Yelp Suffers Setback
In the midst of the mobile revolution transforming the face of computing, several Internet companies have gone public recently, with Yelp, Pandora, and LinkedIn leading the charge.
Last Friday, Yelp made its debut on the stock market with an initial share price of $15. However, the first trading day saw a 15% plummet in Yelp's share prices, trading at $21. This contrasts with Yelp's highest ever revenue of $83.3 million last year, although the company still reported a net loss of $16.9 million.
Similarly, Pandora Media, the Internet radio giant, has gained nearly 39% in the same time period but still trades at around 55% of its peak. The company, often characterised by Mashable.com as having 'never been in the black', seemed to base its opening price on the popularity of LinkedIn's IPO rather than its own profitability. LinkedIn has risen in value almost 17% over the past three months but is still trading approximately 30% lower than its highest point on opening day.
Like Yelp, both companies rely heavily on advertising for their revenue, with Yelp dependent on Google for a significant portion of its traffic. This could potentially create a conflict of interest, especially since Google recently purchased Zagat.
Online game developer Zynga, like Yelp, is also dependent upon Facebook for traffic. The valuation of these Internet companies has been difficult to determine with certainty, with Groupon's value ranging from $10 billion to $30 billion in the run-up to its IPO. Groupon's stock is currently 42% off of its highest trading price.
Investors might do better by skipping opening day for Internet-based companies and jumping in a day or two later, as there might be bargains. The Motley Fool recently compiled a research report titled '3 Hidden Winners of the iPhone, iPad, and Android Revolution'. The Motley Fool newsletter services have recommended buying shares of LinkedIn, and they have a disclosure policy. Fool contributor Amanda Alix owns no shares in the companies mentioned above.
Morgan Stanley advised Yelp prior to its IPO and may have been involved in this advisory role. The president of IPOdesktop.com predicted that many people who don't know valuation metrics would buy Yelp's stock on opening day. The mobile revolution is fully underway and changing the face of computing, and these companies are at the forefront of this exciting digital era.
