2011 revenue was up 74% year over year). Adjusted EBITDA for 2011 was negative $1.1 million. However, the company said that this included an investment of approximately $7 million in 14 new markets which brought no revenue in 2011, and without this investment their adjusted EBITDA for the year would have been positive. The investment in additional markets is expected to continue, however, with approximately $15 million expected for international growth in 2012.
While the IPO of Facebook looms in the background, there has been much public debate about valuations of social media companies and whether we are experiencing a dot com bubble part two. A number of high profile social media companies that have gone public in the last year, including LinkedIn (LNKD), Groupon (GRPN), Angie's List , and Zynga (ZNGA), were met with heavy demand in their IPO debuts. Though there has been a great deal of volatility in these names, all of these companies are currently trading above their IPO prices, with the exception of Groupon which is currently just below their IPO price of $20. While it may be hard to argue in favor of these social media stocks from a valuation perspective, it is not hard to argue against there rapid growth as well as their disruptive nature within their particular segments. Which brings us back to the stock in question, Yelp, and is it worth over 15x trailing sales (based on the $22 opening price this am)? Time will tell, but one thing looks pretty certain and that is Yelp made those investors that got shares at the IPO price very happy this morning.