S-1/A 1 d245328ds1a.htm AMENDMENT NO. 1 TO FORM S-1 Amendment No. 1 to Form S-1
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As filed with the Securities and Exchange Commission on December 21, 2011

Registration No. 333-178030

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 1

to

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

YELP! INC.

(Exact name of Registrant as specified in its charter)

 

 

 

Delaware   7370   20-1854266

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

706 Mission Street

San Francisco, CA 94103

(415) 908-3801

(Address, including zip code and telephone number, of Registrant’s principal executive offices)

 

 

Rob Krolik

Chief Financial Officer

Yelp! Inc.

706 Mission Street

San Francisco, CA 94103

(415) 908-3801

(Name, address, including zip code and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Craig D. Jacoby

Kenneth L. Guernsey

David G. Peinsipp

Cooley LLP

101 California Street, 5th Floor

San Francisco, CA 94111

(415) 693-2000

 

Laurence Wilson

General Counsel

Yelp! Inc.

706 Mission Street

San Francisco, CA 94103

(415) 908-3801

 

Alan F. Denenberg

Davis Polk & Wardwell LLP

1600 El Camino Real

Menlo Park, CA 94025

(650) 752-2000

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box.  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨      Accelerated filer    ¨
Non-accelerated filer   x   (Do not check if a smaller reporting company)    Smaller reporting company    ¨

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission acting pursuant to said Section 8(a), may determine.

 

 


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The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

Subject To Completion. Dated December 21, 2011

             Shares

LOGO

Class A Common Stock

 

 

This is an initial public offering of shares of Class A common stock of Yelp Inc.

Yelp is offering              of the shares to be sold in the offering. The selling stockholders identified in this prospectus are offering an additional              shares. Yelp will not receive any of the proceeds from the sale of the shares being sold by the selling stockholders.

Following this offering, we will have two classes of authorized common stock, Class A common stock and Class B common stock. The rights of the holders of Class A common stock and Class B common stock will be identical, except with respect to voting and conversion. Each share of Class A common stock will be entitled to one vote per share. Each share of Class B common stock will be entitled to ten votes per share and will be convertible at any time into one share of Class A common stock. Outstanding shares of Class B common stock will represent approximately     % of the voting power of our outstanding capital stock immediately following this offering.

Prior to this offering, there has been no public market for the Class A common stock. It is currently estimated that the initial public offering price per share will be between $         and $        . Application has been made for quotation on the              under the symbol “YELP”.

 

 

See “Risk Factors” beginning on page 15 to read about factors you should consider before buying shares of the Class A common stock.

 

 

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any recommendation to the contrary is a criminal offense.

 

 

 

     Per Share      Total  

Initial public offering price

   $                    $                

Underwriting discount

   $         $     

Proceeds, before expenses, to Yelp

   $         $     

Proceeds, before expenses, to the selling stockholders

   $         $     

To the extent that the underwriters sell more than              shares of Class A common stock, the underwriters have the option to purchase up to an additional              shares from Yelp at the initial public offering price less the underwriting discount.

The underwriters expect to deliver the shares against payment in New York, New York on                         , 2012.

 

 

 

Goldman, Sachs & Co.

Citigroup

Jefferies

 

 

 

Allen & Company LLC

Oppenheimer & Co.

Prospectus dated                      , 2012


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LOGO

Thanks to Yelp,

I HAVE WRITTEN

More in

five months than my

FOUR YEARS IN

high school.

You know you’re on

Your way

when your

name is now

A VERB.

How can

anyone

not love

YELP?

Yelp has

totally

reinvented my

SOCIAL LIFE.

Do you

REMEMBER

life before

yelp

I sure don’t...

It’s awesome.

I mean it.

I’m holding

A LIT SPARKLER

right now. Source: user reviews of Yelp

yelp


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LOGO

BECAUSE COMMUNITY MATTERS:

Yelp connects people with great local businesses on an international scale.

Most reviewed outdoor market in London

BOROUGH MARKET

216 reviews

Most reviewed public bathroom on Yelp

CHARMIN RESTROOMS

26 reviews

Most reviewed business on Yelp

BI-RITE CREAMERY

4,218 reviews Most reviewed plumber in Texas

UNION JACK PLUMBING

Most mobile Check-Ins per zip code

LAS VEGAS, 89109 70 reviews Most reviewed currywurst in

CURRY 36

What happens in Vegas gets

Most reviewed mechanic in Illinois reviewed on Yelp.

ASHLAND TIRE & AUTO 25 reviews

258 reviews Most recently formed Yelp Elite

= Yelp Market with Community Manager before 2011 Squad of reviewers

MADRID, SPAIN

= Yelp Market with Community Manager launched in 2011 Source: Yelp review database as of September 30th,

“Yelp’s impact is huge. When we first opened,

“Since I can’t be “Yelp is really critical in marketing and on an obscure corner, not a lot of people everywhere and “I have a dangerous running a restaurant properly. Every knew about us. We started gaining positive

do everything, addiction: Yelp. I single review is an educational

Yelp helps me Yelp reviews and they impacted our get up in the middle tool. If you’re keep track of business in a of the night to write not using Yelp, my city and big way.” reviews and edit my you’re missing out.” choose how to profile. Even my

- JULIE L spend my four-year-old kid has - CHARLES T

OC Wine Mart,

Roka Akor Sushi, time and money wisely.” Irvine, CA uttered, ‘You should yelp this.’” Chicago IL

- MICHAEL S - HEATHER N Yelper, Denver, CO Yelper, Decatur, GA


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LOGO

22 MILLION

reviews

25 20 15 10 5

0

Q4 ‘05 Q4 ‘06 Q4 ‘07 Q4 ‘08 Q4 ‘09 Q4 ‘10 Q3 ‘11

Cumulative reviews contributed since inception

61 MILLION

monthy unique visitors

60 50 40 30 20 10

0

Q4 ‘05 Q4 ‘06 Q4 ‘07 Q4 ‘08 Q4 ‘09 Q4 ‘10 Q3 ‘11

Average monthly unique visitors for the quarter

529 THOUSAND

claimed local business locations

500 400 300 200 100

0

Q4 ‘05 Q4 ‘06 Q4 ‘07 Q4 ‘08 Q4 ‘09 Q4 ‘10 Q3 ‘11

Cumulative claimed local business locations since inception

ALMOST EVERY SECOND

a consumer looks up directions to or calls a local business from a Yelp mobile app.

Average for Q3 2011


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TABLE OF CONTENTS

 

 

 

     Page  

Prospectus Summary

     1   

The Offering

     9   

Summary Consolidated Financial and Other Data

    
11
  

Risk Factors

     15   

Special Note Regarding Forward-Looking Statements

     37   

Market, Industry and Other Data

     38   

Use of Proceeds

     39   

Dividend Policy

     39   

Capitalization

     40   

Dilution

     42   

Selected Consolidated Financial and Other Data

     44   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     49   

Business

     78   

Management

     96   

Executive Compensation

     103   

Certain Relationships and Related Person Transactions

     118   

Principal and Selling Stockholders

     121   

Description of Capital Stock

     124   

Shares Eligible for Future Sale

     131   

Material United States Federal Income Tax Consequences to Non-U.S. Holders of Our Class A Common Stock

     133   

Underwriting

     137   

Legal Matters

     142   

Experts

     142   

Where You Can Find More Information

     142   

Index to Consolidated Financial Statements

     F-1   

 

 

We have not authorized anyone to give any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, and only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.

Unless the context otherwise indicates, where we refer in this prospectus to our “mobile application” or “mobile app”, we refer to all of our applications for mobile-enabled devices. Similarly, references to our “website” refer to both the U.S. and international versions of our website.

 

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PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in our Class A common stock, you should read the entire prospectus carefully, including the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes. Unless the context suggests otherwise, references in this prospectus to “Yelp,” the “Company,” “we,” “us” and “our” refer to Yelp Inc. and, where appropriate, its subsidiaries.

Company Overview

Yelp connects people with great local businesses. Our users have contributed more than 22 million reviews of almost every type of local business, from restaurants, boutiques and salons to dentists, mechanics, plumbers and more. These reviews are written by people using Yelp to share their everyday local business experiences, giving voice to consumers and bringing “word of mouth” online. The information these reviews provide is valuable for consumers and businesses alike. Approximately 61 million unique visitors used our website, and our mobile application was used on more than 5 million unique mobile devices, on a monthly average basis during the quarter ended September 30, 2011. Businesses, both small and large, use our platform to engage with consumers at the critical moment when they are deciding where to spend their money. Our business revolves around three key constituencies: the contributors who write reviews, the consumers who read them and the local businesses that they describe.

Contributors.    We foster and support vibrant communities of contributors in local markets across the United States, Canada and Europe. These contributors provide rich, firsthand information about local businesses, such as reviews, ratings and photos.

Consumers.    Our platform is transforming the way people discover local businesses and is attracting a large audience of geographically and demographically diverse consumers. Every day, millions of consumers visit our website or use our mobile app to find great local businesses. Our strong brand and the quality of the review content on our platform have enabled us to attract this large audience with almost no traffic acquisition costs.

Local Businesses.    Our platform provides local businesses with a variety of free and paid services that help them engage with consumers at the critical moment when they are deciding where to spend their money.

Powerful Network Effect.    Our platform helps people find great local businesses to meet their everyday needs. As more people use our platform, more of them write reviews. Each review that a user contributes helps expand the breadth and depth of the content on our platform, in turn drawing in more consumers. This increase in consumer traffic improves our value proposition to local businesses as they seek low-cost, easy-to-use and effective advertising solutions to target a large number of intent-driven consumers.

Yelp Mobile.    We help consumers make decisions on the go. Our mobile app was recognized in the Apple iPhone Hall of Fame for App Store Essentials and, as of November 10, 2011, was the #1 listed top free travel app in Apple’s App Store.

 

 

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As our community has grown and our product offerings have expanded, we have seen significant growth in reviews, traffic, claimed local business locations and active local business accounts.

 

  Ÿ  

Our users have contributed more than 22 million reviews to our platform as of September 30, 2011, up 66% from the prior year.

 

  Ÿ  

We had approximately 61 million unique visitors on a monthly average basis for the quarter ended September 30, 2011, up 63% from the same period in the prior year.

 

  Ÿ  

We had approximately 529,000 claimed business locations as of September 30, 2011, up 114% from the prior year.

 

  Ÿ  

We recognized revenue from approximately 19,000 active local business accounts for the quarter ended September 30, 2011, up 75% from the same period in the prior year.

We generate revenue primarily from the sale of advertising on our website to local businesses and national brands that seek to reach our growing audience of consumers. In the first nine months of 2011, we generated $58.4 million in net revenue, representing 80% growth over the first nine months of 2010. In this same period, we generated a net loss of $7.6 million and an adjusted EBITDA loss of $1.1 million. For information on how we define and calculate number of contributed reviews, unique visitors, claimed local business locations, active local business accounts and adjusted EBITDA, and a reconciliation of adjusted EBITDA to net loss, see “Selected Consolidated Financial and Other Data.”

Industry Overview

Every day, hundreds of millions of consumers make decisions about where to spend their money at local businesses. According to the U.S. Census Bureau, in the United States alone, there are over 27 million local business locations, which we believe represents a multi-trillion dollar market for commerce. According to BIA/Kelsey, a market intelligence firm, local businesses are estimated to have spent $19.6 billion on online advertising and $113.6 billion on traditional offline advertising in 2010. We believe several secular trends will increasingly challenge the traditional ways in which local businesses have connected with consumers and will offer opportunities for solutions like ours.

Online Reviews are Gaining Credibility.    With the growth of the Internet, online reviews have become a regularly relied-upon source of information. According to a 2011 survey of U.S. consumers conducted by Cone Communications, a public relations and marketing agency, 87% of respondents said that positive information they read online reinforced their decision to purchase a product or service and 64% of respondents said that they go online to search for customer or user reviews.

Local Advertising is Moving from Offline to Online.    Over the past decade, the advertising market for local businesses has undergone rapid and fundamental changes. Consumers who at one time turned almost exclusively to the yellow pages, newspapers, magazines and other forms of offline media for information about local businesses are now increasingly relying on online resources. As consumers move online, local businesses are shifting their ad spending from traditional media sources to online advertising.

Mobile Connected Devices and Apps are Proliferating.    Mobile devices provide an ideal platform for people to search for local businesses due to their ability to identify consumer location and provide all the benefits of digital content to consumers on the go. IDC, a market research firm, estimates that there will be over 1 billion smartphone shipments worldwide in 2015.

 

 

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Why Consumers Choose Yelp

We believe consumers are drawn to our platform because Yelp reviews reflect recent, firsthand experiences from the community that help consumers find the best local businesses for their everyday needs. The Yelp platform is free and easy to use and has broad demographic appeal, serving local communities in the United States and internationally.

Yelp Reviews.    Yelp reviews are core to the Yelp experience and a key point of differentiation from competing services. The passionate and detailed reviews on Yelp form a rich database from which consumers can draw relevant information about how and where to spend money locally.

Some of the distinguishing characteristics of Yelp reviews include:

 

  Ÿ  

Breadth.    Our users have contributed over 22 million reviews covering a wide range of local business categories. The charts below highlight the breakdown by industry of local businesses that have been reviewed on our platform and the breakdown by industry of the reviews contributed to our platform through September 30, 2011.

Reviewed Businesses

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Reviews

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  Ÿ  

Depth.    We feature full-text reviews, providing detailed, searchable information about local businesses with greater depth of content than most competitive offerings. As of September 30, 2011, the reviews on our platform contained an average of more than 100 words. In addition to reviews, we collect photos, “check-ins” and other detailed information about local businesses. The in-depth nature of these reviews and other information allows Yelp to provide useful responses even to very specific queries from consumers.

