User review start-up Yelp valued at $US1.3 billion in IPO

Tech start-up Yelp saw its shares surge as much as 60% on its public listing debut on the Nasdaq stock exchange, valuing it at $US1.3 billion, despite the business failing to turn a profit to date.

Founded by Jeremy Stoppelman in 2004 and based in San Francisco, Yelp is a social networking, user review and local search website.

Last Friday, Yelp listed on the Nasdaq stock exchange in the US, opening its shares at $US22 each. Soon after, its shares rose 60% before closing at $US24.52.

The company offered 7.15 million shares in the hope of raising just over $US100 million and is now valued at $US1.3 billion.

Yelp’s debut was more successful than most other tech companies over the past year, including Groupon, indicating investors are viewing these companies individually rather than as a whole.

But, like many other tech companies, Yelp has yet to turn a profit. It recorded a $US17 million loss last year, up from $US9.5 million in 2010.

However, Yelp has thousands of potential advertisers – it’s already helped many small businesses do deals and discounts.

Virtually any company that’s represented could potentially crack a deal.

The company’s potential to earn revenue from some sort of future activity with these businesses is strong, over and above its existing advertising programs.

With a clear shift towards consumer research websites, sites that provide quality information in a user-friendly format are valued at a premium.

According to Telsyte research director Foad Fadaghi, Yelp has been clever enough to base its model on this.

“That kind of assistance is valued overall higher than a service you’d get in a streaming music company, which is competing a low-margin area,” Fadaghi says.

Yelp was one of three projects to come out of San Francisco-based incubator MRL Ventures.

The project arose out of research into the local services market by David Galbraith, who worked with Stoppelman on the early stages of the project.

Stoppelman and Russel Simmons – both of whom worked as software engineers at PayPal – spun the service off as a separate company.

After an aborted start as an email recommendation service, Yelp launched its namesake website into the San Francisco market in October 2004.

The company received $6 million in early funding from venture capital firms Mission Street and Bessemer Venture Partners.

Additional investments were made by Benchmark Capital, DAG Ventures and a private investor, who invested a collective total of $11 million.

Yelp opened an office in New York in the first half of 2007 and introduced a Canadian version of the site in 2008.

It now has international sites in Spain, France, Germany, Austria, the United Kingdom, the Netherlands and Australia. The site currently has more than 61 million monthly unique visitors.

In late 2009, TechCrunch reported Yelp was in advanced negotiations with Google to buy the company for more than $500 million, but later reported Yelp had rejected Google’s offer.