Thanks to foodies, Yelp grew into an essential user-generated review platform, fueled by the critical taste buds of users’ peers. Seven years after its inception, Yelp filed for an initial public offering in November in a bid to sell $100 million in stock. On Thursday, the company revealed in a regulatory filing that it is seeking to sell 7.15 million shares at $12 to $14, thereby valuing the company at $788 million, or $838.6 million on a higher end.
Yelp’s stock will begin trading under the New York Stock Exchange, under the YELP ticker beginning March 2.
Despite its niche advertising model, Yelp has been criticized for its unsustainable business model, relying almost entirely on advertising. For instance, advertising accounted for 90.7 percent its revenue during the first nine months of 2011, but the company incurred an operating loss of $7.4 million on revenues in excess of $58.4 million. During the same nine months of 2010, the story was no different. With revenues of $32.5 million, Yelp incurred losses of $8.5 million for a total of $9.6 million that same year.
While its losses year after year have put doubt into the minds of potential investors, Yelp’s one saving grace has been its steady revenue growth, at a rate of close to 80 percent year-over-year. The critic’s mentality is not unfounded, as it’s fueled by the inconsolable fact that for a company repeatedly incurring losses, Yelp’s valuation appears to be wildly inflated in comparison to its listed competitors, Yahoo and Google. Yelp’s lower-end valuation of $788 million values the company at 9.3 times its 2011 revenue. Google, on the other hand, was valued 5.2 times its revenue with a market capitalization of $23 billion in 2004. Yahoo’s 1996 IPO had given the company a market valuation of $848 million, or 3.8 times its sales.
Still, Yelp’s valuation falls short of the $1 billion to $2 billion valuation that was reported in November.
Yelp, prior to its IPO, had raised a total of $56 million in venture capital and angel funding. Residing chairman and PayPal co-founder, Max Levchin, owns a 13.5 percent stake in Yelp, and was the company’s Series A investor. Jeremy Stoppleman, Yelp CEO and founder, currently holds 11.1 percent. Bessemer Venture partners own 22.1 percent, Elevation Partners own 22.4 percent, and Benchmark Capital own 16.2 percent.
The Yelp Foundation, Yelp’s eponymous charity, had received 520,000 of its shares and will sell 50,000 of the foundation’s shares.
According to the filing, at the helm of the offering will be Goldman Sachs Group as the bookrunning manager and underwriters for the offering. Citigroup Global Markets Inc. and Jeffries & Company, Inc. will act as joint bookrunning managers, while Allen & Company LLC and Oppenheimer & Co. Inc. will act as co-managers.
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