 

  Ÿ  

Relevant and Recent.    Our platform is continually updated with fresh content from the community. Our contributors submitted over 25,000 reviews per day during the quarter ended September 30, 2011.

 

  Ÿ  

Trusted and Credible.    The credibility of Yelp reviews is a critical component of our value proposition and brand. We ensure that all reviews are written by users with public Yelp profiles, and we encourage local businesses to respond to positive and negative reviews alike. We also use proprietary, automated filtering software to help us showcase the most helpful and reliable reviews among the millions that are submitted to our website. However, determining the credibility of reviews is difficult, and we cannot guarantee that our efforts will prove to be effective or adequate.

Superior Search and Discovery.    The combination of our proprietary search technology and our content enables consumers to receive especially relevant results for highly specific local searches.

Mobile.    Our mobile app is an ideal way for people to discover great local businesses. It combines our reviews and other relevant information with knowledge of the consumer’s location in an integrated experience. Our mobile app also provides new ways to contribute content to our platform through features that let consumers “check-in” at local businesses and submit photos and “quick tips” directly from their smartphones.

Why Local Businesses Choose Yelp

Yelp serves local businesses by helping them get discovered and engage with potential customers and by providing advertising solutions that help local businesses reach new customers easily and affordably.

Broad and Targeted Reach.    Our platform helps local businesses access a large audience of potential consumers at the specific moment when they are searching for a local business.

Focus on Demand Fulfillment.    In contrast to other marketing solutions that only create awareness and attempt to generate consumer demand through online advertising and email marketing, we also help businesses fulfill demand by engaging with consumers who have already expressed demand for a specific product or service.

Easy, Flexible and Affordable Platform to Engage with Consumers.     Our platform provides multiple free and paid advertising solutions to engage with consumers, including: free online business accounts; search advertising; and Yelp Deals. Within a matter of minutes, a business owner can set up a free online business account. With minimal additional effort, she can use our online advertising platform to engage with customers and track the effectiveness of ads and deals. We offer local businesses performance and impression-based advertising and the flexibility to pay on a monthly basis or through the purchase of three, six or 12-month advertising plans.

 

 

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Our Strengths

We are one of the leading providers of information about local businesses. We believe that our success is largely attributable to the breadth, depth and overall quality of the more than 22 million reviews contributed to our platform. These reviews helped us draw approximately 61 million unique visitors to our website, on a monthly average basis for the quarter ended September 30, 2011. In addition to the reviews available on our platform, other key strengths contributing to our success include:

 

  Ÿ  

Passionate Community.    We foster and support vibrant communities of contributors in the markets in which we operate, creating an environment that is conducive for people to write thoughtful and detailed reviews about local businesses. These local communities are hard to replicate, and they generate the detailed and passionate reviews for which we are known.

 

  Ÿ  

Leading Brand in Local.    Our exclusive focus on local has helped us to establish a powerful brand identity for local search. To maintain our strong brand, we will continue to foster communities of contributors, strive to ensure the richness and authenticity of reviews and increase the speed and accuracy of local business search.

 

  Ÿ  

Powerful Network Effect.    Our platform helps people find great local businesses to meet their everyday needs. As more people use our platform, more of them write reviews. Each review that a user contributes helps expand the breadth and depth of the content on our platform, in turn drawing in more consumers. This increase in consumer traffic improves our value proposition to local businesses as they seek low-cost, easy-to-use and effective advertising solutions to target a large number of intent-driven consumers.

 

  Ÿ  

Proven Market Development Strategy.    Although we have a limited operating history and have not yet achieved profitability, we have a track record of successfully building a base of detailed review content for new markets, which is a key driver of our growth and our leadership position.

 

  Ÿ  

Local-Focused Sales Force.    We believe we have been able to attract and train a highly specialized and effective internal sales force. Members of our sales force benefit from our powerful business model and brand, as they have easy access to approximately 19 million U.S. local businesses and approximately 529,000 claimed local business locations worldwide on our platform.

 

  Ÿ  

Proprietary Technology.    Our engineering team has developed what we believe are superior search and review filtering technologies, which, together with ongoing innovation, help us attract a large base of contributors, consumers and local businesses.

 

  Ÿ  

Attractive Business Model.    Reviews contributed by our users enable us to benefit from low content creation costs, consisting primarily of the costs of Community Managers who we employ to foster and support our communities of contributors. Based on the breadth of content and variety of advertising solutions on our platform, we have been able to attract a large audience of consumers with almost no traffic acquisition costs and a diverse customer base of local business and national brand advertisers.

Our Growth Strategy

We intend to grow our platform and our business by focusing on the following key growth strategies:

Growth in Existing Markets.    Within existing markets, we will seek to increase the number of reviews, attract more users, increase usage of current users and attract more businesses.

 

 

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Expand to New Geographic Markets.    We are active in the United States, Canada and Europe, and we see a significant opportunity to continue expanding our footprint in new markets, both domestically and abroad. While we have not yet begun to sell advertising in our international markets, we intend to begin hiring an international sales force in 2012.

Platform Expansion.    We plan to continue to innovate and introduce new products for our website and mobile app and to introduce our content and solutions on new platforms and distribution channels, such as automobile navigation systems, web-enabled televisions and voice-enabled mobile devices.

Enhance Monetization.     We intend to grow our sales force and expand our portfolio of revenue-generating products in order to reach more businesses and increase the amount they spend on our advertising products.

Market Development

As of September 30, 2011, we were active in 43 Yelp markets in the United States and 22 Yelp markets internationally. In the markets we have entered, review growth and consumer activity are generally followed by revenue generated from local businesses. To illustrate the development of our markets as they scale, we highlight below our review and revenue metrics for three cohorts of Yelp markets in the United States: the Yelp markets that we launched in 2005-2006; the Yelp markets that we launched in 2007-2008; and the Yelp markets that we launched in 2009-2010.

 

U.S. Market Cohort

   Number of
Yelp Markets (1)
     Average
Cumulative
Reviews

9/30/11  (2)
     Year-Over-Year
Growth in
Average
Cumulative
Reviews (3)
    Average Local
Advertising
Revenue

YTD 2011 (4)
     Year-Over-Year
Growth in
Average Local
Advertising
Revenue (5)
 

2005 – 2006 Cohort

     6         1,903         55   $ 4,077         51

2007 – 2008 Cohort

     14         428         67   $ 761         87

2009 – 2010 Cohort

     18         109         95   $ 96         137

 

(1) A Yelp market is defined as a city or region in which we have hired a Community Manager. For more information, see “Business—Market Development Strategy.”
(2) Average cumulative reviews is defined as the total cumulative reviews of the cohort as of September 30, 2011 (in thousands), including reviews that were then being filtered or had been removed from our platform, divided by the number of Yelp markets in the cohort.
(3) Year-over-year growth in average cumulative reviews compares average cumulative reviews as of September 30, 2011 with average cumulative reviews as of September 30, 2010.
(4) Average local advertising revenue is defined as the total local advertising revenue from businesses in the cohort for the nine months ended September 30, 2011 (in thousands) divided by the number of Yelp markets in the cohort.
(5) Year-over-year growth in average local advertising revenue compares local advertising revenue for the nine months ended September 30, 2011 with local advertising revenue for the same period in 2010.

For a table showing the year of launch of each of the Yelp markets in which we are currently active, see “Management’s Discussion and Analysis of Results of Operations and Financial Condition—Overview.” In general, the Yelp markets in our earlier U.S. market cohorts are more populous than those in later cohorts, and we have already entered many of the largest markets in the United States. For these and other reasons, further expansion into additional U.S. markets may not yield results similar to those of our existing U.S. markets.

 

 

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We have made a significant investment in support of our market development initiatives. For the nine months ended September 30, 2011, our total costs and expenses were $65.8 million, an increase of approximately 61% over the corresponding period in 2010. Over the same period, total net revenue increased approximately 80%. Because most of our costs and expenses relate to personnel and activities that support multiple markets, we do not record costs and expenses separately by market or cohort.

Risks Associated with Our Business

Our business is subject to numerous risks and uncertainties, including those highlighted in the section titled “Risk Factors” immediately following this prospectus summary. Some of these risks are:

 

  Ÿ  

we have a short operating history in an evolving industry, which makes it difficult to evaluate our future prospects and may increase the risk that we will not be successful;

 

  Ÿ  

we have incurred significant operating losses in the past, and we may not be able to generate sufficient revenue to achieve or maintain profitability, particularly given our significant ongoing sales and marketing expenses. Our recent growth rate will likely not be sustainable, and a failure to maintain an adequate growth rate will adversely affect our results of operations and business;

 

  Ÿ  

we rely on traffic to our website from search engines like Google, Yahoo! and Bing, some of which offer products and services that compete directly with our solutions. If our website fails to rank prominently in unpaid search results, traffic to our website could decline and our business would be adversely affected;

 

  Ÿ  

if we fail to generate and maintain sufficient high quality content from our users, we will be unable to provide consumers with the information they are looking for, which could negatively impact our traffic and revenue;

 

  Ÿ  

our business depends on a strong brand, and any failure to maintain, protect and enhance our brand would hurt our ability to retain or expand our base of users and advertisers, or our ability to increase the frequency with which they use our solutions;

 

  Ÿ  

negative publicity about our company, including allegations of improper business practices or sales tactics or of manipulation of reviews, or complaints regarding our filtering technology could diminish confidence in and use of our solutions, which would adversely affect our results of operations and business;

 

  Ÿ  

if our technology filters helpful content or fails to filter unhelpful content, consumers and businesses alike may stop or reduce their use of our platform and products, and our business could suffer;

 

  Ÿ  

if we fail to maintain and expand our base of advertisers, our revenue and our business will be harmed;

 

  Ÿ  

if we fail to expand effectively into new markets, both domestically and abroad, our revenue and our business will be harmed;

 

  Ÿ  

if we are not successful in developing solutions that generate revenue from our international markets or from our mobile application, which have not been the source of material revenue to date, or if those solutions are not widely adopted, our results of operations and our business could be adversely affected;

 

 

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  Ÿ  

our user traffic could be adversely affected if consumers perceive the utility of our platform to be limited to finding businesses in the restaurant and shopping categories; and

 

  Ÿ  

the dual class structure of our common stock has the effect of concentrating voting control with those stockholders who held our stock prior to this offering, including our founders, directors, executive officers and employees and their affiliates, and limiting your ability to influence corporate matters.

Corporate Information

We were incorporated in Delaware on September 3, 2004 under the name Yelp, Inc. Our principal executive offices are located at 706 Mission Street, San Francisco, California 94103, and our telephone number is (415) 908-3801. Our website address is www.yelp.com. Information contained on or accessible through our website is not a part of this prospectus and should not be relied upon in determining whether to make an investment decision.

Yelp, Yelp Inc., the Yelp logo and other trade names, trademarks or service marks of Yelp appearing in this prospectus are the property of Yelp. Trade names, trademarks and service marks of other companies appearing in this prospectus are the property of their respective holders.

 

 

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THE OFFERING

 

Class A common stock offered by Yelp

             shares

 

Class A common stock offered by the selling stockholders

             shares

 

Class A common stock to be outstanding after this offering

             shares

 

Class B common stock to be outstanding after this offering

             shares

 

Total Class A and Class B common stock to be outstanding after this offering

             shares

 

Option to purchase additional shares of Class A Common Stock offered by Yelp

             shares

 

Voting rights

Following this offering, we will have two classes of authorized common stock: Class A common stock and Class B common stock. The rights of the holders of Class A and Class B common stock are identical, except with respect to voting and conversion. The holders of Class A common stock are entitled to one vote per share, and the holders of Class B common stock are entitled to 10 votes per share, on all matters that are subject to a stockholder vote. Each share of Class B common stock may be converted into one share of Class A common stock at any time at the election of the holder thereof, and will be automatically converted into one share of Class A common stock upon the earlier of (i) the date specified by a vote of the holders of 66 2/3% of the outstanding shares of Class B common stock, and (ii) transfer thereof. In addition, all shares of Class A common stock and Class B common stock will automatically convert into a single class of common stock upon the earlier of (x) the date on which the number of outstanding shares of Class B common stock represents less than 10% of the aggregate combined number of outstanding shares of Class A common stock and Class B common stock, and (y) seven years from the effective date of this offering. See “Description of Capital Stock” for additional information.

 

Use of proceeds

We intend to use the net proceeds to us from this offering for general corporate purposes, including working capital, sales and marketing activities, general and administrative matters and capital expenditures. In addition, we may use a portion of the proceeds from this offering for acquisitions of complementary

 

 

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businesses, technologies or other assets. We will not receive any of the proceeds from the sale of shares to be offered by the selling stockholders. See “Use of Proceeds” for additional information.

 

Risk factors

See “Risk Factors” beginning on page 15 and the other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our Class A common stock.

 

Proposed              symbol

“YELP”

The number of shares of Class A and Class B common stock to be outstanding after this offering is based on no shares of our Class A common stock and 207,746,688 shares of our Class B common stock (including preferred stock on an as-converted basis) outstanding as of September 30, 2011, and excludes:

 

  Ÿ  

38,855,506 shares of Class B common stock issuable upon the exercise of outstanding stock options as of September 30, 2011 pursuant to our Amended and Restated 2005 Equity Incentive Plan (“2005 Plan”) or our 2011 Equity Incentive Plan (our “2011 Plan”), which was adopted as a successor and continuation of our 2005 Plan, at a weighted-average exercise price of $1.3417 per share;

 

  Ÿ  

3,776,221 additional shares of Class B common stock reserved for future issuance prior to this offering under our 2011 Plan; and

 

  Ÿ  

             additional shares of Class A common stock to be reserved for future issuance under our Amended and Restated 2011 Equity Incentive Plan, to be amended and restated in connection with this offering, as well as any automatic increases in the number of shares of Class A common stock reserved for future issuance under this benefit plan.

