The rumors surrounding online review service Yelp going public have been circulating for a couple of years now. Well, the San Francisco-based company finally decided to put an end to all the speculation because it recently filed its IPO papers with the SEC in an effort to raise $100 million. According to reports, it is hoping to start the year of 2012 off as a publicly traded company.
In this article, we will examine the Yelp IPO and its potential impact on the businesses that use it.
Failure to Profit
Founded in 2004, Yelp has become a valuable resource by providing reviews on restaurants, retail stores, bars and other venues. The service claims that it has more than 22 million reviews up to this point. Even with all its popularity, Yelp has struggled in the one area that truly counts for a business: profitability.
According to the numbers in the recent S-1 filing, it is steadily losing money. The filing shows that the company lost $9.6 million in 2010, and another $7.6 million during the first nine months of 2011. As of September 30, its total deficit stood at $32.1 million.
Despite the trouble it is having staying profitable, Yelp really does have a lot going for it. The company raised its net revenue to $47.7 million in 2010, which was a huge climb up from the $12.1 million it made in 2008. The upward trend continued in 2011 as it made $58.4 million in the first nine months of this year. Yelp makes most of its money from the businesses and brands that purchase advertising space on the platform. The filing documentation showed that $40,325 of its revenue in 2011 came from local businesses, while brands contributed $12,653. Aside from the general user base, these are obviously the entities it must appease with its IPO initiatives.
Increasing the Value
Going public is a risky move for any company, but one that could ultimately work out for Yelp and the businesses that rely on it as a marketing platform. If the service can use its newly acquired funds to integrate new features that will help businesses generate more traffic to their stores, it might actually go over very well. And because Yelp also thrives on search engine traffic, it will also need to ensure that it can sustain the SEO value it currently offers to marketers.
The company admitted that this could be one of its biggest challenges with search giant Google showing more interest in the local review game.
Yelp has established itself as a resource consumers can rely on to get the details needed to make informed decisions, and a tool that helps businesses increase their visibility. From the sounds of it, not even Yelp is sure that going public will solve its existing problems, but it is certainly determined to move forward and make the most of the situation.