Yelp is set to go public tomorrow, and while the San Francisco-based user-review website is hoping to raise about $100 million in its initial public offering, analysts are skeptical of the company’s outlook.
Yelp plans to sell 7.1 million shares at a price between $12 and $14, yet the seven-and-a-half-year-old company has yet to make a profit and, according to its SEC filing, posted a net loss last year of $16.7 million (up from $9.56 million in 2010). All of Yelp’s revenue last year was generated by advertising, both from “brand” ads and ads sold to local businesses — the latter making up the majority. Still, only a small fraction of businesses on Yelp choose to advertise — 24,000 of the approximately 20 million US businesses, or .12 percent.
Which raises the question: With the pressure on Yelp to attract investors and increase its revenue, will its sales tactics get more aggressive? According to Yelp’s SEC filing, the company relies “heavily on advertising spent by small and medium-sized local businesses.” Its growth strategy includes expanding in existing and new markets (including overseas), enhancing its mobile site and other platforms, and growing its sales force “in order to reach more businesses and increase the amount they spend on our advertising products.”