Unless we specifically state otherwise, all information in this prospectus (other than historical financial statements) is as of September 30, 2011 and assumes:

 

  Ÿ  

the reclassification of our common stock into an equal number of shares of our Class B common stock and the authorization of our Class A common stock;

 

  Ÿ  

the effectiveness of our amended and restated certificate of incorporation, which we will file immediately prior to the closing of this offering;

 

  Ÿ  

the automatic conversion of all outstanding shares of our preferred stock into an aggregate of 143,267,115 shares of Class B common stock immediately prior to the closing of this offering; and

 

  Ÿ  

no exercise of the underwriters’ option to purchase up to an additional              shares of Class A common stock.

 

 

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SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA

The following tables summarize our consolidated financial and other data. You should read this summary consolidated financial data together with “Selected Consolidated Financial and Other Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes, all included elsewhere in this prospectus.

We have derived the consolidated statements of operations data for the years ended December 31, 2008, 2009 and 2010 and the consolidated balance sheet data as of December 31, 2009 and 2010 from our audited consolidated financial statements appearing elsewhere in this prospectus. The consolidated statements of operations data for the nine months ended September 30, 2010 and 2011 and consolidated balance sheet data as of September 30, 2011 have been derived from our unaudited consolidated financial statements appearing elsewhere in this prospectus. We have prepared the unaudited financial data on the same basis as the audited consolidated financial statements. We have included, in our opinion, all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair presentation of the financial information set forth in those statements. Our historical results are not necessarily indicative of the results that should be expected in the future, and our interim results are not necessarily indicative of the results that should be expected for the full year or any other period.

 

    Year Ended December 31,     Nine Months
Ended
September 30,
 
    2008     2009     2010     2010     2011  
    (in thousands, except per share data)  
                      (unaudited)  

Consolidated Statements of Operations Data:

         

Net revenue by product:

         

Local advertising

  $ 9,057      $ 20,097      $ 33,759      $ 24,120      $ 40,325   

Brand advertising

    2,955        5,393        12,046        7,592        12,653   

Other services

    127        318        1,926        745        5,402   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total net revenue

  $ 12,139      $ 25,808      $ 47,731      $ 32,457      $ 58,380   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Costs and expenses:

         

Cost of revenue (exclusive of depreciation and amortization shown separately below)

    608        1,121        3,137        2,168        4,098   

Sales and marketing

    10,039        17,979        33,919        24,069        38,515   

Product development

    2,047        3,243        6,560        4,651        8,424   

General and administrative

    5,113        4,597        11,287        8,575        11,967   

Depreciation and amortization

    571        1,201        2,334        1,483        2,790   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

    18,378        28,141        57,237        40,946        65,794   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (6,239     (2,333     (9,506     (8,489     (7,414

Other income (expense), net

    434        33        15        80        (143
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

    (5,805     (2,300     (9,491     (8,409     (7,557

Provision for income taxes

    (4     (8     (75     (48     (65
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

    (5,809     (2,308     (9,566     (8,457     (7,622

Accretion of redeemable convertible preferred stock

    (30     (32     (175     (128     (141
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholders

  $ (5,839   $ (2,340   $ (9,741   $ (8,585   $ (7,763
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share attributable to common stockholders:

         

Basic

  $ (0.16   $ (0.05   $ (0.18   $ (0.16   $ (0.13
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

  $ (0.16   $ (0.05   $ (0.18   $ (0.16   $ (0.13
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

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    Year Ended December 31,     Nine Months
Ended
September 30,
 
    2008     2009     2010     2010     2011  
    (in thousands, except per share data)  
                      (unaudited)  

Weighted-average shares used to compute net loss per share attributable to common stockholders:

         

Basic

    36,983        49,377        55,099        54,327        60,083   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

    36,983        49,377        55,099        54,327        60,083   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net loss per share attributable to common stockholders(1) (unaudited)

         

Basic

      $ (0.05     $ (0.04
     

 

 

     

 

 

 

Diluted

      $ (0.05     $ (0.04
     

 

 

     

 

 

 

Weighted-average shares used to compute pro forma net loss per share attributable to common stockholders(1) (unaudited)

         

Basic

        198,366          203,350   
     

 

 

     

 

 

 

Diluted

        198,366          203,350   
     

 

 

     

 

 

 

Other Financial and Operational Data:

         

Reviews(2)

    4,689        8,834        15,115        13,475        22,390   

Unique Visitors(3)

    15,736        26,077        39,356        37,496        61,102   

Claimed Local Business Locations(4)

    25        120        307        247        529   

Active Local Business Accounts(5)

    4        7        11        11        19   

Adjusted EBITDA(6)

  $ (5,303   $ (575   $ (5,741   $ (6,129   $ (1,113

 

(1) Pro forma net loss per share attributable to common stockholders has been calculated assuming the conversion of all outstanding shares of our preferred stock into shares of our Class B common stock, as though the conversion had occurred as of the beginning of the first period presented or the original date of issue, if later.
(2) Represents the cumulative number of reviews submitted to Yelp since inception, as of the period end, including reviews that were then being filtered or that had been removed from our platform. As of December 20, 2011, an aggregate of approximately 4.9 million reviews were then being filtered and an aggregate of approximately 1.8 million reviews had been removed from our platform. We define a review as each individually written assessment submitted by a user who has registered by creating a public profile on our platform. For more information, including information regarding filtered and removed reviews, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics—Reviews”.
(3) Represents the average number of monthly unique visitors for the last three months of the period. We define monthly unique visitors as the total number of unique visitors who have visited our website at least once in a given month, and we average the number of monthly unique visitors in each month of the three-month period to calculate monthly average unique visitors. For more information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics—Unique Visitors”.
(4) Represents the cumulative number of business locations that have been claimed on Yelp worldwide since 2008, as of the period end. For more information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics—Claimed Local Business Locations”.
(5) Represents the number of active local business accounts from which we recognized revenue during the last three months of the period. For more information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics—Active Local Business Accounts”.
(6) We define adjusted EBITDA as net loss, adjusted to exclude: provision (benefit) for income taxes, other income (expense), net, interest income, depreciation and amortization and stock-based compensation. See “Non-GAAP Financial Measures—Adjusted EBITDA” for more information and for a reconciliation of adjusted EBITDA to net income (loss), the most directly comparable financial measure calculated and presented in accordance with generally accepted accounting principles in the United States, or GAAP.

 

 

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Stock-based compensation included in the statements of operations data above was as follows:

 

0000 0000 0000 0000 0000
     Year Ended December 31,      Nine Months
Ended September 30,
 
             2008                      2009                      2010                      2010                      2011          
     (in thousands)  
                          (unaudited)  

Cost of revenue

   $       $       $ 26       $ 18       $ 33   

Sales and marketing

     141         221         662         389         1,111   

Product development

     64         179         260         168         557   

General and administrative

     160         157         483         302         1,810   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total stock-based compensation

   $    365       $    557       $ 1,431       $    877       $ 3,511   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     As of December 31,     As of September 30, 2011  
     2009     2010     Actual     Pro Forma (1)      Pro Forma
As Adjusted
(2)(3)
 
     (in thousands)  
           (unaudited)  

Consolidated Balance Sheet Data:

           

Cash and cash equivalents

   $ 15,074      $ 27,074      $ 23,128      $ 23,128       $                    

Property, equipment and software, net

     2,184        5,256        8,954        8,954      

Working capital

     15,092        28,741        21,743        21,743      

Total assets

     20,817        41,015        42,155        42,155      

Redeemable convertible preferred stock

     30,877        55,246        55,387             

Total stockholders’ equity (deficit)

     (13,169     (20,889     (23,863     31,524      

 

(1) The pro forma column reflects the automatic conversion of all outstanding shares of our preferred stock into 143,267,115 shares of our Class B common stock immediately prior to the closing of this offering.
(2) The pro forma as adjusted column reflects (i) the automatic conversion of all outstanding shares of our preferred stock into 143,267,115 shares of our Class B common stock immediately prior to the closing of this offering and (ii) the sale by us of              shares of our Class A common stock offered by this prospectus at an assumed initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
(3) A $1.00 increase (decrease) in the assumed initial public offering price of $         per share would increase (decrease) the amount of cash and cash equivalents, working capital, total assets and total stockholders’ equity (deficit) by approximately $         million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of one million shares in the number of shares of our Class A common stock offered by us would increase (decrease) the amount of cash and cash equivalents, working capital, total assets and total stockholders’ equity (deficit) by approximately $         million, assuming that the assumed initial public offering price remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma as adjusted information discussed above is illustrative only and will be adjusted based on the actual public offering price and other terms of this offering determined at pricing.

 

 

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Non-GAAP Financial Measures

Adjusted EBITDA

To provide investors with additional information regarding our financial results, we have disclosed in the table above and elsewhere in this prospectus adjusted EBITDA, a non-GAAP financial measure. We have provided a reconciliation below of adjusted EBITDA to net loss, the most directly comparable GAAP financial measure.

We have included adjusted EBITDA in this prospectus because it is a key measure used by our management and board of directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short- and long-term operational plans. In particular, the exclusion of certain expenses in calculating adjusted EBITDA can provide a useful measure for period-to-period comparisons of our core business. Accordingly, we believe that adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.

Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

 

  Ÿ  

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;

 

  Ÿ  

adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

 

  Ÿ  

adjusted EBITDA does not consider the potentially dilutive impact of equity-based compensation;

 

  Ÿ  

adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us; and

 

  Ÿ  

other companies, including companies in our industry, may calculate adjusted EBITDA differently, which reduces its usefulness as a comparative measure.

Because of these limitations, you should consider adjusted EBITDA alongside other financial performance measures, including various cash flow metrics, net income (loss) and our other GAAP results. The following table presents a reconciliation of adjusted EBITDA to net loss for each of the periods indicated:

 

     Year Ended December 31,     Nine Months Ended
September 30,
 
     2008     2009     2010     2010     2011  
    

(in thousands)

 
                       (unaudited)  

Reconciliation of Adjusted EBITDA:

          

Net loss

   $ (5,809   $ (2,308   $ (9,566   $ (8,457   $ (7,622

Provision for income taxes

     4        8        75        48        65   

Other income (expense), net

     (434     (33     (15     (80     143   

Depreciation and amortization

     571        1,201        2,334        1,483        2,790   

Stock-based compensation

     365        557        1,431        877        3,511   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ (5,303   $ (575   $ (5,741   $ (6,129   $ (1,113
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

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RISK FACTORS

Investing in our Class A common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this prospectus, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes, before deciding whether to purchase shares of our Class A common stock. Any of the following risks could materially and adversely affect our business, financial condition, results of operations or prospects, and cause the value of our Class A common stock to decline, which could cause you to lose all or part of your investment.

Risks Related to Our Business and Industry

We have a short operating history in an evolving industry, which makes it difficult to evaluate our future prospects and may increase the risk that we will not be successful.

We have a short operating history in an evolving industry that may not develop as expected, if at all. This short operating history makes it difficult to assess our future prospects. You should consider our business and prospects in light of the risks and difficulties we may encounter in this rapidly evolving industry. These risks and difficulties include our ability to, among other things:

 

  Ÿ  

increase the number of users of our website and mobile app, the number of reviews and other content on our platform and our revenue;

 

  Ÿ  

continue to earn and preserve a reputation for providing meaningful and reliable reviews of local businesses;

 

  Ÿ  

effectively monetize our mobile app as usage continues to migrate toward mobile devices;

 

  Ÿ  

manage, measure and demonstrate the effectiveness of our advertising solutions and attract and retain new advertising clients, many of which may only have limited or no online advertising experience;

 

  Ÿ  

successfully compete with existing and future providers of other forms of offline and online advertising;

 

  Ÿ  

successfully compete with other companies that are currently in, or may in the future enter, the business of providing information regarding local businesses;

 

  Ÿ  

successfully expand our business in new and existing markets, both domestic and international;

 

  Ÿ  

successfully develop and deploy new features and products;

 

  Ÿ  

avoid interruptions or disruptions in our service or slower than expected load times;

 

  Ÿ  

develop a scalable, high-performance technology infrastructure that can efficiently and reliably handle increased usage globally, as well as the deployment of new features and products;

 

  Ÿ  

hire, integrate and retain talented sales and other personnel;

 

  Ÿ  

effectively manage rapid growth in our sales force, personnel and operations; and

 

  Ÿ  

effectively partner with other companies.

If the demand for information regarding local businesses does not develop as we expect, or if we fail to address the needs of this demand, our business will be harmed. We may not be able to successfully address these risks and difficulties or others, including those described elsewhere in these risk factors. Failure to adequately address these risks and difficulties could harm our business and cause our operating results to suffer.

 

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We have incurred significant operating losses in the past, and we may not be able to generate sufficient revenue to achieve or maintain profitability, particularly given our significant ongoing sales and marketing expenses. Our recent growth rate will likely not be sustainable, and a failure to maintain an adequate growth rate will adversely affect our results of operations and business.

