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In a classic Wall Street knee-jerk trading scenario, product-and-service review site Yelp.com had its stock trading on the New York Stock Exchange stopped early May 7 after the price spiked up about 15 percent, based on a Wall Street Journal report that the company was talking to potential suitors about selling itself.
After trading was re-opened later in the day, Yelp’s stock zoomed up a whopping 23 percent and closed at $47.01, up $8.79 from the previous close of $38.22.
In a story that was updated May 7, the Journal reported that the San Francisco-based Web company is working with investment bankers and has been in touch with potential buyers in recent weeks. Google is reported to be one of the companies interested. Thanks to its market capitalization estimate of $2.9 billion, Yelp could command as much as $3.5 billion in a sale.
However, a deal isn’t expected any time soon, a Journal source said. In fact, it’s possible Yelp will decide against a sale. Six years ago, Google was reportedly interested in buying the company for $500 million, but CEO and founder Jeremy Stoppelman and his board voted against the deal.
Yelp went public in 2012 and priced its stock higher than it should have, and the company has been trading lower starting in March 2014, when shares were selling at $97. Yelp has been priced in the high $30 range for several weeks.
After it reported its Q1 2015 earnings results on April 30, Yelp stock slid 17 percent after it showed a slowdown in user growth. The company, whose user-written reviews of restaurants, cleaners, movies, and just about every other type of consumer service are a key influence factor for businesses globally, reported 143 million active monthly users, which was up 8 percent year over year.
In comparison, during Yelp’s 2014 first quarter, user numbers had jumped 30 percent. In addition, Yelp also missed estimates on earnings and revenue. For the first quarter ending March 31, Yelp reported a loss of $1.28 million on revenue of $118.51 million, compared with a loss of $2.6 million on sales of $76.41 million a year ago.
The May 7 story in the Journal certainly played into Wall Street’s fast-reacting, automated trading processes and helped the company gain back some of that paper loss in quick order. The stock price escalation could continue for a few days; it’s happened previously.
Stoppelman told the Associated Press back in 2009 that he had had second thoughts about selling the company to Google, and he obtained some advice from Steve Jobs at the time.
“It was an emotional decision. Yelp is my baby, so I wanted it to be in a place where it was going to thrive,” Stoppelman said. “As it became more of an auction process where it felt like there was blood in the water and the sharks were attacking, it just felt like it wasn’t going to end up with Yelp in a good spot.
“(Jobs) was very anti-Google, as it turns out. He was pretty upset with Google. (Jobs had accused Google of stealing ideas from Apple’s iPhone to build Android, a rival operating system for mobile devices). He felt that Yelp was a great company and wouldn’t be a great company if it fell in the hands of Google,” Stoppelman said.
Subsequent reports on the incomplete 2009 deal had Google instead breaking off the talks because executives were apparently furious that word had leaked to the press—ostensibly from Yelp—about the negotiations.