Yelp files for $100 million IPO, but still not profitable

Yelp has finally filed for its initial public offering in the United States, with the online review site company hoping to raise $US100 million in the latest move by an unprofitable tech company to cash in on heightened appetite for the industry’s stocks.

The move comes on the same day as another type of review site, Angie’s List, posed a 40% increase in maiden trade. The Yelp filing also comes after group buying giant Groupon, social network LinkedIn and music service Pandora all listed this year.

Although Yelp has not listed its proposed valuation, reports indicate the company is looking at anywhere between $US1-2 billion.

Although Yelp’s financials show revenue of $58.4 million for the first nine months of the year, representing 80% growth from the previous corresponding period, it had a loss of $US7.6 million. Revenue grew from $US12.1 million in 2008 to $US47.7 million in 2010.

That loss, however, is down from $US8.4 million in 2010 and $US9.5 million in 2009.

The company is built on providing reviews for third-party locations such as restaurants and small businesses. Although it is totally dependent on third-party service providers – as explicitly spelt out in the filing documents – its strengths lie in numbers.

The site had 22 million reviews in September, up by 66% from the previous year, and it recorded 61 million unique visitors in the third quarter. The company argues that as online reviews gain more credibility its popularity will be sustained – along with more room for advertising.

The bulk of the company’s cash comes from advertising – $40.3 million in the first nine months of 2010. It also gains money from providing deals through its mobile apps, and through brand advertising as well.

The business also plans to expand by opening advertising in international markets in 2012.

Director Fred Anderson, a co-founder of Elevation Partners and former Apple chief financial officer, is the largest individual shareholder, with 46 million shares, and a 22% holding.

After him, director Peter Fenton, Benchmark Capital general partner, holds a 16.2% share, while former PayPal chief technology officer Max Levchin owns 13.8%.

Co-founder and chief executive Jeremy Stoppelman owns 11.1% of the company, with 23 million shares.

And despite the company’s potential for growth, it has listed a number of key risks, including the fact it may lose business advertisers, the company’s reliance on third parties, and its key reliance on advertising.

“We recognise revenue from sales of our advertising products over the terms of the applicable agreements, which are generally three, six or 12 months. As a result, a significant portion of the revenue we report in each quarter is generated from agreements entered into during previous quarters.”

“Consequently, a decline in new or renewed agreements in any one quarter may not significantly impact our revenue in that quarter but will negatively affect our revenue in future quarters.”

The IPO is set to be underwritten by Goldman Sachs, Jefferies and Citigroup, along with Allen & Company and Oppenheimer & Co.