Yelp Prepares IPO: Is It a Tech Bubble?

Yelp Prepares IPO: Is It a Tech Bubble?

Customer-review website Yelp announced this week that it has recruited Citigroup and Goldman Sachs to set up an Initial Public Offering (IPO)— the process through which a private company "goes public," or starts being traded on public stock exchanges—as early as next year.

The Groupon Effect

Although many companies avoided IPOs over the summer because of market instability, Groupon’s recent offering immediately raised almost $700 million, with a price of $20 per share. It was the largest IPO from any internet company since Google in 2004.

Timely IPOs aren’t the only commonality between Groupon and Yelp: Both rejected offers from Google (which recently acquired Zagat) to buy their companies in the past two years—Groupon for around $6 billion and Yelp for about $500 million. Post-IPO, Groupon is worth three times that offer, and Yelp is expected to at least double the asking price offered by Google.

(For a more detailed description of Initial Public Offerings, see our previous post.)

Are We in a Tech Bubble?

The success of Groupon's IPO revived speculation that we're experiencing a tech bubble like the dotcom bubble of the early nineties, in which tech companies were so inflated with money from stocks that they overspent their way to bankruptcy, pulling their investors down with them. (Here are some of the arguments being tossed around.)

The general consensus among experts at the moment is that we aren’t experiencing high-tech déjà vu. Of course, there's no guarantee that newly-public companies will continue to spend responsibly, but there isn't yet any indication that they won't.

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