Why and How Yelp Began and The Prediction of The End of Yelp……

Jumping Ahead to the predicted demise of Yelp

 Could A Truly Karmic Death Be on Yelp's Horizon?

Due to the inability for Yelp to have good working relationships with who it depends upon is truly a bad business plan. We all know Yelp has a tenuous relationship with who it needs most it’s target market,  business owners. Now Apple is not happy with it’s affiliation and how the Siri app is pairing with the review site. Recently there has been a buzz about the stocks soaring and Executives at Yelp selling off stocks. We explain further how all this will culminate in what we predict to be a web without Yelp in our future!

As far as the stock’s fundamentals, there are many areas of concern. The company has never been profitable, something that Zynga and Facebook were before their IPO. Its Price to Sales (14.95) and Price to Book (11.39) are much higher than the industry averages of .92 and 1.49. It is forgivable for a company in the growth stage of its maturation to have poor figures here, but the profitability and revenue numbers are cause for the greatest concern.

Even if the company continues with the 67% YOY increase in revenue that it reported in the second quarter of 2012, and finds a way to boost net income from negative to margins into the 5 -15% range, it will be years before the company offers returns consistent with its current market capitalization. With optimistic analysts putting the earnings per share in 2013 at anywhere between $.05 and $.08 it seems unlikely that Yelp will achieve significant profitability anytime in the near future.

Further causes for concern about Yelp’s future profitability are the flaws in its business model. The company suffers from the same problem that other major Internet companies do in that they offer their service for free. Yelp has indicated that they are monetizing by running advertisements and by getting merchants to pay for benefits in the reviews display. The problem with this is that its mobile app is currently not profitable and they face the same problems that Facebook does in monetizing the app space with miniature banner ads. Some say that Yelp is better positioned for ad revenue because people visit the site with the intention of spending money on something. However, Yelp is not capitalizing on this advantage because only 4% of the merchants are paying for any services according to the New York Times.

Additionally, Yelp faces the problem that merchants with bad reviews are not inclined to pay Yelp for anything because they resent them. Merchants with good reviews also do not feel the need to pay Yelp because they already receive an increase in traffic as free riders on the service. To make matters worse, many merchants are disenchanted with Yelp because they think that they either hide positive rankings until payment is procured, do too little to eradicate low rating trolls, or generally use predatory tactics to try and bring additional customers on board. A company so at odds with its customers is not one that is poised to experience the varied year growth that Yelp needs to see in order to live up to its current market capitalization.

Short Yelp because of the facade of insider confidence, artificial short term stock price rise caused by covering shorts, unachievable growth requirements, and flawed business model.

Below is more data showing financial data tied to Yelp

$58.4 million: Revenue for the nine-month period ended Sept. 3o, up 79% from a year ago. That’s slightly less than the $63 million Angie’s List reported for the period. At that growth rate, Yelp’s revenue for 2011 would be roughly $86 million. Local advertising represents 69% of this year’s revenue, with brand ads taking 22% and “other services”–we’re talking Yelp Deals and various partnerships–grabbing 9%.

$7.6 million: The loss for the nine months, which is slightly narrower from the $8.6 million loss in the year-ago period. Yelp’s adjusted Ebitda loss sat at $1.1 million.

$37 million: The amount of money cashed out by six founders and executives in February 2010 when private equity firm Elevation Partners bought shares in addition to funding the company with $25 million. Paypal alum and Yelp seed funder Max Levchin and CEO/founder Jeremey Stoppelman sold the most stock, each reaping $15 million in the deal. When that deal was announced, Elevation said it would buy as much as $75 million worth of stock. We guess there weren’t enough takers.

$55 million: Funding raised from venture capital firms Bessemer Venture Partners, Benchmark Capital, DAG Ventures and Elevation Partners from 2005 to 2010 over five rounds.

22.5%: Bessemer’s stake in Yelp as the largest shareholder, and its first, investing in 2005. Elevation is right behind with a 22.4% stake, while Benchmark owns 16.2%. DAG isn’t listed in the filing as owning at least 5%. Interestingly, Levchin owns a larger stake (13.8%) than Stoppelman (11.1%).

$15 million: The amount Yelp expects to spend on sales and marketing internationally in 2012, mostly to hire sales staff.

These guys started Yelp after another joint venture created and sold, Pay Pal.. Look for part 2 where a detailed history of how Yelp started.

Insider	Position	Date	Trades	Shares	Trade Price ($)	Change (%)
Donaker Geoffrey L	COO	2012-10-10	Sell	35,000	$25.84	-26.51
Stoppelman Jeremy	CEO, 10% Owner	2012-10-02	Sell	10,365	$27.82	-31.74
Donaker Geoffrey L	COO	2012-09-10	Sell	35,000	$24.95	-23.89
KROLIK ROBERT J	CFO	2012-09-04	Sell	1,000	$21.99	-13.64
IRVINE DIANE M	Director	2012-06-06	Buy	4,000	$15.73	20.72