A few weeks ago, Facebook made headlines yet again when it filed for its IPO (Initial Public Offering). Last week though, Yelp, the popular site known for providing user-generated business reviews, also made waves in the media and blogosphere when it made a move to go public.
Expected to start trading on March 1st under the symbol YELP, the Wall Street Journal reports that Yelp "aims to sell 7.15 million shares at a price of $12 to $14 each. At the high end of the range, it would carry a market capitalization of $838.6 million."
The Numbers Behind the Company
Inc.com provides an excellent rundown of the fact and figures behind the online review website, and sheds some light at how Yelp is doing on the financial side. In terms of income Inc reports that the company's net revenue in 2011 was $83.3 million, up from $47.7 million in 2010. If you think those numbers are huge though, you should see their expenses. Yelp's financial statements indicate that they spent $99.5 million in 2011 (up from $57.2 million in 2010) mainly due to sales and marketing costs.
So did their huge expenses paid off? Not quite yet. According to Inc.com, "Since the company was founded, it has ‘incurred significant operating losses.' As of December 31, 2011, the company had an accumulated deficit of approximately $41.2 million" Additionally, Yelp's balance sheet indicates that "they're running out of working capital, going from reserves of $29 million in 2010, to $19 in 2011."
In terms of site visitors, Yelp saw 66 million unique monthly visitors for the quarter that ended in December 31, 2011, an increase of 67% from the year before. Moreover, around 606,000 businesses claimed their place on the site last year, up from 97% in 2010.
It's Still a Social Network
Given the numbers above, can Yelp overcome the various risks and financial pitfalls to be a successful company? Well, the answer to that depends heavily on consumers and business owners.
A lot of people see Yelp as just a review site where people can express their opinions about businesses. However, the site is so much more than that. The truth is, Yelp can be considered as a social network in its own right. It is a place where members (comprised of customers and business owners alike) can set up their profiles, communicate with each other, and post photos.
Yelp serves as an online community for both consumers and entrepreneurs, and it is for this very reason that business owners shouldn't neglect their reputation on the site. Having a lot of 5-star comments can bring you a lot of customers, while a few 1-star reviews can ruin your image.
To ensure that you stay on the good side of Yelpers, the first thing you should do is to obviously treat them right. Whether you're the owner of a restaurant, a massage place, or an SEO company, superb customer service will definitely get you on the map.
Also exert effort to make your place of business and merchandise look presentable. Yelpers love to take photos together with their reviews, so make sure that you give their cameras great images to capture. For example, if you're a restaurant owner, this means making your dishes look yummy and presentable.
You should also consider offering exclusive promos to members, to encourage users to check out your business. Why not offer special discounts to people that leave positive reviews or check-in using Yelp?
When it comes to advertising on the site, our advice is to save your money and use your advertising budget elsewhere. Why buy ad spots on Yelp when you can let your customers promote your business for free? Not only will it save money, but word-of-mouth and user-generated content is far more genuine and effective.
