User-generated reviews giant Yelp has joined the stock market goldrush by filing an initial public offering (IPO) of up to $100m in shares.

Since rejecting a reported $500m acquisition offer from Google in 2010, the company has apparently been preparing for this move, which could value the company at over $2b.

This is the latest in a raft of IPO moves from online businesses this year, including LinkedIn, Pandora, Zynga (reported here in July), Angie’s List and most recently, Groupon. 

Angie’s List, another reviews site based on subscriptions, jumped 25% in value on its first day of trading, raising $114m. It is now valued at roughly $900m.

Groupon completed one of the biggest web-based IPOs in years on November 4th, raising more than $700m despite questions about its business model, accounting and management.

To imagine that companies like these might start publicly trading, even just a year ago, was unthinkable. Yet now, the sheer size of the social commerce market is now a complete reality.

But in the first nine months of 2011, even though Yelp generated $58.4m in revenue, it lost $7.6m - fractionally less than in the same period from 2010. Similarly, Angie's List, despite its growth, is losing even more - $43m on revenues of $62.6m in the first nine months of 2011.

Yelp has clocked up far more reviews than Angie's List, but most of its income comes from local advertising, followed by brand advertising and 'other services' such as Yelp Deals, partnerships and remnant advertising inventory.

A reliance on advertising is risky, especially with a growing market of competitors. Google has just bought Zagat to amp up its local reviews, Foursquare is still hanging on and there are a wealth of other location-based businesses out there.

Additionally, Yelp says that Google changes its search results to give Google products that compete a better ranking. Yelp also said in its IPO document that it gets more than half its traffic from Google and warns that if the company tweaks its search mechanics - which Google has been doing - then Yelp could take a serious hit.

It's been said that 2012 will be the year that group-buying either matures, or dies. Though the reviews space is far more robust, there will be a knock-on effect, especially for businesses that offer both, like Yelp. Perhaps a similar outcome will occur in which we see reviews services evolve, merge or start to make headway towards becoming profitable. Businesses simply can't continue to make a loss forever, something has to give.

Vikki Chowney

Published 18 November, 2011 by Vikki Chowney

Vikki is head of community at TMW. You can follow her on Twitter or Google+

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