Yelp Shares Up 30% This Week… But Nobody’s Sure Why

If you’ve been following some of the recent social media and Internet IPOs, you know that while most of them have been having a good run in the last few months, things weren’t rosy through 2011.  Stocks like Groupon and Pandora were not able to maintain upwards trajectories, while stocks like Zynga actually spent a lot of time underneath their IPO price.  LinkedIn stood out as having doubled its IPO price, but even they dropped from their high of $110 to around $90.

So with all that, people are wondering why Yelp, which has spent a lot of time hovering in the mid twenties after a reasonably successful IPO, has rocketed this week by 30% over a few days to $30 a share.

There are lots of theories that are abounding throughout the web.

A prominent one is the Facebook effect – experts theorize that in the lead up to Facebook’s IPO, investors are looking for alternative ways to get into the social game.  Yelp is a great company that leverages a lot of social features, and may be undervalued.  People typically look to LinkedIn and say, if LinkedIn is worth $10B in market capitalization, surely Yelp is worth more than the $1.7B it’s valued at currently.

However, Michael Pachter, a prominent entertainment analyst who seems to get a word in on any major social media or video game stock news, reiterated his concerns from when YELP first went public in early March.  He was cautious then that Yelp would need to become profitable to really drive the stock, and after this 30% jump, stated that “They’re not profitable so valuation is impossible to explain or defend.”

We’ll see how YELP performs this week.  Today, the stock is surprising the market by rising another 3% after two huge days.  Let us know what you think — will Yelp continue to grow?


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