Yelp is set to start trading on the public markets on March 2, Dow Jones reports.
It plans to raise $100 million in its IPO, and it set a price range of $12-$14 for its shares, giving it a valuation of ~$800 million.
At that valuation, the company is still overpriced says BI Intelligence analyst Alex Cocotas. He told us, “local advertising is never going to drive them to that valuation–its just too expensive a proposition and I’ve seen very little evidence that it drives any meaningful return for local merchants. “
He says, “The first problem is that you need a huge sales force to make it work for relatively few dollars per advertiser (ie not much profit there),” adding, “The bigger issue for me with local advertising like Yelp is that why would you pay them money to do so when your customers are already doing it for you for free. If you’re already in the top 10 Thai places in new york or whatever, there’s no compelling reason for you to fork over money to them.”
Further, Google is a big threat. Yelp gets 75% of its traffic from Google, but Google just bought Zagat and is planning on emphasising its own local listings. Cocotas doesn’t think Google is going to change its algorithms to screw Yelp, like it did with Demand, but “it’s nonetheless a little worrying that the hand that feeds you is now competing with you.”
One last point: Everything is shifting to mobile, and Yelp doesn’t have a lot of options for making money in mobile. (No one does, right now, other than Apple.)