What happened to Yelp?

The online reviews site had a great first day of trading, but things have gone downhill since then.

By Kim Peterson Mar 6, 2012 3:25PM
Image: Businessman reading newspaper © A. Chederros/ONOKY/Getty ImagesYelp (YELP) took off like a rocket in its initial public offering last week, soaring more than 60% from the $15 offering price in the first day of trading.

The investor reaction put some wind back in the sails for tech IPOs. Forbes wondered if the IPO was priced too low; perhaps $20 to $22 would have been more appropriate.

But since then, shares of Yelp have fallen back to Earth. The stock has dropped 17% from its first-day close to around $20.27. If the IPO had been priced at the level Forbes suggested, the stock would be considered a stinker. Now, it's just a disappointment.

It's certainly common for stocks to fall after the first-day IPO euphoria. But a number of tech stocks have crashed post-IPO, leading to doubts that investors will ever see the dot-com renaissance they so desperately crave.

Zynga (ZNGA) is the poster child for an IPO crash-and-burn. The online gaming stock was priced at a mere $10 when it debuted on Dec. 15, but it fell below that amount for more than a month. Zynga lost nearly 3% Tuesday to trade at $13.56.

Pandora (P) priced its June IPO at $16 and headed to $20 within weeks. But as fall approached, the stock plummeted to $10. The online radio company was trading down 3% to $14.18 Tuesday.

LinkedIn (LNKD) was one of the legitimate success stories of last year, but even its shares have slumped. The stock debuted at $45 and more than doubled in the first day to close at $94.25. It was legitimately underpriced. Shares headed to $110 in July, but since then have tumbled more than 20% to trade Tuesday at $85.44.

Groupon (GRPN) jumped 50% from its $20 IPO price on its first day of trading. A nice gain, but shares soon fell below the opening price and still haven't recovered. Shares were trading Tuesday up 1% to $18.31.

Finally, let's take a look at Angie's List (ANGI), which is the closest competitor to Yelp of the bunch. Angie's List priced its November IPO at $13 and closed at $16.26 the first day. It's been a rough go ever since, and Tuesday the stock plummeted 6% to $14.69.

Which brings us back to Yelp, an 8-year-old company that has been swimming in red ink from the beginning. Yelp had its share of critics heading into the IPO. Our own Jonathan Berr noted that the company's costs will certainly grow at a faster rate than revenue in the future. Business Insider's Henry Blodget observed that at $20, Yelp was trading for nearly 20 times trailing revenue. Other digital media companies trade in a range of three times to eight times revenue.

It's going to take a while for Yelp to return to investors' good graces. The company might even have to show a profit first.

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