Since our inception, we have incurred significant operating losses, and, as of September 30, 2011, we had an accumulated deficit of approximately $32.1 million. Although our revenues have grown rapidly, increasing from $12.1 million in 2008, to $47.7 million in 2010, we expect that our revenue growth rate will decline in the future as a result of a variety of factors, including the maturation of our business and the gradual decline in the number of major geographic markets, especially within the United States, to which we have not already expanded, and you should not rely on the revenue growth of any prior quarterly or annual period as an indication of our future performance. We also expect our costs to increase in future periods as we continue to expend substantial financial resources on:

 

  Ÿ  

sales and marketing;

 

  Ÿ  

product and feature development;

 

  Ÿ  

our technology infrastructure;

 

  Ÿ  

domestic and international expansion efforts;

 

  Ÿ  

strategic opportunities, including commercial relationships and acquisitions; and

 

  Ÿ  

general administration, including legal and accounting expenses related to being a public company.

These investments may not result in increased revenue or growth in our business. If we are unable to maintain adequate revenue growth and to manage our expenses, we may continue to incur significant losses in the future and may not be able to achieve or maintain profitability.

We rely on traffic to our website from search engines like Google, Yahoo! and Bing, some of which offer products and services that compete directly with our solutions. If our website fails to rank prominently in unpaid search results, traffic to our website could decline and our business would be adversely affected.

Our success depends in part on our ability to attract users through unpaid Internet search results on search engines like Google, Yahoo! and Bing. The number of users we attract to our website from search engines is due in large part to how and where our website ranks in unpaid search results. These rankings can be affected by a number of factors, many of which are not in our direct control, and they may change frequently. For example, a search engine may change its ranking algorithms, methodologies or design layouts. As a result, links to our website may not be prominent enough to drive traffic to our website, and we may not be in a position to influence the results. In some instances, search engine companies may change these rankings in order to promote their own competing products or services or the products or services of one or more of our competitors. Our website has experienced fluctuations in search result rankings in the past, and we anticipate fluctuations in the future. Any reduction in the number of users directed to our website could adversely impact our business and results of operations.

Google in particular is the most significant source of traffic to our website accounting for more than half of the visits to our website from Internet searches during the nine months ended September 30, 2011. Our success depends on our ability to maintain a prominent presence in search results for queries regarding local businesses on Google. Google has removed links to our website from portions of its web search product, and has promoted its own competing products, including Google’s local products, in its search results. Given the large volume of traffic to our website and the importance of the placement and display of results of a user’s search, similar actions in the future could have a substantial negative effect on our business and results of operations.

 

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If we fail to generate and maintain sufficient high quality content from our users, we will be unable to provide consumers with the information they are looking for, which could negatively impact our traffic and revenue.

Our success depends on our ability to provide consumers with the information they seek, which in turn depends on the quantity and quality of the content provided by our users. For example, we may be unable to provide consumers with the information they seek if our users do not contribute content that is helpful and reliable, or if they remove content they previously submitted. Similarly, we may be unable to provide consumers with the information they seek if our users are unwilling to contribute content because of concerns that they may be harassed or sued by the businesses they review, instances of which have occurred in the past and may occur again in the future.

If we are unable to provide consumers with the information they seek, or if they can find equivalent content on other services, they may stop or reduce their use of our platform, and traffic to our website and on our mobile app will decline. Our user traffic could also be adversely affected if consumers perceive the utility of our platform to be limited to finding businesses in the restaurant and shopping categories, which together accounted for approximately 46% of the businesses that have been reviewed on our platform and 63% of our cumulative reviews through September 30, 2011. If our user traffic declines, our advertisers may stop or reduce the amount of advertising on our platform and our business could be harmed.

If our technology filters helpful content or fails to filter unhelpful content, consumers and businesses alike may stop or reduce their use of our platform and products, and our business could suffer.

While we have designed our technology to filter content that we believe may be offensive, biased, unreliable or otherwise unhelpful, we cannot guarantee that our efforts will be effective or adequate. In addition, some consumers and businesses have expressed concern that our technology inappropriately filters legitimate reviews, which may cause them to stop or reduce their use of our platform or our advertising solutions. If the performance of our filter proves inadequate or ineffective, our reputation and brand may be harmed, users may stop using our products and our business and results of operations could be adversely affected.

Our business depends on a strong brand, and any failure to maintain, protect and enhance our brand would hurt our ability to retain or expand our base of users and advertisers, or our ability to increase the frequency with which they use our solutions.

We have developed a strong brand that we believe has contributed significantly to the success of our business. Maintaining, protecting and enhancing the “Yelp” brand is critical to expanding our base of users and advertisers and increasing the frequency with which they use our solutions, and will depend largely on our ability to maintain consumer trust in our solutions and in the quality and integrity of the user content and other information found on our website and mobile app, which we may not do successfully. For example, if users believe that the content contributed by our Community Managers or other employees is biased or otherwise affected by our advertising relationships, our brand could be harmed. If we do not successfully maintain a strong brand, our business could be harmed.

Our trademarks are an important element of our brand. We have faced in the past, and may face in the future, oppositions from third parties to our applications to register key trademarks in foreign jurisdictions in which we expect to expand our presence. If we are unsuccessful in defending against these oppositions, our trademark applications may be denied. Whether or not our trademark registration applications are denied, third parties may claim that our trademarks infringe their rights. As a result, we could be forced to pay significant settlement costs or cease the use of these trademarks and associated elements of our brand in those or other jurisdictions. Doing so could harm our brand or brand recognition and adversely affect our business, financial condition and results of operation.

 

 

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Negative publicity could adversely affect our reputation and brand.

Negative publicity about our company, including our technology, sales practices, personnel or customer service, could diminish confidence in and the use of our products. The media has previously reported allegations that we manipulate our reviews, rankings and ratings in favor of our advertisers and against non-advertisers. In order to demonstrate that our filtering process applies in a non-discriminatory manner to both advertisers and non-advertisers, we have made all filtered reviews accessible on our platform. We have also allowed businesses to publicly comment on negative reviews so that they can provide their response. Nevertheless, our reputation and brand, the traffic to our website and mobile app and our business may suffer if negative publicity about our company persists or if users otherwise perceive that content on our website and mobile app is manipulated or biased. In addition, our website and mobile app serve as a platform for expression by our users, and third parties or the public at large may attribute the political or other sentiments expressed by users on our platform to us, which could harm our reputation.

If we fail to maintain and expand our base of advertisers, our revenue and our business will be harmed.

In the nine months ended September 30, 2011, substantially all of our revenue was generated by the sale of advertising products. Our ability to grow our business depends on our ability to maintain and expand our advertiser base. To do so, we must convince prospective advertisers of the benefits of our products, including those who may not be familiar with our products (such as those in new markets). In addition, we have incurred significant costs to attract current and future advertisers and expect to incur significant additional costs for the foreseeable future. We may face greater challenges as we continue to expand our advertiser base in businesses outside the restaurant and shopping categories, which together accounted for approximately 46% of the businesses that have been reviewed on our platform and 63% of our cumulative reviews through September 30, 2011, especially if these businesses believe that consumers perceive the utility of our platform to be limited to finding businesses in the restaurant and shopping categories. We must also convince existing and prospective advertisers alike that our advertising products work to their benefit. Many of these businesses are more accustomed to using more traditional methods of advertising, such as newspapers or print yellow pages directories. Failure to maintain and expand the advertiser base could harm our business.

Our advertisers do not typically have long-term obligations to purchase our products. In addition, we rely heavily on advertising spend by small and medium-sized local businesses, which have historically experienced high failure rates and often have limited advertising budgets. As a result, we may experience attrition in our advertisers in the ordinary course of business resulting from several factors, including losses to competitors, lower priced competitors, perceptions that our advertising solutions are unnecessary or ineffective, declining advertising budgets, closures and bankruptcies. We must continually add new advertisers both to replace advertisers who choose not to renew their advertising or who go out of business, or otherwise fail to fulfill their advertising contracts with us, and to grow our business. Our advertisers’ decisions to renew depend on a number of factors, including the degree of satisfaction with our products and their ability to continue their operations and spending levels. The ratings and reviews that businesses receive from our users may also affect advertising decisions by current and prospective advertisers. For instance, favorable ratings and reviews, on the one hand, could be perceived as obviating the need to advertise, and unfavorable ratings and reviews, on the other, could discourage businesses from advertising to an audience they perceive as hostile or cause them to form a negative opinion of our products and user base which could discourage them from doing business with us. If our advertisers increase their rates of non-renewal or if we experience significant advertiser attrition or contract breach, or if we are unable to attract new advertisers in numbers greater than the number of advertisers that we lose, our client base will decrease and our business, financial condition and results of operations would be harmed.

 

 

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If we fail to expand effectively into new markets, both domestically and abroad, our revenue and our business will be harmed.

We intend to expand our operations into new markets, both domestically and abroad. We may incur losses or otherwise fail to enter new markets successfully. Our expansion into new markets places us in competitive environments with which we are unfamiliar and involves various risks, including the need to invest significant resources and the possibility that returns on such investments will not be achieved for several years, or at all. In attempting to establish a presence in new markets, we expect, as we have in the past, to incur significant expenses and face various other challenges, such as expanding our sales force and community management personnel to cover those new markets. Our current and any future expansion plans will require significant resources and management attention. Furthermore, we have already entered many of the largest markets in the United States and further expansion in smaller markets may not yield similar results or sustain our growth.

Our international operations involve additional risks, and our exposure to these risks will increase as we expand internationally.

We have started to expand our operations internationally. We expect to expand our international operations significantly by accessing new markets abroad and expanding our offerings in new languages. Our platform is now available in English and several other languages. However, we may have difficulty modifying our technology and content for use in non-English-speaking markets or fostering new communities in non-English-speaking markets. Our ability to manage our business and conduct our operations internationally requires considerable management attention and resources, and is subject to the particular challenges of supporting a rapidly growing business in an environment of multiple languages, cultures, customs, legal systems, alternative dispute systems, regulatory systems and commercial infrastructures. Furthermore, in most international markets, we would not be the first entrant, and our competitors may be better positioned than we are to succeed. Expanding internationally may subject us to risks that we have either not faced before or increase our exposure to risks that we currently face, including risks associated with:

 

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recruiting and retaining qualified, multi-lingual employees, including sales personnel;

 

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increased competition from local websites and guides and potential preferences by local populations for local providers;

 

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compliance with applicable foreign laws and regulations, including different privacy, censorship and liability standards and regulations and different intellectual property laws;

 

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providing solutions in different languages for different cultures, which may require that we modify our solutions and features to ensure that they are culturally relevant in different countries;

 

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the enforceability of our intellectual property rights;

 

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credit risk and higher levels of payment fraud;

 

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compliance with anti-bribery laws, including compliance with the Foreign Corrupt Practices Act and the U.K. Bribery Act;

 

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currency exchange rate fluctuations;

 

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foreign exchange controls that might prevent us from repatriating cash earned outside the United States;

 

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political and economic instability in some countries;

 

 

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  Ÿ  

double taxation of our international earnings and potentially adverse tax consequences due to changes in the tax laws of the United States or the foreign jurisdictions in which we operate; and

 

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higher costs of doing business internationally.

Many people use smartphones and other mobile devices to access information about local businesses. If we are not successful in developing solutions that generate revenue from our mobile application, or those solutions are not widely adopted, our results of operations and business could be adversely affected.

The number of people who access information about local businesses through mobile devices, including smartphones and handheld tablets or computers, has increased dramatically in the past few years and is expected to increase. Because we do not currently deliver advertising on our mobile app, we have not materially monetized our mobile app to date. If consumers use our mobile app at the expense of our website, our advertisers may stop or reduce advertising on our website, and they may be unable to advertise on our mobile app unless we develop effective mobile advertising solutions that are compelling to them. Similarly, we may be unable to attract new advertisers unless we develop effective mobile advertising solutions. At the same time, it is important that any mobile advertising solutions that we develop do not adversely affect our users’ experience. If we fail to develop effective advertising solutions, if our solutions alienate our user base, or if our solutions are not widely adopted or are insufficiently profitable, our business may suffer.

Additionally, as new mobile devices and platforms are released, it is difficult to predict the problems we may encounter in developing products for these alternative devices and platforms, and we may need to devote significant resources to the creation, support, and maintenance of such products. In addition, if we experience difficulties in the future in integrating our mobile app into mobile devices or if problems arise with our relationships with providers of mobile operating systems or mobile application download stores, such as those of Apple or Google, if our applications receive unfavorable treatment compared to the promotion and placement of competing applications, such as the order of our products in the Apple AppStore, or if we face increased costs to distribute our mobile app, our future growth and our results of operations could suffer.

We expect to face increased competition in the market.

The market for information regarding local businesses and advertising is intensely competitive and rapidly changing. With the emergence of new technologies and market entrants, competition is likely to intensify in the future. Our competitors include, among others; offline media companies and service providers; newspaper, television, and other media companies, Internet search engines, such as Google, Yahoo! and Bing; and various other online service providers. Our competitors may enjoy competitive advantages, such as greater name recognition, longer operating histories, substantially greater market share, large existing user bases and substantially greater financial, technical and other resources. These companies may use these advantages to offer products similar to ours at a lower price, develop different products to compete with our current solutions and respond more quickly and effectively than we do to new or changing opportunities, technologies, standards or client requirements. In particular, major Internet companies, such as Google, Facebook, Yahoo! and Microsoft may be more successful than us in developing and marketing online advertising offerings directly to local businesses, and many of our advertisers and potential advertisers may choose to purchase online advertising services from these competitors and may reduce their purchases of our products. In addition, many of our current and potential competitors have established marketing relationships with and access to larger client bases. As the market for local online advertising increases, new competitors, business models and solutions are likely to emerge. We also compete with these companies for the attention of contributors and consumers,

 

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and may experience decreases in both if our competitors offer more compelling environments. For all of these reasons, we may be unable to maintain or grow the number of people who use our website and mobile app and the number of businesses that use our advertising solutions and we may face pressure to reduce the price of our advertising solutions, in which case our business, results of operations and financial condition will be harmed.

