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Wall Street Journal – Yelp’s Next Step: Staying Hot

MARCH 2, 2012, 3:21 PM

By Steven Russolillo and Lynn Cowan – Scott Rostan quoted

Yelp shares have been scorching all day long without showing any sign of losing momentum. The big question now, however, is whether the company’s one-day pop proves to be sustainable.

The stock shot up more than 60% minutes after the open and has stayed around the same level for much of the day. If history is any guide, the one-day pop doesn’t bode well for the future. Some of the social-media stocks that have gone public over the last year haven’t had such great track records of maintaining one-day jumps.

LinkedIn surged more than 100% on its first day of trading and advanced as high as $122.70 that day. But the stock quickly fell back and hasn’t sniffed that level since.

“It’s a marathon, not a sprint,” said Scott Rostan, a former Merrill Lynch investment banker who is principal and founder of Training The Street. “The recent track record following these big, one-day pops hasn’t exactly been good. And this company hasn’t been profitable and doesn’t expect to be anytime soon.”

Yelp shares were recently up 65% at $24.72. The stock’s trading volume has been higher than normal for an IPO (to say the least), according to Scott Sweet, managing director of research site

“I have not seen a deal trade the entire float this fast in many, many years,” says Sweet, while describing the volume as “insane.” As of 3:10 p.m. Eastern Time, 16.5 million shares had changed hands, more than double its float of 7.15 million.

Whether the hype and demand are sustainable beyond the first trading day will be closely watched in the coming weeks. Mr. Rostan says anticipation of Facebook’s upcoming IPO is “casting a halo around yet another social media play,” which is benefitting Yelp — the local business reviews site.

Considering Yelp’s balance sheet, however, there’s a real risk the stock’s surge will be fleeting, according to analysts and market observers.

“There’s going to be this euphoria with each of these [social media] IPOs, and then they are going to have a hard time showing staying power,” says Jeffery Cohen, a partner in the capital markets group at the law firm of Linklaters.