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.

Related reading:

0Comments

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

116
116 rated 1
284
284 rated 2
461
461 rated 3
671
671 rated 4
628
628 rated 5
618
618 rated 6
615
615 rated 7
495
495 rated 8
347
347 rated 9
115
115 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
DYNDYNEGY Inc10
TAT&T Inc9
VZVERIZON COMMUNICATIONS9
EXCEXELON CORPORATION8
AAPLAPPLE Inc10
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.