By David Urani
Lately I've enjoyed doing a bit of market cap analysis on some of the recent internet IPOs. Obviously these are getting a lot of hype, and with Facebook ready to enter the mix this year the new money crowd is getting antsy. Enter today's IPO of Yelp (YELP) which after being initially priced at $898.1 million, is trading up more than 60% in its market debut to give it a market cap of approximately $1.5 billion. Looking into its numbers though, it becomes a little hard to justify. Here are 3 key metrics for Yelp from 2011:
- Revenue $83.3 million
- Revenue growth 74%
- Net loss $16.7 million
Okay, the 74% revenue growth is the highlight here but for a "hot" internet stock, we've seen better. Recent IPOs like Zynga (ZNGA) and Groupon (GRPN) posted revenue growth of 91% and 519%, respectively, and those companies enjoy much higher revenue on an absolute dollar basis as well. Not only that, but Yelp has already been around for 8 years and the company even said itself that revenue growth will slow as the business matures.
And, in those 8 years that Yelp has been around the fact it is still running at a loss worth 20% of its revenue is not necessarily encouraging. In fact, its loss increased to $16.7 million in 2011 from $9.6 million in 2010.
Yelp's market cap of $1.5 billion puts it right around the same value of one of our favorite restaurant stocks, Buffalo Wild Wings (BWLD), the up and coming wing chain. BWLD doesn't quite show the same revenue growth as Yelp, with 28% versus Yelp's 74%, but with sales of $784.5 million it makes 9.4 times that of Yelp. If we do some back of the envelope analysis and assume just for fun that both companies maintain their current growth rates indefinitely, it will take Yelp 8 years to pass up Buffalo Wild Wings.
And remember, this isn't accounting for net income; as of now we don't know when, or if, Yelp will start turning profits. Yelp itself says it expects its costs to continue to increase. In the meantime Buffalo Wild Wings made $50.4 million last year, up from $38.4 million.
Sure, internet companies often deserve their growth premiums but after Friday's debut frenzy Yelp is looking too lofty if you ask me.
For comparison's sake, here are some comparisons of companies in the $1.5 billion market cap range: