Yelp stock jumps in early trading, but is it a sure thing?

March 2, 2012

The online urban guide Yelp surprised market-watchers Friday morning by breaking out in its first day of public trading and jumping nearly 60 percent to a high of $26 per share around 10 a.m. The company had priced shares at $15 on Thursday night. As of 11 a.m., the company was trading at $24.49 per share.

The company has yet to turn a profit, but that didn’t seem to faze investors who have cooled on other recently public tech stocks such as Groupon and Zynga. Yelp, founded in 2004, was valued at $900 million ahead of its debut.

But Yelp is facing a lot of hurdles. The company’s filing for its initial public offering revealed that its prime competitor — that’d be Google — drives a great deal of its traffic. Yelp reportedly declined a $500 million acquisition offer from Google in 2009 and the rivalry between the two has only gotten fiercer since the Web giant acquired the restaurant review company, Zagat.

There’s also the question of the service itself. Yelp is built on content that relies on the wisdom of crowds, and some listings are questionable. It’s not just business owners (or their friends) propping up their reviews — Yelp says it has measures in place to catch that sort of thing. But if someone writes a review of a local business and, for example, clicks the wrong classification section, it can be difficult to correct the record.

Yelp acknowledged its accuracy problems in its IPO filing, saying that it had filtered about 5 million reviews and removed about 1.8 million to try to keep its site relevant and useful.

Another crowd-sourced review site, Angie’s List, has seen moderate success on the stock market since its IPO in August, but it has made a point of talking about its vetting process and requires a membership.

Related stories:

Facebook files for IPO, plans to raise $5 billion with stock sale

Facebook IPO: A look at what we learned from the filings

Zynga IPO: Shares dip, stabilize in morning trading

Hayley Tsukayama covers consumer technology for The Washington Post.
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