March 02, 2012, 12:38 PM — If Yelp's initial public offering were a local business, it would get a good review.
The eight-year-old website that allows regular people to post reviews of local businesses as a guide/warning to other consumers was greeted warmly by Wall Street Friday in its first day of trading.
Shares of Yelp (NASDAQ: YELP) soared as high as $26, or 73% above the offer price of $15 a share announced Thursday.
Yelp raised $107 million in the sale of 7.15 million shares. At the $15 offer price, Yelp would have a market capitalization of $899 million. It should be considerably higher by the end of trading Friday, barring a late-day collapse.
The company filed to go public in November. Two weeks ago it indicated pricing for IPO shares would be between $12 and $14, but pricing above the previously estimated share-price range is an old underwriter trick to both imply and stoke demand. (The lead underwriter in this case is Goldman Sachs.)
If the recent history of social networking-related IPOs is any indication, the buyers who eagerly snapped up shares of Yelp at the top price of $26 Friday soon will come to regret their impulsiveness. Here are some of the major social media IPOs over the past year, with the percent change from the first-day high price to Thursday's closing price:
LinkedIn (May 19, 2011): -29%
Pandora Media (June 15, 2011): -48%
Groupon (November 4, 2011): -37%
Angie's List (November 17, 2011): -14%
Zynga (December 16, 2011): 26%
Not an enviable track record. Social games maker Zynga (NASDAQ: ZNGA) is the only company listed above that is trading above its first-day high. And that's just a recent development: Heading into February, Zynga shares still were below the first-day high price of 11.50, but the stock got a boost last month from Facebook's IPO, pushing shares to 14.48 through Thursday.
Given that Yelp is losing money -- it posted a net loss in 2011 of $16.7 million, up from a loss of $9.6 million in 2010 -- it's hard to see what will keep its share price aloft once the excitement of the IPO subsides.