Yelp Opens At $22, Which Is Shockingly High

Jeremy Stoppelman

Photo: Jeremy Stoppleman’s blog

Yelp just opened $22 and its moving higher. It was priced at $15.

The valuation is now 20X revenue. 

That is very high, says BII analyst Alex Cocotas.

Alex is sceptical about the company, which he says has no clear path to profitability.

From a report you should read:

Yelp’s operating losses have barely narrowed in the past year. Given their eye-popping revenue growth, it is worrisome that operating losses still stand at 19 per cent of revenue. Why? Largely as a result of its sales and 

marketing expense, which ate up 65 per cent of its revenues last year (see chart outlining revenue and expense growth to the right).

As part of its expansionary growth strategy, Yelp is clearly investing heavily in its sales effort. And so sales and marketing will continue to drag on the company’s bottom line as it invests in the top line.  It is not clear, however, whether they will be able to cut this expense without sacrificing their revenues.  Inother words, there is not a clear path to sustainable profitability (see chart below outlining quarterly revenues and operating losses).

Yelp Revenues vs. Losses

Finally, and most worrisome, it does not appear that Yelp’s core business of local advertising has been consistently growing in line with its huge increase in local advertising accounts.Quarterly local advertising revenue per active local business account has fluctuated wildly and appears to actually be trending downward over time (see chart below with red trend line).  

In other words, Yelp is making less money per advertiser in the most recent quarter that it was in the first quarter of 2010. While some of this is surely attributable to the growth in accounts, it is nonetheless a little worrisome as it may indicate that advertisers are not satisfied with their return on investment. The dollar drop is not devastating in absolute terms, but it is a foreboding trend as Yelp attempts to scale revenues and achieve a sustainable profitability.

Click here for updates. 

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