Yelp.com had a very successful IPO last week with shares jumping 64% in the first day of trading last Friday – http://usat.ly/zrYhvu. The offering valued Yelp at $900 million. Yelp.com with 66 million monthly users had 2011 revenue of $83.3 million and also had a net loss of $16.7 million for the year. I was impressed that there were 25 million reviews. It was also interesting to me to read that 38% of the reviews on Yelp were five stars, the highest rating possible and just 11% were one star reviews. Who knew the culinary state in the U.S. was so high?
Zynga, which had its own IPO this past December 15th, has seen its share price climb more than 40% since the offering price of $10/share and on March 1st http://bit.ly/wM5A7n announced a new platform that it is counting on bringing new revenues and profits.
I have not yet invested in Yelp or Zynga and am not likely to. While the potential scope of both companies is impressive, Zynga’s foundation is built within Facebook and it remains to be seen if the company can truly ‘go it alone’. Add to that the fact that people will eventually tire of social media gaming, just as MMO (massive multiplayer online game) star World of Warcraft began its slow fade last year.
Yelp is different but still has an imperfect revenue model and kept advertisements and reviews separate. Noble as that is, I wonder how long the equity markets will remain patient now that Yelp has become a publicly traded company. Wall Street investors are hardly known for their patience. Zynga shareholders should be mindful of that same caution.
I don’t play games on Zynga but at least tried it once to see what the buzz was about. I can understand how those games can become addicting which is exactly why I don’t play. I’ve used Yelp – more in other cities than locally, and while the reviews are mildly useful, I primarily pay attention to the location of the restaurants near my location first, then I look at reviews only for general guidance.
How long do you think the Zynga and Yelp furor will last? Do you think they have staying power and if so, why?