The traffic to our website and mobile application may decline and our business may suffer if other companies copy information from our platform and publish or aggregate it with other information for their own benefit.

From time to time, other companies copy information from our platform, through website scraping, robots or other means, and publish or aggregate it with other information for their own benefit. For example, in parts of 2010 and 2011, Google incorporated content from our website into its own local product without our permission. Google’s users, as a result, may not have visited our website because they found the information they sought on Google. Our Chief Executive Officer recently testified before the U.S. Senate Committee on the Judiciary, Subcommittee on Antitrust, Competition Policy and Consumer Rights regarding Google’s practices in this regard. While we do not believe that Google is still incorporating our content within its local products, we have no assurance that Google or other companies will not copy, publish or aggregate content from our platform in the future.

When third parties copy, publish, or aggregate content from our platform, it makes them more competitive, and decreases the likelihood that consumers will visit our website or use our mobile app to find the information they seek, which could negatively affect our business, results of operations and financial condition. We may not be able to detect such third-party conduct in a timely manner and, even if we could, we may not be able to prevent it. In some cases, particularly in the case of websites operating outside of the United States, our available remedies may be inadequate to protect us against such practices. In addition, we may be required to expend significant financial or other resources to successfully enforce our rights.

The impact of worldwide economic conditions, including the resulting effect on advertising spending by local businesses, may adversely affect our business, operating results and financial condition.

Our performance is subject to worldwide economic conditions and their impact on levels of advertising spend by small and medium-sized businesses, which may be disproportionately affected by economic downturns. To the extent that the current economic slowdown continues, or worldwide economic conditions materially deteriorate, our existing and potential advertising clients may no longer consider investment in our advertising solutions a necessity, or may elect to reduce advertising budgets. Historically, economic downturns have resulted in overall reductions in advertising spending. In particular, web-based advertising solutions may be viewed by some of our existing and potential advertising clients as a lower priority and could cause advertisers to reduce the amounts they spend on advertising, terminate their use of our solutions or default on their payment obligations to us. In addition, economic conditions may adversely impact levels of consumer spending, which could adversely impact the numbers of consumers visiting our website and mobile app. Consumer purchases of discretionary items generally decline during recessionary periods and other periods in which disposable income is adversely affected. If spending at many of the local businesses reviewed on our website or mobile app declines, businesses may be less likely to use our advertising products, which could have a material adverse effect on our financial condition and results of operations.

We face potential liability and expense for legal claims based on the content on our platform.

We face potential liability and expense for legal claims relating to the information that we publish on our website and mobile app, including claims for defamation, libel, negligence and copyright or

 

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trademark infringement, among others. For example, businesses in the past have claimed, and may in the future claim, that we are responsible for defamatory reviews posted by our users. We expect claims like these to continue, and potentially increase in proportion to the amount of content on our platform. These claims could divert management time and attention away from our business and result in significant costs to investigate and defend, regardless of the merits of the claims. In some instances, we may elect or be compelled to remove content or may be forced to pay substantial damages if we are unsuccessful in our efforts to defend against these claims. If we elect or are compelled to remove valuable content from our website or mobile app, our platform may become less useful to consumers and our traffic may decline, which could have a negative impact on our business and financial performance.

Our business could suffer if the jurisdictions in which we operate change the way in which they regulate the Internet, including regulations relating to user-generated content and privacy.

Our business, including our ability to operate and expand internationally, could be adversely affected if legislation or regulations are adopted, interpreted or implemented in a manner that is inconsistent with our current business practices and that requires changes to these practices or the design of our platform, products or features. For example, if legislation is passed that limits the immunities afforded to websites that publish user-generated content, we may be compelled to remove content from our platform that we would otherwise publish, restrict the types of businesses that our users can review or further verify the identity of our users, among other changes. If legislation is passed that limits our ability to use or store information about our users, we may be compelled to provide additional disclosures to our users, obtain additional consents from our users before collecting or using their information or implement new safeguards to help our users manage our use of their information, among other changes. Legislative developments like these have already been proposed both domestically and abroad, including recent proposals by the European Commission.

Changes like these could increase our administrative costs and make it more difficult for consumers to use our platform resulting in less traffic and revenue. Similarly, changes like these could make it more difficult for us to provide effective advertising tools to businesses on our platform, resulting in fewer advertisers and less revenue. In either case, our business could suffer.

If we fail to manage our growth effectively, our brand, results of operations and business could be harmed.

We have experienced rapid growth in our headcount and operations, which places substantial demands on management and our operational infrastructure. Most of our employees have been with us for fewer than two years. We intend to make substantial investments in our technology, sales and marketing and community management organizations. As we continue to grow, we must effectively integrate, develop and motivate a large number of new employees, including employees in international markets, while maintaining the beneficial aspects of our company culture. If we do not manage the growth of our business and operations effectively, the quality of our platform and efficiency of our operations could suffer, which could harm our brand, results of operations and business.

We may not timely and effectively scale and adapt our existing technology and network infrastructure to ensure that our platform is accessible.

It is important to our success that users in all geographies be able to access our platform at all times. We have previously experienced, and may experience in the future, service disruptions, outages and other performance problems due to a variety of factors, including infrastructure changes, human or software errors, capacity constraints due to an overwhelming number of users accessing our platform simultaneously, and denial of service or fraud or security attacks. In some instances, we may not be

 

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able to identify the cause or causes of these performance problems within an acceptable period of time. It may become increasingly difficult to maintain and improve the availability of our platform, especially during peak usage times and as our solutions become more complex and our user traffic increases. If our platform is unavailable when users attempt to access it or it does not load as quickly as they expect, users may seek other services to obtain the information for which they are looking, and may not return to our platform as often in the future, or at all. This would negatively impact our ability to attract users and advertisers and increase the frequency with which they use our website and mobile app. We expect to continue to make significant investments to maintain and improve the availability of our platform and to enable rapid releases of new features and products. To the extent that we do not effectively address capacity constraints, upgrade our systems as needed and continually develop our technology and network architecture to accommodate actual and anticipated changes in technology, our business and operating results may be harmed.

Our disaster recovery program contemplates transitioning our platform and data to a backup center in the event of a catastrophe, but we have not yet tested the procedure in full, and the transition procedure may take several days or more to complete. During this time, our platform may be unavailable in whole or in part to our users.

We are, and may in the future be, subject to disputes and assertions by third parties that we violate their rights. These disputes may be costly to defend and could harm our business and operating results.

We currently face, and we expect to face from time to time in the future, allegations that we have violated the rights of third parties, including patent, trademark, copyright and other intellectual property rights. For example, third parties have sued us for allegedly violating their patent rights (we are currently a defendant in seven such suits, all of which involve plaintiffs targeting multiple defendants in the same or similar suits), an action was filed against us on behalf of current and former employees claiming that we violated labor and other laws (we have agreed in principle, subject to court approval, to settle the suit for up to $1.3 million) and various businesses have sued us alleging that we manipulate Yelp reviews in order to coerce them and other businesses to pay for Yelp advertising (one such suit was voluntarily dismissed, and two others were consolidated and recently dismissed with prejudice, although the plaintiffs are seeking an appeal).

Other claims against us can be expected to be made in the future. Even if the claims are without merit, the costs associated with defending these types of claims may be substantial, both in terms of time, money, and management distraction. In particular, patent and other intellectual property litigation may be protracted and expensive, and the results are difficult to predict and may require us to stop offering certain features, purchase licenses or modify our products and features while we develop non-infringing substitutes or may result in significant settlement costs. We do not own any patents, and, therefore, may be unable to deter competitors or others from pursuing patent or other intellectual property infringement claims against us.

The results of litigation and claims to which we may be subject cannot be predicted with certainty. Even if these matters do not result in litigation or are resolved in our favor or without significant cash settlements, these matters, and the time and resources necessary to litigate or resolve them, could harm our business, results or operations and reputation.

Some of our solutions contain open source software, which may pose particular risks to our proprietary software and solutions.

We use open source software in our solutions and will use open source software in the future. From time to time, we may face claims from third parties claiming ownership of, or demanding release

 

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of, the open source software and/or derivative works that we developed using such software (which could include our proprietary source code), or otherwise seeking to enforce the terms of the applicable open source license. These claims could result in litigation and could require us to purchase a costly license or cease offering the implicated solutions unless and until we can re-engineer them to avoid infringement. This re-engineering process could require significant additional research and development resources. In addition to risks related to license requirements, use of certain open source software can lead to greater risks than use of third-party commercial software, as open source licensors generally do not provide warranties or controls on the origin of software. Any of these risks could be difficult to eliminate or manage, and, if not addressed, could have a negative effect on our business and operating results.

We make the consumer experience our highest priority. Our dedication to making decisions based primarily on the best interests of consumers may cause us to forgo short-term gains and advertising revenue.

We base many of our decisions upon the best interests of the consumers who use our platform. We believe that this approach has been essential to our success in increasing our user growth rate and the frequency with which consumers use our platform and has served the long-term interests of our company and our stockholders. In the past, we have forgone, and we may in the future forgo, certain expansion or revenue opportunities that we do not believe are in the best interests of consumers, even if such decisions negatively impact our results of operations in the short term, and we believe that continued adherence to this principle will, in the long term, benefit our stockholders. In particular, our approach of putting our consumers first may negatively impact our relationships with our existing or prospective advertisers. For example, unless we believe that a review violates our terms of service, such as reviews that contain hate speech or bigotry, we allow the review to remain on the platform, even if the business disputes its accuracy. Certain advertisers may therefore perceive us as an impediment to their success as a result of negative reviews and ratings. This practice could result in a loss of advertisers, which in turn could harm our results of operations.

We rely on third-party service providers for many aspects of our business.

We rely on data about local businesses from third parties, including various yellow pages and other third parties that license such information to us. We also rely on third parties for other aspects of our business, such as mapping functionality and administrative software solutions. If these third parties experience difficulty meeting our requirements or standards, or our licenses are revoked or not renewed, it could make it difficult for us to operate some aspects of our business, which could damage our reputation. In addition, if such third-party service providers were to cease operations, temporarily or permanently, face financial distress or other business disruption, increase their fees or if our relationships with these providers deteriorate, we could suffer increased costs and delays in our ability to provide consumers and advertisers with content or provide similar services until an equivalent provider could be found or we could develop replacement technology or operations. In addition, if we are unsuccessful in choosing or finding high-quality partners, if we fail to negotiate cost-effective relationships with them, or if we ineffectively manage these relationships, it could have an adverse impact on our business and financial performance.

We expect a number of factors to cause our operating results to fluctuate on a quarterly and annual basis, which may make it difficult to predict our future performance.

Our operating results could vary significantly from quarter to quarter and year to year because of a variety of factors, many of which are outside of our control. As a result, comparing our operating

 

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results on a period-to-period basis may not be meaningful. In addition to other risk factors discussed in this section, factors that may contribute to the variability of our quarterly and annual results include:

 

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our ability to attract new local business advertisers and retain existing advertisers;

 

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our ability to accurately forecast revenue and appropriately plan our expenses;

 

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the effects of changes in search engine placement and prominence;

 

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the effects of increased competition in our business;

 

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our ability to successfully expand in existing markets, enter new markets and manage our international expansion;

 

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the impact of worldwide economic conditions, including the resulting effect on consumer spending at local businesses and the level of advertising spending by local businesses;

 

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our ability to protect our intellectual property;

 

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our ability to maintain an adequate rate of growth and effectively manage that growth;

 

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our ability to maintain and increase traffic to our website and mobile app;

 

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our ability to keep pace with changes in technology;

 

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the success of our sales and marketing efforts;

 

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costs associated with defending intellectual property infringement and other claims and related judgments or settlements;

 

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changes in government regulation affecting our business;

 

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interruptions in service and any related impact on our reputation;

 

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the attraction and retention of qualified employees and key personnel;

 

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our ability to choose and effectively manage third-party service providers;

 

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the impact of fluctuations in currency exchange rates;

 

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our ability to successfully manage any acquisitions of businesses, solutions or technologies;

 

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the effects of natural or man-made catastrophic events;

 

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changes in consumer behavior with respect to local businesses;

 

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the effectiveness of our internal controls; and

 

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changes in our tax rates or exposure to additional tax liabilities.

Because we recognize most of the revenue from our advertising products over the term of an agreement, a significant downturn in our business may not be immediately reflected in our results of operations.

We recognize revenue from sales of our advertising products over the terms of the applicable agreements, which are generally three, six or 12 months. As a result, a significant portion of the revenue we report in each quarter is generated from agreements entered into during previous quarters. Consequently, a decline in new or renewed agreements in any one quarter may not significantly impact our revenue in that quarter but will negatively affect our revenue in future quarters. In addition, we may be unable to adjust our fixed costs in response to reduced revenue. Accordingly, the effect of significant declines in advertising sales may not be reflected in our short-term results of operations.

 

 

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We rely on the performance of highly skilled personnel, and if we are unable to attract, retain and motivate well-qualified employees, our business could be harmed.

We believe our success has depended, and continues to depend, on the efforts and talents of our employees, including Jeremy Stoppelman, our Chief Executive Officer, Geoff Donaker, our Chief Operating Officer, and our software engineers, marketing professionals and advertising sales staff. Our future success depends on our continuing ability to attract, develop, motivate and retain highly qualified and skilled employees. Qualified individuals are in high demand, and we may incur significant costs to attract them. In addition, the loss of any of our senior management or key employees could materially adversely affect our ability to execute our business plan, and we may not be able to find adequate replacements. All of our officers and other U.S. employees are at-will employees, which means they may terminate their employment relationship with us at any time, and their knowledge of our business and industry would be extremely difficult to replace. We cannot ensure that we will be able to retain the services of any members of our senior management or other key employees. If we do not succeed in attracting well-qualified employees or retaining and motivating existing employees, our business could be harmed.

