This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Why Yelp Is Smart to Send the Stock Lower

Stocks in this article: YELP Z LNKD

NEW YORK ( TheStreet) -- If you're a long-term investor in Yelp (YELP), you should be applauding the company's move to send the stock lower Tuesday.

As part of the company's earnings, Yelp announced it would be doing a secondary offering, raising about $250 million in Class A common stock to help shore up its balance. Its underwriters have the option to purchase an additional $37.5 million in shares. In a press release, Yelp said the proceeds would be for additional working capital and general corporate purposes as well as acquisitions.

Given the highly competitive nature of Silicon Valley, and the exceptional run-up in the company's share price, this was the logical outcome. In fact, it was something I suggested Yelp do just three weeks ago so the company could shore up its balance sheet as it looks to expand to new markets.

Initiatives like Yelp Platform, which was launched in July, overseas expansion (Yelp is now in 111 markets), and acquisitions aren't cheap. To boot, Yelp is not yet profitable, having lost cents 4 cents a share last quarter. Raising additional equity affords Yelp the opportunity to continue exploring new markets, and growing at an exceptionally fast rate while not having to worry about running out of cash.

As of the end of Sept. 30, Yelp had $101 million in cash and cash equivalents on its balance sheet, up from $96.8 million in cash and equivalents on its books as of June 30, 2013.

Other tech companies like Zillow (Z) and LinkedIn (LNKD) already have raised additional capital, allowing the companies to expand into new markets, make acquisitions, and cater to portfolio managers who are desperate for shares in these companies as growth trajectories continue to soar. I expect Yelp's secondary will receive exceptional demand as Zillow's and LinkedIn's did given the company's strong growth prospects.

The San Francisco-based online urban city guide reported a third-quarter loss of 4 cents a share on $61.2 million in revenue, up 68% year over year. Yelp said it expects fourth-quarter net revenue of between $66 million and $67 million, with adjusted EBITDA between $9 million and $10 million. The company also raised its 2013 revenue guidance. It now expects revenue between $228 million and $229 million, with adjusted EBITDA expected to be in the range of $28 million to $29 million.

It's a smart move by Yelp CEO Jeremy Stoppelman and his finance team to recognize the demand and fervor seen in the equity markets and to take advantage of that for long-term gain while sacrificing a little short-term pain. Shares were down around 8% in premarket trading on Wednesday. As an investor, this is the type of move you want company management to make if you believe in the company's long-term future.

Yelp shares might be screaming lower this morning, but the company's long-term future and its investors should be singing a happy tune.

-- Written by Chris Ciaccia in New York

>Contact by Email.

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,356.87 +288.00 1.69%
S&P 500 2,012.89 +40.15 2.04%
NASDAQ 4,644.3120 +96.4780 2.12%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs