Yelp IPO: four reviews, 2 stars out of 5

February 29, 2012

By Robert Cyran
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Here are four ways to think about Yelp’s initial public offering, which set a price range earlier this month of $12 to $14 a share. At the top end of the range, the company would have a market value of nearly $850 million. All told, using the online review site’s own methodology, the stock sale merits just two stars out of five.

Two stars – If you can’t get into Facebook, there should be room at Yelp. Same Silicon Valley vibe. Sure, it’s down-market by comparison. And it’s just crazy expensive – nine times revenue. It’ll probably get cheaper and fewer people will want to go there once Facebook opens up. – C. Wisdom

Three-and-a-half stars – This is an awesome LOCAL place with tons of regulars (66 million). And everybody loves tasty 75 percent revenue growth. Sure, it’s smallish at less than $1 billion, and with three underwriters, the fee portions will be smaller. But the mobile phone app is pretty rad, too. Go now and catch a quick pop with potential for even bigger gains in the future. You never know, it might even help you get into Facebook. -SV Banker

Two stars – Offerings kinda “meh.” The amateurs writing for Yelp are working for free, and most of the time you get what you pay for. Occasional surprise works of genius, but too many of the reviews are useless. Can’t compare to the curated, and consistent, pros at Google’s Zagat. -Hungry guy

One star – Avoid! Yelp has been around for years, and always overpromises and under-delivers. The signature item for 2011 – the $83 million red-ink cocktail – is just gross. Like seriously sickening. It’s even worse than last year. And get this: Yelp has a VIP section reserved just for the founder, employees and other existing owners, so newcomers can’t change anything about the place. Google offers almost EXACTLY the same menu (except its black ink is much more appealing) and for a much lower multiple of revenue. Plus, when doing a search, it’s much easier to find what’s on offer. Hard to believe Yelp’s value will be sustainable. -B. Line

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