Failure to protect or enforce our intellectual property rights could harm our business and results of operations.

We regard the protection of our trade secrets, copyrights, trademarks and domain names as critical to our success. In particular, we must maintain, protect and enhance the “Yelp” brand. We pursue the registration of our domain names, trademarks, and service marks in the United States and in certain jurisdictions abroad. We strive to protect our intellectual property rights by relying on federal, state and common law rights, as well as contractual restrictions. We typically enter into confidentiality and invention assignment agreements with our employees and contractors, and confidentiality agreements with parties with whom we conduct business in order to limit access to, and disclosure and use of, our proprietary information. However, these contractual arrangements and the other steps we have taken to protect our intellectual property may not prevent the misappropriation or disclosure of our proprietary information nor deter independent development of similar technologies by others.

Effective trade secret, copyright, trademark and domain name protection is expensive to develop and maintain, both in terms of initial and ongoing registration requirements and expenses and the costs of defending our rights. We are seeking to protect our trademarks and domain names in an increasing number of jurisdictions, a process that is expensive and may not be successful or which we may not pursue in every location. Litigation may be necessary to enforce our intellectual property rights, protect our respective trade secrets or determine the validity and scope of proprietary rights claimed by others. Any litigation of this nature, regardless of outcome or merit, could result in substantial costs and diversion of management and technical resources, any of which could adversely affect our business and operating results. We may incur significant costs in enforcing our trademarks against those who attempt to imitate our “Yelp” brand. If we fail to maintain, protect and enhance our intellectual property rights, our business and operating results may be harmed.

We may be unable to continue to use the domain names that we use in our business, or prevent third parties from acquiring and using domain names that infringe on, are similar to, or otherwise decrease the value of our brand or our trademarks or service marks.

We have registered domain names for our website that we use in our business, such as Yelp.com. If we lose the ability to use a domain name, whether due to trademark claims, failure to renew the applicable registration, or any other cause, we may be forced to market our products under a new domain name, which could cause us substantial harm, or to incur significant expense in order to purchase rights to the domain name in question. In addition, our competitors and others could attempt

 

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to capitalize on our brand recognition by using domain names similar to ours. Domain names similar to ours have been registered in the United States and elsewhere. We may be unable to prevent third parties from acquiring and using domain names that infringe on, are similar to, or otherwise decrease the value of our brand or our trademarks or service marks. Protecting and enforcing our rights in our domain names may require litigation, which could result in substantial costs and diversion of management’s attention.

If our security measures are compromised, or if our platform is subject to attacks that degrade or deny the ability of users to access our content, users may curtail or stop use of our platform.

Like all online services, our platform is vulnerable to computer viruses, break-ins, phishing attacks, attempts to overload our servers with denial-of-service or other attacks and similar disruptions from unauthorized use of our computer systems, any of which could lead to interruptions, delays, or website shutdowns, causing loss of critical data or the unauthorized disclosure or use of personally identifiable or other confidential information. If we experience compromises to our security that result in performance or availability problems, the complete shutdown of our website, or the loss or unauthorized disclosure of confidential information, our users or advertisers may lose trust and confidence in us, and decrease the use of our platform or stop using our platform in its entirety. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently, and often are not recognized until launched against a target and may originate from less regulated and remote areas around the world, we may be unable to proactively address these techniques or to implement adequate preventative measures. Any or all of these issues could negatively impact our ability to attract new users or could deter current users from returning or reduce the frequency with which consumers and advertisers use our solutions, cause existing or potential advertisers to cancel their contracts or subject us to third-party lawsuits, regulatory fines or other action or liability, thereby harming our results of operations.

We process, store and use personal information and other data, which subjects us to governmental regulation and other legal obligations related to privacy. Our actual or perceived failure to comply with such obligations could harm our business.

We receive, store and process personal information and other user data, including credit card information for certain users. There are numerous federal, state and local laws around the world regarding privacy and the storing, sharing, use, processing, disclosure and protection of personal information and other user data, the scope of which are changing, subject to differing interpretations, and may be inconsistent between countries or conflict with other rules. We generally comply with industry standards and are subject to the terms of our privacy policies and privacy-related obligations to third parties (including, in certain instances, voluntary third-party certification bodies such as TRUSTe). It is possible that these obligations may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. Any failure or perceived failure by us to comply with our privacy policies, our privacy-related obligations to users or other third parties, or our privacy-related legal obligations, or any compromise of security that results in the unauthorized release or transfer of personally identifiable information or other user data, may result in governmental enforcement actions, litigation or negative publicity and could cause our users and advertisers to lose trust in us, which could have an adverse effect on our business. Additionally, if third parties with whom we work, such as advertisers, vendors or developers, violate applicable laws or our policies, such violations may also put our users’ information at risk and could have an adverse effect on our business.

Our business is subject to a variety of U.S. and foreign laws, many of which are unsettled and still developing and which could subject us to claims or otherwise harm our business.

We are subject to a variety of laws in the United States and abroad, including laws regarding data retention, privacy, distribution of user-generated content and consumer protection, that are frequently

 

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evolving and developing. The scope and interpretation of the laws that are or may be applicable to us are often uncertain and may be conflicting, particularly outside the United States. For example, laws relating to the liability of providers of online services for activities of their users and other third parties are currently being tested by a number of claims, including actions based on invasion of privacy and other torts, unfair competition, copyright and trademark infringement, and other theories based on the nature and content of the materials searched, the ads posted, or the content provided by users. In addition, regulatory authorities around the world are considering a number of legislative and regulatory proposals concerning data protection and other matters that may be applicable to our business. It is also likely that if our business grows and evolves and our solutions are used in a greater number of countries, we will become subject to laws and regulations in additional jurisdictions. It is difficult to predict how existing laws will be applied to our business and the new laws to which we may become subject.

If we are not able to comply with these laws or regulations or if we become liable under these laws or regulations, we could be directly harmed, and we may be forced to implement new measures to reduce our exposure to this liability. This may require us to expend substantial resources or to discontinue certain products or features, which would negatively affect our business. In addition, the increased attention focused upon liability issues as a result of lawsuits and legislative proposals could harm our reputation or otherwise impact the growth of our business. Any costs incurred to prevent or mitigate this potential liability could also harm our business and operating results.

Domestic and foreign laws may be interpreted and enforced in ways that impose new obligations on us with respect to Yelp Deals, which may harm our business and results of operations.

Our Yelp Deals products may be deemed gift certificates, store gift cards, general-use prepaid cards, or other vouchers, or “gift cards”, subject to, among other laws, the federal Credit Card Accountability Responsibility and Disclosure Act of 2009 (“Credit CARD Act of 2009”) and similar federal, state and foreign laws. Many of these laws include specific disclosure requirements and prohibitions or limitations on the use of expiration dates and the imposition of certain fees. For example, the Credit CARD Act of 2009 requires that gift cards expire no earlier than five years after their issue. While the promotional value of a Yelp Deal typically ends one year after the date of purchase, the purchase value of the Yelp Deal does not expire. Various companies that provide deal products similar to ours are currently defendants in purported class action lawsuits that have been filed in federal and state court claiming that their deal products are subject to the Credit CARD Act of 2009 and various state laws governing gift cards and that the defendants have violated these laws as a result of expiration dates and other restrictions they have placed on their deals. Similar lawsuits have been filed in other locations in which we plan to sell our Yelp Deals, such as the Canadian province of Ontario, alleging similar violations of provincial legislation governing gift cards.

The application of various other laws and regulations to our products, and particularly our Yelp Deals, is uncertain. These include laws and regulations pertaining to unclaimed and abandoned property, partial redemption, revenue-sharing restrictions on certain trade groups and professions, sales and other local taxes and the sale of alcoholic beverages. In addition, we may become, or be determined to be, subject to federal, state or foreign laws regulating money transmitters or aimed at preventing money laundering or terrorist financing, including the Bank Secrecy Act, the USA PATRIOT Act and other similar future laws or regulations.

If we become subject to claims or are required to alter our business practices as a result of current or future laws and regulations, our revenue could decrease, our costs could increase and our business could otherwise be harmed. In addition, the costs and expenses associated with defending any actions related to such additional laws and regulations and any payments of related penalties, fines, judgments or settlements could harm our business.

 

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We may require additional capital to support business growth, and this capital might not be available on acceptable terms, if at all.

We intend to continue to make investments to support our business growth and may require additional funds to respond to business challenges, including the need to develop new features and products or enhance our existing services, improve our operating infrastructure or acquire complementary businesses and technologies. Accordingly, we may need to engage in equity or debt financings to secure additional funds. If we raise additional funds through future issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our Class A common stock. Any debt financing we secure in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. We may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our business growth and to respond to business challenges could be significantly impaired, and our business may be harmed.

We may acquire other companies or technologies, which could divert our management’s attention, result in additional dilution to our stockholders and otherwise disrupt our operations and harm our operating results.

Our success will depend, in part, on our ability to expand our product offerings and grow our business in response to changing technologies, user and advertiser demands and competitive pressures. In some circumstances, we may determine to do so through the acquisition of complementary businesses or technologies rather than through internal development. We do not have experience acquiring other businesses and technologies. The pursuit of potential acquisitions may divert the attention of management and cause us to incur expenses in identifying, investigating and pursuing suitable acquisitions, whether or not they are consummated. Furthermore, even if we successfully acquire additional businesses or technologies, we may not be able to integrate the acquired personnel, operations and technologies successfully, or effectively manage the combined business following the acquisition. We also may not achieve the anticipated benefits from the acquired business or technology. In addition, we may unknowingly inherit liabilities from future acquisitions that arise after the acquisition and are not adequately covered by indemnities. Acquisitions could also result in dilutive issuances of equity securities or the incurrence of debt, which could adversely affect our results of operations. If an acquired business or technology fails to meet our expectations, our business, results of operations and financial condition may suffer.

Our business is subject to the risks of earthquakes, fires, floods and other natural catastrophic events and to interruption by man-made problems such as computer viruses or terrorism.

Our systems and operations are vulnerable to damage or interruption from earthquakes, fires, floods, power losses, telecommunications failures, terrorist attacks, acts of war, human errors, break-ins and similar events. For example, a significant natural disaster, such as an earthquake, fire or flood, could have a material adverse impact on our business, operating results and financial condition, and our insurance coverage may be insufficient to compensate us for losses that may occur. Our U.S. corporate offices and one of the facilities we lease to house our computer and telecommunications equipment are located in the San Francisco Bay Area, a region known for seismic activity. In addition, acts of terrorism, which may be targeted at metropolitan areas that have higher population density than rural areas, could cause disruptions in our or our local business advertisers’ businesses or the economy as a whole. Our servers may also be vulnerable to computer viruses, break-ins and similar disruptions from unauthorized tampering with our computer systems, which could lead to interruptions,

 

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delays, loss of critical data or the unauthorized disclosure of confidential client data. We may not have sufficient protection or recovery plans in certain circumstances, such as natural disasters affecting the San Francisco Bay Area, and our business interruption insurance may be insufficient to compensate us for losses that may occur. As we rely heavily on our servers, computer and communications systems and the Internet to conduct our business and provide high quality customer service, such disruptions could negatively impact our ability to run our business and either directly or indirectly disrupt our local business advertisers’ businesses, which could have an adverse affect on our business, operating results and financial condition.

The intended tax benefits of our corporate structure and intercompany arrangements depend on the application of the tax laws of various jurisdictions and on how we operate our business.

Our corporate structure and intercompany arrangements, including the manner in which we develop and use our intellectual property and the transfer pricing of our intercompany transactions, are intended to reduce our worldwide effective tax rate. The application of the tax laws of various jurisdictions, including the United States, to our international business activities is subject to interpretation and depends on our ability to operate our business in a manner consistent with our corporate structure and intercompany arrangements. The taxing authorities of the jurisdictions in which we operate may challenge our methodologies for valuing developed technology or intercompany arrangements, including our transfer pricing, or determine that the manner in which we operate our business does not achieve the intended tax consequences, which could increase our worldwide effective tax rate and harm our financial position and results of operations.

Our corporate structure includes legal entities located in jurisdictions with income tax rates lower than the U.S. statutory tax rate. Our intercompany arrangements allocate income to such entities in accordance with arm’s-length principles and commensurate with functions performed, risks assumed and ownership of valuable corporate assets. We believe that income taxed in certain foreign jurisdictions at a lower rate relative to the U.S. statutory rate will have a beneficial impact on our worldwide effective tax rate.

Significant judgment is required in evaluating our tax positions and determining our provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. For example, our effective tax rates could be adversely affected by earnings being lower than anticipated in countries where we have lower statutory rates and higher than anticipated in countries where we have higher statutory rates, by changes in foreign currency exchange rates or by changes in the relevant tax, accounting and other laws, regulations, principles and interpretations. As we operate in numerous taxing jurisdictions, the application of tax laws can be subject to diverging and sometimes conflicting interpretations by tax authorities of these jurisdictions. It is not uncommon for taxing authorities in different countries to have conflicting views, for instance, with respect to, among other things, the manner in which the arm’s length standard is applied for transfer pricing purposes, or with respect to the valuation of intellectual property. In addition, tax laws are dynamic and subject to change as new laws are passed and new interpretations of the law are issued or applied. In particular, there is uncertainty in relation to the U.S. tax legislation in terms of the future corporate tax rate but also in terms of the U.S. tax consequences of income derived from income related to intellectual property earned overseas in low tax jurisdictions.

