Yelp, that restaurant-review startup that everyone kinda sorta uses but that no one really feels all that passionate about (it's no Foursquare, it's just always, you know, there) staged a very successful IPO today, with its stock price rapidly rising well above the offer price of $15.
Sounds great, except of course that Yelp hasn't made any money since 2004 and has a business model that entails massive outlays on local ad sales staff to keep the cash coming in. At Business Insider, Henry Blodget is utterly appalled.
I'm surprised he didn't address the "low float" and IPO-underpricing questions (he has before, regarding LinkedIn's IPO). Yelp sold a little more than 7 million shares. I don't have the exact number, but if recent history is any indication, this is only about ten percent of the company.
Preferred clients of lead underwriter Goldman Sachs also got to buy Yelp at $15 and then immdiately turn around sell it to the dumb money that's currently getting all IPO-frenzied ahead of the big Facebook offering later this year.
As you can see, this is a way for Yelp's investors and Goldman's clients to...get out of Yelp before the many flaws in its business are exposed. And they don't even need to sell all that much of Yelp to do it.
Facebook's IPO is expected to be another low float. Depending on where it's priced, the first-day pop could be H-U-G-E. That's what Yelp is priming the pump for. And one wonders how it feels about being the sacrificial lamb. Maybe okay, given its newfound market cap of $1.5 billion. On profits of exactly...zero.