Yelp files for $100 million IPO despite no profit

US-based local reviews website Yelp has filed for a $100 million IPO, with reports suggesting a valuation of up to $2 billion, seven years after it was founded by two former PayPal employees.


Yelp was founded in 2004 by Jeremy Stoppelman and Russell Simmons, both of whom were early software engineering employees at PayPal.


Based in San Francisco, Yelp is a social networking, user review and local search website. In the third quarter of 2011, it drew an average of approximately 61 million monthly unique visitors.


By the end of the third quarter, “Yelpers” had written more than 22 million local reviews on everything from boutiques and mechanics to restaurants and dentists.


In addition to the US, Yelp operates in Canada, the United Kingdom, Ireland, France, Germany, Austria, Spain, Italy, Switzerland, Belgium and the Netherlands.


It allows business owners to set up accounts to display messages and photos for customers. The site makes its money by selling advertisements to businesses, clearly labeled as “Yelp Ads”.


The Yelp platform can also be accessed via the iPhone, Android and BlackBerry. On average, more than five million monthly unique visitors relied on Yelp Mobile apps in the third quarter.


In late 2009, Yelp reportedly turned down a buyout offer from Google, which would have been worth more than $500 million.


Now the company has filed for a $100 million IPO. While there is no price per share or valuation designated on the form, reports suggest the desired valuation is $1-2 billion.


Yelp’s filing reveals Google – which is developing its own Yelp-like offerings – is a key traffic source, putting Yelp in a precarious position.


“[Google] has promoted its own competing products, including Google’s local products, in its search results,” Yelp wrote in its filing.


“Given the large volume of traffic to our website and the importance of the placement and display of results of a user’s search, similar actions in the future could have a… negative effect.”


The site generated $58.4 million net revenue in the first nine months of 2011; 80% growth over the same period in 2010. However, it operated at a net loss of $7.6 million.


While revenue soared from $12.1 million in 2008 to $47.7 million in 2010, the site is still not profitable.


Yelp has raised $56 million in funding from PayPal co-founder Max Levchin, Bessemer Venture Partners, Benchmark Capital, DAV Ventures and Elevation Partners.


The IPO will be underwritten by Goldman Sachs, Citigroup and Jefferies, but the company has not yet selected an exchange on which to trade.


It is using multiple classes of shares, as has become common among internet companies such as LinkedIn and Groupon.


Earlier this month, Groupon shares rose 31% in its debut despite criticism of unorthodox accounting measures that led to several downward revisions of its financials.


The IPO raised $700 million for Groupon’s corporate coffers, making it the second biggest tech IPO in history, behind the $1.7 billion Google raised in 2004.


Meanwhile, LinkedIn shares more than doubled in its May IPO, and the stock is still trading well above its IPO price.


However, the company turned only slight profits in 2006 and 2010, and has otherwise been in the red every year since its 2003 inception.


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