Our existing corporate structure and intercompany arrangements have been implemented in a manner we believe is in compliance with current prevailing tax laws. However, the tax benefits which we intend to eventually derive could be undermined if we are unable to adapt the manner in which we operate our business and due to changing tax laws.

 

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The enactment of legislation implementing changes in the U.S. taxation of international business activities or the adoption of other tax reform policies could materially impact our financial condition and results of operations.

The current administration has made public statements indicating that it has made international tax reform a priority, and key members of the U.S. Congress have conducted hearings and proposed new legislation. Recent changes to U.S. tax laws, including limitations on the ability of taxpayers to claim and utilize foreign tax credits and the deferral of certain tax deductions until earnings outside of the United States are repatriated to the United States, as well as changes to U.S. tax laws that may be enacted in the future, could impact the tax treatment of our foreign earnings. Due to the expanding scale of our international business activities, any changes in the U.S. taxation of such activities may increase our worldwide effective tax rate and harm our financial condition and results of operations.

Risks Related to this Offering and Ownership of Our Class A Common Stock

The dual class structure of our common stock has the effect of concentrating voting control with those stockholders who held our stock prior to this offering, including our founders, directors, executive officers and employees and their affiliates, and limiting your ability to influence corporate matters.

Our Class B common stock has 10 votes per share, and our Class A common stock, which is the stock we are offering in this initial public offering, has one vote per share. Stockholders who hold shares of Class B common stock, including our founders, directors, executive officers and employees and their affiliates, will together beneficially own shares representing approximately     % of the voting power of our outstanding capital stock following this offering. Consequently, the holders of Class B common stock collectively will continue to be able to control all matters submitted to our stockholders for approval even if their stock holdings represent less than 50% of the outstanding shares of our common stock. Because of the 10-to-1 voting ratio between our Class B and Class A common stock, the holders of our Class B common stock collectively will continue to control a majority of the combined voting power of our common stock even when the shares of Class B common stock represent a small minority of all outstanding shares of our Class A and Class B common stock. This concentrated control will limit your ability to influence corporate matters for the foreseeable future, and, as a result, the market price of our Class A common stock could be adversely affected.

Future transfers by holders of Class B common stock will generally result in those shares converting to Class A common stock, which will have the effect, over time, of increasing the relative voting power of those holders of Class B common stock who retain their shares in the long term, which may include existing founders, officers and directors and their affiliates.

Our share price may be volatile, and you may be unable to sell your shares at or above the offering price, if at all.

The initial public offering price for the shares of our Class A common stock will be determined by negotiations between us and the representative of the underwriters and may not be indicative of prices that will prevail in the trading market. The market price of our Class A common stock could be subject to wide fluctuations in response to many risk factors listed in this section, and others beyond our control, including:

 

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actual or anticipated fluctuations in our financial condition and operating results;

 

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changes in projected operating and financial results;

 

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actual or anticipated changes in our growth rate relative to our competitors;

 

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announcements of technological innovations or new offerings by us or our competitors;

 

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announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital-raising activities or commitments;

 

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additions or departures of key personnel;

 

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issuance of research or reports by securities analysts;

 

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fluctuations in the valuation of companies perceived by investors to be comparable to us;

 

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sales of our Class A or Class B common stock;

 

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changes in laws or regulations applicable to our solutions;

 

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share price and volume fluctuations attributable to inconsistent trading volume levels of our shares;

 

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the expiration of contractual lock-up agreements; and

 

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general economic and market conditions.

Furthermore, the stock markets recently have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political and market conditions such as recessions, interest rate changes or international currency fluctuations, may negatively impact the market price of our Class A common stock. If the market price of our Class A common stock after this offering does not exceed the initial public offering price, you may not realize any return on your investment in us and may lose some or all of your investment. In the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could harm our business.

No public market for our common stock currently exists, and an active public trading market may not develop or be sustained following this offering.

Prior to this offering, there has been no public market for our common stock. Although we have applied to list our Class A common stock on the                     , an active trading market may not develop following the completion of this offering or, if developed, may not be sustained. The lack of an active market may impair your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. The lack of an active market may also reduce the fair value of your shares. An inactive market may also impair our ability to raise capital to continue to fund operations by selling shares and may impair our ability to acquire other companies or technologies by using our shares as consideration.

We do not intend to pay dividends for the foreseeable future, and as a result your ability to achieve a return on your investment will depend on appreciation in the price of our Class A common stock.

We have never declared or paid any cash dividends on our common stock and do not intend to pay any cash dividends in the foreseeable future. We anticipate that we will retain all of our future earnings for use in the development of our business and for general corporate purposes. Any determination to pay dividends in the future will be at the discretion of our board of directors.

 

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Accordingly, investors must rely on sales of their Class A common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments.

Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us more difficult, limit attempts by our stockholders to replace or remove our current management and limit the market price of our Class A common stock.

Provisions in our certificate of incorporation and bylaws, as amended and restated in connection with this offering, may have the effect of delaying or preventing a change of control or changes in our management. Our amended and restated certificate of incorporation and amended and restated bylaws will include provisions that:

 

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authorize our board of directors to issue, without further action by the stockholders, up to              shares of undesignated preferred stock;

 

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require that any action to be taken by our stockholders be effected at a duly called annual or special meeting and not by written consent;

 

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specify that special meetings of our stockholders can be called only by our board of directors, the Chair of our board of directors, or our Chief Executive Officer;

 

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establish an advance notice procedure for stockholder proposals to be brought before an annual meeting, including proposed nominations of persons for election to our board of directors;

 

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establish that our board of directors is divided into three classes, with directors in each class serving three-year staggered terms;

 

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prohibit cumulative voting in the election of directors;

 

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provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum;

 

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require the approval of our board of directors or the holders of a supermajority of our outstanding shares of capital stock to amend our bylaws and certain provisions of our certificate of incorporation; and

 

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reflect two classes of common stock, as discussed above.

These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any “interested” stockholder for a period of three years following the date on which the stockholder became an “interested” stockholder.

Our future depends in part on the interests and influence of key stockholders.

Following this offering, our directors, executive officers and holders of more than 5% of our common stock, some of whom are represented on our board of directors, together with their affiliates, (including institutional investors such as Benchmark Capital, Bessemer Venture Partners and Elevation Partners) will beneficially own              shares our Class B common stock, or     % of our outstanding capital stock, which will represent     % of the voting power of our outstanding capital stock. As a result, these stockholders will, immediately following this offering, be able to determine the outcome of matters submitted to our stockholders for approval. This ownership could affect the value of your

 

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shares of common stock by, for example, these stockholders electing to delay, defer or prevent a change in corporate control, merger, consolidation, takeover or other business combination.

We may invest or spend the proceeds of this offering in ways with which you may not agree or in ways which may not yield a return.

The net proceeds from the sale of shares by us in the offering may be used for general corporate purposes, including working capital. We may also use a portion of the net proceeds to acquire complementary businesses, products, services or technologies. However, we do not have any agreements or commitments for any acquisitions at this time. Our management will have considerable discretion in the application of the net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. The net proceeds may be invested with a view towards long-term benefits for our stockholders and this may not increase our operating results or market value. Until the net proceeds are used, they may be placed in investments that do not produce significant income or that may lose value.

If securities or industry analysts do not publish research or reports about our business, or publish negative reports about our business, our share price and trading volume could decline.

The trading market for our Class A common stock will, to some extent, depend on the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts. If our financial performance fails to meet analyst estimates or one or more of the analysts who cover us downgrade our shares or change their opinion of our shares, our share price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline.

Prior to this offering, there has been limited trading of our common stock in alternative online markets at prices that may be higher than what our Class A common stock will trade at once it is listed.

While, prior to this offering, our shares have not been listed on any stock exchange or other public trading market, there has been some trading of our securities, for instance, in private trades or trades on alternative online markets, such as SecondMarket and SharesPost, that exist for privately traded securities. These markets are speculative, and the trading price of our securities on these markets is privately negotiated. We cannot assure you that the price of our Class A common stock will equal or exceed the price at which our securities have traded on these private secondary markets.

Future sales of our Class A common stock in the public market could cause our share price to decline.

Sales of a substantial number of shares of our Class A common stock in the public market after this offering, or the perception that these sales might occur, could depress the market price of our Class A common stock and could impair our ability to raise capital through the sale of additional equity securities. Based on the total number of outstanding shares of our common stock as of September 30, 2011, upon the closing of this offering, we will have              shares of Class A common stock and              shares of Class B common stock outstanding, assuming no exercise of our outstanding options and the sale of              shares of our Class A common stock to be sold by the selling stockholders.

All of the shares of Class A common stock sold in this offering will be freely tradable without restrictions or further registration under the Securities Act of 1933, as amended, or the “Securities Act”, except for any shares held by our affiliates as defined in Rule 144 under the Securities Act. The

 

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remaining              shares of Class B common stock outstanding after this offering, based on shares outstanding as of September 30, 2011, will be restricted as a result of securities laws, lock-up agreements or other contractual restrictions that restrict transfers for 180 days after the date of this prospectus, subject to certain extensions.

The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified board members.

As a public company, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the “Exchange Act”, the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing requirements of the              and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources. The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and operating results. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight may be required. As a result, management’s attention may be diverted from other business concerns, which could harm our business and operating results. Although we have already hired additional employees to comply with these requirements, we may need to hire more employees in the future, which will increase our costs and expenses.

In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, regulatory authorities may initiate legal proceedings against us and our business may be harmed.

We also expect that being a public company and these new rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and compensation committee, and qualified executive officers.

As a result of disclosure of information in this prospectus and in filings required of a public company, our business and financial condition will become more visible, which we believe may result in increased threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and operating results could be harmed, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and harm our business and operating results.

 

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As a result of becoming a public company, we will be obligated to develop and maintain proper and effective internal controls over financial reporting. We may not complete our analysis of our internal controls over financial reporting in a timely manner, or these internal controls may not be determined to be effective, which may adversely affect investor confidence in our company and, as a result, the value of our Class A common stock.

We will be required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting for the first fiscal year beginning after the effective date of this offering. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting, as well as a statement that our auditors have issued an attestation report on our management’s assessment of our internal controls.

We are in the early stages of the costly and challenging process of compiling the system and processing documentation necessary to perform the evaluation needed to comply with Section 404. We may not be able to complete our evaluation, testing and any required remediation in a timely fashion. During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal controls are effective.

If we are unable to assert that our internal control over financial reporting is effective, or if our auditors are unable to express an opinion on the effectiveness of our internal controls, we could lose investor confidence in the accuracy and completeness of our financial reports, which would cause the price of our Class A common stock to decline.

Because the initial public offering price of our Class A common stock will be substantially higher than the pro forma net tangible book value per share of our outstanding Class A and Class B common stock following this offering, new investors will experience immediate and substantial dilution.

The initial public offering price of our Class A common stock will be substantially higher than the pro forma net tangible book value per share of our Class A and Class B common stock immediately following this offering based on the total value of our tangible assets less our total liabilities. Therefore, if you purchase shares of our Class A common stock in this offering, you will experience immediate dilution of $ per share, the difference between the price per share you pay for our Class A common stock and its pro forma net tangible book value per share as of September 30, 2011, after giving effect to the issuance of shares of our Class A common stock in this offering. See “Dilution” for more information. Furthermore, investors purchasing shares of our Class A common stock in this offering will only own approximately     % of our outstanding shares of Class A and Class B common stock (and have     % of the combined voting power of the outstanding shares of our Class A and Class B common stock), after the offering even though their aggregate investment will represent     % of the total consideration received by us in connection with all initial sales of              shares of our capital stock outstanding as of September 30, 2011, after giving effect to the issuance of shares of our Class A common stock in this offering and              shares of our Class A common stock to be sold by certain selling stockholders. To the extent outstanding options to purchase our Class B common stock are exercised, investors purchasing our Class A common stock in this offering will experience further dilution.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus, including the sections entitled “Prospectus Summary,” “Risk Factors,” “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” contains forward-looking statements. In some cases you can identify these statements by forward-looking words such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “plan,” “expect” or the negative or plural of these words or similar expressions. These forward-looking statements include, but are not limited to, statements concerning the following:

 

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our ability to compete for quality content and increase the number of reviews on our platform;

 

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our ability to attract and retain advertisers and consumers;

 

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our ability to effectively monetize our mobile application and offer new products through our mobile app that are commercially successful;

 

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our ability to successfully expand in our existing markets and into new domestic and international markets;

 

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our expectations regarding economies of scale and operating cost leverage in mature markets;

 

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future investments in our technology, sales and marketing and community management organizations;

 

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our plans and ability to build out an international sales force and generate revenue internationally;

 

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our ability to benefit from accelerating network effect dynamics;

 

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worldwide economic conditions and their impact on advertising spending;

 

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future trends in search for information regarding local businesses;

 

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our ability to effectively manage our growth and future expenses;

 

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our ability to attract and retain qualified employees and key personnel;

 

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our future relationships with commercial partners;

 

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our ability to maintain, protect and enhance our intellectual property;

 

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our ability to comply with modified or new laws and regulations applying to our business, including copyright and privacy regulation;

 

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our ability to realize the intended tax benefits of our corporate structure and intercompany arrangements;

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our liquidity and working capital requirements;

 

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our plans for the Yelp Foundation; and

 

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our estimates regarding the sufficiency of our cash resources.

