Local recommendation site Yelp finally put rumors to rest as they filed their S-1 last month. Yelp did not divulge many details, but the proposed $100 million IPO is estimated to peg their valuation at $1.0 billion-$2.0 billion. Yelp’s IPO is expected in the market by the first quarter of the next year.
For the first nine months of the year, Yelp reported revenues of $58.4 million, compared with $32.5 million earned a year ago during the same period. Losses narrowed over the period to $7.6 million compared with $8.6 million a year ago.
Yelp claims to have more than 22 million reviews on their site contributed by an average of 61 million monthly unique visitors. Yelp’s mobile base is also growing; the company reported that 5 million users were accessing the site through their mobile app. The service now covers 529,000 locations across their sites, reporting growth of 114% over 2010.
Yelp’s Market Expansion
To expand their market reach, Yelp has been focusing on international growth. During the previous quarter, they strengthened presence in Europe with the addition of review sites in Belgium, Switzerland, and Italy. They also launched a local review site for Australia. With the addition of these countries, Yelp is now available in 12 countries apart from the U.S.
In addition, Yelp is focusing on increasing their mobile usage. Recently, they tied up with T-Mobile to be available as a pre-loaded app on select Samsung phones, including the Exhibit II 4G and myTouch. Existing T-Mobile customers can also download the app free for their Android devices. Yelp added a saved search feature to the app functionality to help users save search filter settings. Yelp also updated their BlackBerry app to Yelp for BlackBerry 2.0, which lets users log into their accounts, draft reviews, add tips, manage photos, and check in to places.
Yelp has been worried about their dependence on Google, from which they currently get more than half of their traffic. But Google now has offerings like Places and Hotpot that compete with Yelp. Also, Google recently purchased restaurant and nightlife review empire Zagat, one of Yelp’s big competitors. Yelp is rightly concerned that if Google were to change its search algorithm, their traffic may suffer.
Analysts believe that Yelp’s troubles may be more than just getting more traffic. Yelp needs to define a business model beyond free reviews and advertising. As Dave Scott, the CEO and founder of Marketfish, rightly puts it, Yelp needs to convey to the market that they will be able to provide a value-added proposition. Sites like Facebook are now able to offer customized recommendations based on data collected on a user’s and that user’s friends’ profiles and histories. Yelp currently does not offer recommendations and may soon lag behind Facebook and Google+, which offer such customizing capabilities. Also, by offering free reviews, Yelp makes itself susceptible to fake bad reviews, which are sometimes published by competing business.
In late 2009, Yelp rejected Google’s $500 million buy-out offer. Within two years, their market valuation is estimated to have quadrupled to nearly $2.0 billion. But I believe that the higher valuation is more a result of increased market hype than of an improved business model. With current revenue run rates of close to $75 million, the company’s valuation multiple of more than 25 does seem unbelievable.