Yelp files for $100M IPO, aiming to prove doubters wrong

The local-reviews site reaches for the five stars with a big initial offering to prove it was right to spurn suitors Google and Yahoo.

Regina Sinsky
Regina Hope Sinsky writes about startups. She studied journalism at the College of Charleston and spent several years in television writing and production. After moving to the Bay Area she decided all the best stories came from startups, so she jumped into tech writing. Regina specializes in interviews with interesting people doing nonobvious things with technology.
Regina Sinsky
3 min read

Yelp, the giant local-reviews network, filed today to raise as much as $100 million in an initial offering--one that, should it come off as planned, would allow the startup to boast it was right to spurn would-be suitors Google and Yahoo.

Yelp didn't disclose a target share price or a potential market cap valuation, which is par for the course in initial IPO filings. Fortune's Dan Primack notes that Yelp is reportedly seeking a valuation in the $1 billion to $2 billion range.

The IPO filing is a big, but long-expected move for Yelp, which was founded in July 2004 and has raised $56 million in venture funding to date. As of September 30, Yelp said it has roughly 61 million unique visitors every month and more than 22 million reviews.

In the nine months ended September 30, Yelp said it posted a net loss of $7.6 million on revenue of $58.4 million. That represents 80 percent revenue growth and a narrowing of the $8.6 million net loss in the year-earlier period.

While the company has grown quickly, it has long faced doubts about its ability to survive as a standalone firm, not least because of its prickly relationship with Google. Yelp has repeatedly accused Google of "scraping" its business listings and reviews of restaurants, bars, and retailers without agreement or compensation for use in its own Google Local service.

In 2010 Yelp reportedly received buyout offers from both Google and Yahoo, each in the range of $500 million. Instead, the company said "no thanks." Yelp later received $25 million from Elevation Partners, and ever since has moved deliberately toward a public offering.

Google, meanwhile, acquired Yelp rival Zagat in September for $151 million, a deal that gave it access to reviews in more than 100 cities. Yelp, by contrast, reports in its filing that it is active in 43 U.S. markets and 23 additional cities internationally.

Financially, one of Yelp's greatest vulnerabilities may be its ballooning advertising and marketing budget, which jumped 55 percent to $38.5 million in the nine months ended September 30 compared to a year earlier. The good news is that Yelp's promotional spending is no longer growing as fast or faster than revenue; such spending nearly doubled in 2009 and 2010.

Still, Yelp needs to spend large amounts on marketing to keep itself relevant and connected to the reviewing communities it has grown. For instance, reviewers in the company's Yelp Elite group--i.e., those with the most reviews, friends, and influence--have become accustomed to parties thrown by Yelp to keep them from listing their reviews elsewhere.

Yelp has also weathered a potentially serious class action suit filed in February 2010 by a group of angry business owners, who claimed that Yelp was conducting an "extortion scheme" by asking businesses to pay for the removal of negative reviews. A judge dismissed the case last month.

Yelp hired Rob Krolik as CFO in July, the first public act that suggested it was headed for an IPO. While CEO Jeremy Stoppelman said on many occasions that a public offering was critical to his company's future decisions, he has also said that he wasn't in any hurry to take the company public.

Krolik has been notoriously shy about talking to the press, which Yelp explains as necessary to get the executive up and running in his new role. Now it looks more likely that Krolik hit the ground running, straight for an IPO.

Before Yelp, Krolik was CFO for Move, an online real estate company that includes Move.com and Realtor.com. There he assisted with a capital restructuring. Before Move, Krolik was vice president and CFO at Shopping.com, a company he helped take public before it was acquired by eBay in September 2005. Krolik stayed on at eBay as vice president for global finance operations at eBay's marketplaces division.

Update, 2:18 p.m. PT: Story has been rewritten throughout with new details and background.

CNET assistant managing editor David Hamilton contributed to this story.