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Updated from 9:39 a.m. EST to include opening price.
NEW YORK (
Yelp(YELP - Get Report) may get a short term pop after it opens for trading, but longer-term,investors may want to stay away, as the company is still unprofitable eight years after it was founded.
Yelp, which compiles reviews for local businesses, has seen its revenue grow sharply, from $25.8 million in 2009 to $83.3 million in 2011, an increase of nearly 300%. Losses, however, have continued to grow.
According to its
S-1 filing, Yelp's losses increased faster than revenue grew. Yelp lost $2.34 million in 2009, but it lost $16.9 million in 2011. The company has not turned a profit in the eight years since it was founded, which can be troublesome to investors in an uncertain market.
Yelp is highly dependent on
Google(GOOG - Get Report) for a "significant source of traffic," and that relationship may break down, should Google decide to promote its own property Zagat, instead of Yelp. In the S-1 filing, Yelp noted that Google accounted for more than half of the visits to its website in the 2011 fiscal year. "Our success depends on our ability to maintain a prominent presence in search results for queries regarding local businesses on Google," the filing said.
"Although I expect to see a pop at the open due to demand (Yelp was twenty times-oversubscribed), losses will likely continue to grow or come down marginally, and I don't see it as being a profitable entity. There's already much competition in their arena, and they need to seriously worry about Google," said Scott Sweet, senior managing partner of IPOboutique.com.
Google has already removed links to Yelp's website, according to the filing to promote its own products, and there is no reason to think that this will not happen in the future. Google tried to
purchase Yelp for close to $500 million in 2009, as did
Yahoo!(YHOO - Get Report).
Yelp, like other Internet companies such as
Facebook, has not figured out how to
monetize mobile just yet.
Several analysts have said that the mobile advertising space is still a few years away from advertisers really making a significant push into this market. Yelp said it has not "materially monetized our mobile app to date," and may not do so in the future if Google, Facebook, and others can't figure it out.