On Thursday, Yelp, the popular local business and restaurant review site, filed papers to raise as much as $100 million in a public stock offering expected to happen sometime next year. Commentators are buzzing about Yelp's plan to jump on the IPO bandwagon like so many social internet companies, and analyzing the financial information revealed in the SEC filing. Here, four takeaways:
1. Yelp relies heavily on Google — and that's a problem
The filing revealed that Google is a big traffic source for Yelp. That "puts Yelp in a precarious position," says Julianne Pepitone at CNN Money. Google has its own "Yelp-like offerings" in development, and Yelp CEO Jeremy Stoppelman testified before the Senate earlier this year, alleging that Google was giving its products preference in search results and violating antitrust laws. Watch out.
2. This company hasn't turned a profit yet
Yelp took in $58 million in the first nine months of 2011, much of it from advertising. That's up 80 percent from last year, but the company, which has never been profitable, was still $7.6 million in the red. It seems Yelp is just "the latest unprofitable internet company" looking to go public, says Douglas MacMillan at Bloomberg Businessweek.
3. And Yelp might never be profitable
It doesn't look good, says Jim Edwards at Business Insider. Yelp's marketing expenses are roughly equal to its revenue, and that's been a trend for years. Once you factor in other operating expenses, it's hard to see how the company will turn a profit. "Yelp's current business model is unsustainable." Groupon has similar issues, but at least the daily deals site brings in extra cash by selling deals. "Yelp is Groupon without the cash flow."
4. But investors still love unprofitable tech companies
"Investors are open to taking bets on companies that are generating losses, as seen with Angie's List and Groupon," investing guru Tom Taulli tells Bloomberg Businessweek. Angie's List, a "key rival," started trading Thursday, and it had a strong first day, with shares up 25 percent. That bodes well for Yelp's eventual IPO. Not long ago, these young, money-burning internet companies "would have never made it public," says Paul Sloan at CNET. These days, they're in demand.
THE WEEK'S AUDIOPHILE PODCASTS: LISTEN SMARTER
- Why Mitt Romney is perfectly poised for a comeback in 2016
- What would a U.S.-Russia war look like?
- Why is the West so afraid of Islam?
- 8 secrets to steal from power networkers
- Here's the schedule very successful people follow every day
- The Nazi smart bomb that inspired China's most dangerous weapon
- The best places to find love — and lust — according to science
- What if The Purge was real?
- How to make classic pulled pork
- Singapore's ruling party runs into trouble
Subscribe to the Week