IPO mania: Angie's List soars and Yelp wants in

Business reviews site Angie's List has a strong debut on Wall Street, a good sign for Yelp.

Yelp Founder and CEO Jeremy Stoppelman

It might be coincidence, but somehow I doubt it.

Customer-review site Yelp filed to go public today --the same day that a key rival, Angie's List, started trading. And given how well Angie's List did, the folks over at Yelp must be pretty happy.

Shares of Angie's List, which serves up reviews of businesses to 1 million playing subscribers, jumped 25 percent in its first day of trading, closing at $16.26.

The company, which Angie Hicks began in 1995 and rates everything from plumbers to doctors, raised about $114 million and now brags a market value of more than $900 million. The New York Times company is valued at $1.6 billion.

A year or two ago, a company like Angie's List would have never made it public. Then again, neither would have any of the recent crop of Internet companies, including LinkedIn, Pandora, and the youngest and biggest money burner of them all, Groupon.

Groupon, which priced at $20 amid intense demand, saw its stock soar 31 percent to more than $26.11 on its first day of trading on November 4, becoming the biggest IPO since Google went public in 2004. It's now about 24 percent above its offering price.

Yelp, meantime, filed to raise $100 million. Founded in 2004 by PayPal alum Jeremy Stoppelman, Yelp has far more reviews than Angie's List, and all of its revenue comes from advertising--a model that's certainly fraught with risk.

But while both companies are losing money, Angie's List is losing more. In the first nine months of the year, Yelp lost $7.6 million on revenue of $58.4 million. Angie's List, by contrast, lost $43 million on revenues of $62.6 million. And like Yelp, it's spending heavily on marketing.

The biggest challenge for both, though, is that each has a swelling number of competitors--from Google, which just bought Zagat to amp up its local reviews, to Foursquare and a host of other location-based app businesses that are trying to help people decide on the fly where to shop or eat.

"The key is that these are very small revenue companies that have few barriers to entry and no patents," says Scott Sweet, a senior managing partner with IPO Boutique, which provides research to institutional investors. "And that is a very dangerous and combustible mix."

 

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