The 'Social IPO Frenzy' spreads as Yelp Inc. (NYSE:YELP) stages another coup with its much anticipated offering on March 2, 2012. After pricing above its targeted range of $12-$14/share to $15/sh, this popping "where-to-go-to-review" company surged 63.47% by day's end with a closing price of $24.58/sh.
Somewhat surprisingly, the company did little to boost the sector which had seen a correlative boost from Facebook's (NASDAQ:FB) pricing not too long ago. Quite often the hot IPO first day successes had helped lift the sector collectively as investor confidence rose in light of enduring demand for the peers. Yet by the day's end, Zynga (NASDAQ:ZNGA) had risen 1.45%, LinkedIn (LNKD) rose an irrelevant 0.57%, Groupon (NASDAQ:GRPN) fell 1.59%, and Angie's List (NASDAQ:ANGI) dropped a whopping 5.4%.
The anticipation of social IPO's continues to reign high in light of the raging popularity built into the frameworks of the companies' business models themselves. The democratization of the internet, and more specifically online internet trading, has opened the markets to the average Joe who can now participate with ease as a willing shareholder in the companies most familiar to him. Lowered barriers of entry in regards to cost, news dissemination, and accessibility have all had a significant role in the impact social media's public financing success.
It's no wonder that on their first trading days, social IPOs brought about a storm of bullishness. Social review peer Angie's List closed a respectable 25% higher than its pricing. Groupon closed 31% higher than its pricing. Zillow (NASDAQ:Z) had closed a whopping 79% above its pricing. Most shockingly of all, LinkedIn had closed 109% higher than its pricing with the start of the IPO craze. It had appeared as if the underwriters had lost all means of properly evaluating an appropriate worth for the company's they sponsored. Market pricing uncertainty had become a loose cannon that has echoed across the social sector as a whole.
When we come back to the fundamentals, it's clear that social media companies fail to impress apart from the perceived growth that lies in store. In its own S-1 Filing, Yelp showed its meager hand that has been seemingly ignored by the investing public. By September 2011, the company's nine months results for 2011 amounted to a meager $58.4 million in revenues amounting to a loss from operations of $7.4 million. This amount in loss of operations had only come down from an $8.5 million loss over the same amount of time in the prior year. Altogether, prior to its IPO, Yelp had $42.1 million in total assets as of September 2011, with $23.3 million of that amount sitting in cash and restricted cash. Coupled with the ongoing losses to be expected, the $96 million or so that Yelp raised after expenses on Friday looks to be well-received relief for sore eyes.
Nevertheless, Yelp now stands valued on the market around $1.3 billion. For the masses, I'm sure many would even consider the cost of this stock as cheap. After all, it only trades at a mere $24 and change right? For the democratized investing public, who can often seem unwilling to consider the concept of market capitalization, Yelp reigns as yet another success worthy of investment. And this is where things begin to just get scary for the sector as a whole. Departing from the fundamentals and investing on the basis of hype, the social media sector's rapid rise and ongoing popularity offers eerie echoes of a bubbly time set but a little over a decade prior. It's for this reason that I'm avoiding social media IPOs until things cool down and rational minds turn back into rational investors.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.