These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in “Risk Factors.” Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this prospectus may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. We cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected

 

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in the forward-looking statements will be achieved or occur. Moreover, except as required by law, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this prospectus to conform these statements to actual results or to changes in our expectations.

You should read this prospectus and the documents that we reference in this prospectus and have filed with the Securities and Exchange Commission as exhibits to the registration statement of which this prospectus is a part with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.

MARKET, INDUSTRY AND OTHER DATA

Unless otherwise indicated, information contained in this prospectus concerning our industry and the market in which we operate, including our market opportunity and market size, is based on information from various sources, on assumptions that we have made that are based on those data and other similar sources and on our knowledge of the markets for our products. These data involve a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. The Gartner Report, “Forecast: Mobile Advertising, Worldwide, 2008-2015,” described herein, (the “Gartner Report”) represents data, research opinion or viewpoints published, as part of a syndicated subscription service, by Gartner, Inc. (“Gartner”) and are not representations of fact. Each Gartner Report speaks as of its original publication date (and not as of the date of this prospectus), and the opinions expressed in the Gartner Report are subject to change without notice. IDC estimates of worldwide smartphone shipments in 2015 derive from IDC, Worldwide Smartphone 2011-2015 Forecast Update: September 2011, doc # 230173, September 2011 and estimates of mobile app downloads in the U.S. by 2013 derive from IDC, Worldwide and U.S. Mobile Applications, Storefronts, Developer, and In-App Advertising 2011-2015 Forecast: Emergence of Postdownload Business Models, doc #228221, June 2011.

We have not independently verified any third-party information. While we believe the market position, market opportunity and market size information included in this prospectus is generally reliable, such information is inherently imprecise. In addition, projections, assumptions and estimates of our future performance and the future performance of the industry in which we operate is necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors” and elsewhere in this prospectus. These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.

 

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USE OF PROCEEDS

We estimate that we will receive net proceeds from the sale of Class A common stock offered by us of approximately $         million, based upon an assumed initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters’ option to purchase additional shares of Class A common stock is exercised in full, we estimate that we will receive net proceeds of approximately $         million, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We will not receive any proceeds from the sale of Class A common stock by the selling stockholders.

Each $1.00 increase (decrease) in the assumed initial public offering price of $         per share would increase (decrease) the net proceeds to us from this offering by approximately $         million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of one million shares in the number of shares of Class A common stock offered by us would increase (decrease) the net proceeds to us from this offering by approximately $         million, assuming that the assumed initial public offering price remains the same, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

The principal purposes of this offering are to increase our capitalization and financial flexibility, increase our visibility in the marketplace and create a public market for our Class A common stock. As of the date of this prospectus, we cannot specify with certainty all of the particular uses for the net proceeds to us from this offering. However, we currently intend to use the net proceeds to us from this offering primarily for general corporate purposes, including working capital, sales and marketing activities, general and administrative matters and capital expenditures. We may also use a portion of the net proceeds for the acquisition of, or investment in, technologies, solutions or businesses that complement our business, although we have no present commitments or agreements to enter into any acquisitions or investments. We will have broad discretion over the uses of the net proceeds from this offering. Pending these uses, we intend to invest the net proceeds from this offering in short-term, investment-grade interest-bearing securities such as money market funds, certificates of deposit, commercial paper and guaranteed obligations of the U.S. government.

DIVIDEND POLICY

We have never declared or paid, and do not anticipate declaring or paying, any cash dividends on our capital stock. Any future determination as to the declaration and payment of dividends, if any, will be at the discretion of our board of directors and will depend on then existing conditions, including our financial condition, operating results, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of September 30, 2011:

 

  Ÿ  

on an actual basis;

 

  Ÿ  

on a pro forma basis, giving effect to the filing of our amended and restated certificate of incorporation and the automatic conversion of all outstanding shares of preferred stock into 143,267,115 shares of Class B common stock immediately prior to the closing of this offering as if such conversion had occurred on September 30, 2011; and

 

  Ÿ  

on a pro forma as adjusted basis to reflect, in addition, the sale by us of              shares of Class A common stock in this offering at an assumed initial public offering price of $         per share, the midpoint of the price range listed on the cover page of this prospectus, after              deducting underwriting discounts and commissions and estimated offering expenses payable by us, and the sale of              shares of Class A common stock by the selling stockholders.

You should read the information in this table together with our consolidated financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this prospectus.

 

     As of September 30, 2011  
     Actual     Pro Forma     Pro Forma
As
Adjusted(1)
 
     (in thousands,
except share and per share data)
 
    

(unaudited)

 

Cash and cash equivalents

   $ 23,128      $ 23,128      $     
  

 

 

   

 

 

   

 

 

 

Redeemable convertible preferred stock, $0.000001 par value, 143,267,115 shares authorized, 143,267,115 shares issued and outstanding, actual; no shares authorized, no shares issued and outstanding, pro forma and pro forma as adjusted

   $ 55,387      $     

Stockholders’ equity:

      

Common stock, $0.000001 par value,                    shares authorized, 64,479,573 shares issued and outstanding, actual;              shares authorized, no shares issued and outstanding, pro forma and pro forma as adjusted

                

Preferred stock, $0.000001 par value, no shares authorized, no shares issued and outstanding, actual;              shares authorized, no shares issued and outstanding, pro forma and pro forma as adjusted

                

Class A common stock, $0.000001 par value, no shares authorized, no shares issued and outstanding, actual;              shares authorized, no shares issued and outstanding, pro forma;              shares authorized,              shares issued and outstanding, pro forma as adjusted

                

Class B common stock, $0.000001 par value, no shares authorized, no shares issued and outstanding, actual;              shares authorized, 207,746,688 shares issued and outstanding, pro forma;              shares authorized,              shares issued and outstanding, pro forma as adjusted

                

Additional paid-in capital

     8,209        63,596     

Other comprehensive income

     77        77     

Accumulated deficit

     (32,149     (32,149  
  

 

 

   

 

 

   

 

 

 

Total stockholders’ equity (deficit)

     (23,863     31,524     
  

 

 

   

 

 

   

 

 

 

Redeemable convertible preferred stock and stockholders’ equity (deficit)

   $ 31,524      $ 31,524      $     
  

 

 

   

 

 

   

 

 

 

 

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(1) Each $1.00 increase (decrease) in the assumed initial public offering price of $         per share would increase (decrease) each of cash and cash equivalents, additional paid-in capital, total stockholders’ equity (deficit) and total capitalization by approximately $         million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of one million shares in the number of shares offered by us would increase (decrease) cash and cash equivalents, additional paid-in capital, total stockholders’ equity (deficit) and total capitalization by approximately $         million, assuming the assumed initial public offering price remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma as adjusted information discussed above is illustrative only and will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing.

The outstanding share information in the table above is based on no shares of our Class A common stock and 207,746,688 shares of our Class B common stock (including preferred stock on an as-converted basis) outstanding as of September 30, 2011, and excludes:

 

  Ÿ  

38,855,506 shares of Class B common stock issuable upon the exercise of outstanding stock options as of September 30, 2011 pursuant to our 2005 Plan or our 2011 Plan, at a weighted-average exercise price of $1.3417 per share;

 

  Ÿ  

3,776,221 additional shares of Class B common stock reserved for future issuance prior to this offering under our 2011 Plan; and

 

  Ÿ  

             additional shares of Class A common stock to be reserved for future issuance under our Amended and Restated 2011 Equity Incentive Plan, to be amended and restated in connection with this offering, as well as any automatic increases in the number of shares of Class A common stock reserved for future issuance under this benefit plan.

 

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DILUTION

If you invest in our Class A common stock, your interest will be diluted to the extent of the difference between the initial public offering price per share of our Class A common stock and the pro forma as adjusted net tangible book value per share of our common stock immediately after this offering. The historical net tangible book value of our common stock as of September 30, 2011 was $31.4 million, or $0.49 per share. The pro forma net tangible book value of our common stock as of September 30, 2011 was $31.4 million, or $0.15 per share. Pro forma net tangible book value per share represents our total tangible assets less our total liabilities, divided by the number of outstanding shares of Class A common stock and Class B common stock, after giving effect to the pro forma adjustments referenced under “Capitalization”.

After giving effect to (i) the pro forma adjustments referenced under “Capitalization” and (ii) receipt of the net proceeds from our sale of              shares of Class A common stock at an assumed initial public offering price of $         per share, the mid-point of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of September 30, 2011 would have been approximately $        , or $         per share. This represents an immediate increase in pro forma as adjusted net tangible book value of $         per share to our existing stockholders and an immediate dilution of $         per share to investors purchasing Class A common stock in this offering.

The following table illustrates this dilution on a per share basis to new investors:

 

Assumed initial public offering price per share

      $            

Pro forma net tangible book value per share as of September 30, 2011

   $ 0.15      

Increase in pro forma net tangible book value per share attributed to new investors purchasing shares in this offering

     
  

 

 

    

Pro forma net tangible book value per share after giving effect to this offering

     
     

 

 

 

Dilution in pro forma net tangible book value per share to new investors in this offering

      $     
     

 

 

 

Each $1.00 increase (decrease) in the assumed initial public offering price of $         per share would increase (decrease) the pro forma net tangible book value, as adjusted to give effect to this offering, by $         per share and the dilution to new investors by $         per share, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions and estimated expenses payable by us. Similarly, each increase (decrease) of one million shares in the number of shares of Class A common stock offered by us would increase (decrease) the pro forma net tangible book value, as adjusted to give effect to this offering, by approximately $         per share and the dilution to new investors by $         per share, assuming the assumed initial public offering price remains the same and after deducting underwriting discounts and commissions and estimated expenses payable by us. If the underwriters exercise their option to purchase additional shares of Class A common stock in full, the pro forma net tangible book value per share of our Class A common stock and Class B common stock, as adjusted to give effect to this offering, would be $         per share, and the dilution in pro forma net tangible book value per share to investors in this offering would be $         per share of Class A common stock.

 

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The table below summarizes as of September 30, 2011, on a pro forma as adjusted basis described above, the number of shares of our common stock, the total consideration and the average price per share (i) paid to us by our existing stockholders and (ii) to be paid by new investors purchasing our Class A common stock in this offering at an assumed initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus, before deducting underwriting discounts and commissions and estimated offering expenses payable by us.

 

     Shares Purchased     Total Consideration     Average
Price Per
Share
 
      Number    Percent     Amount      Percent    
                (dollars in thousands,
other than per share)
       

Existing stockholders

        %      $                  %      $            

New investors

             $     
  

 

  

 

 

   

 

 

    

 

 

   

Total

        100.0   $           100.0  
  

 

  

 

 

   

 

 

    

 

 

   

The total number of shares of our Class A and Class B common stock reflected in the discussion and tables above is based on no shares of our Class A common stock and 207,746,688 shares of our Class B common stock (including preferred stock on an as-converted basis) outstanding as of September 30, 2011, and excludes:

 

  Ÿ  

38,855,506 shares of Class B common stock issuable upon the exercise of outstanding stock options as of September 30, 2011 pursuant to our 2005 Plan or our 2011 Plan, at a weighted-average exercise price of $1.3417 per share;

 

  Ÿ  

3,776,221 additional shares of Class B common stock reserved for future issuance prior to this offering under our 2011 Plan; and

 

  Ÿ  

         additional shares of Class A common stock to be reserved for future issuance under our Amended and Restated 2011 Equity Incentive Plan, to be amended and restated in connection with this offering, as well as any automatic increases in the number of shares of Class A common stock reserved for future issuance under this benefit plan.

Sales by the selling stockholders in this offering will cause the number of shares held by existing stockholders to be reduced to          shares, or     % of the total number of shares of our common stock outstanding after this offering, and will increase the number of shares held by new investors to              shares, or     % of the total number of shares outstanding after this offering.

To the extent that any outstanding options are exercised, new options are issued under our stock-based compensation plans or we issue additional shares of common stock in the future, there will be further dilution to investors participating in this offering. If all outstanding options under our 2005 Equity Incentive Plans of September 30, 2011 were exercised, then our existing stockholders, including the holders of these options, would own     % and our new investors would own     % of the total number of shares of our Class A common stock and Class B common stock outstanding upon the closing of this offering. In such event, the total consideration paid by our existing stockholders, including the holders of these options, would be approximately $         million, or     %, the total consideration paid by our new investors would be $         million, or     %, the average price per share paid by our existing stockholders would be $         and the average price per share paid by our new investors would be $        .

 

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SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

The following selected consolidated financial and other data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements and related notes, which are included elsewhere in this prospectus. The consolidated statements of operations data for the years ended December 31, 2008, 2009 and 2010 and the consolidated balance sheet data as of December 31, 2009 and 2010 are derived from the audited consolidated financial statements that are included elsewhere in this prospectus. The consolidated statements of operations data for the nine months ended September 30, 2010 and 2011 and the consolidated balance sheet data as of September 30, 2011 are derived from our unaudited consolidated financial statements appearing elsewhere in this prospectus. We have included, in our opinion, all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair presentation of the financial information set forth in those statements. The consolidated statements of operations data for the years ended December 31, 2006 and 2007, as well as the consolidated balance sheet data as of December 31, 2006, 2007 and 2008, are derived from audited consolidated financial statements that are not included in this prospectus. Our historical results are not necessarily indicative of the results to be expected in the future, and our interim results are not necessarily indicative of the results to be expected for the full year or any other period.

 

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    Year Ended December 31,     Nine Months
Ended
September 30,
 
    2006     2007     2008     2009     2010     2010     2011  
    (in thousands, except per share amounts)  
                                  (unaudited)  

Consolidated Statements of Operations Data:

 

Net revenue

  $ 443      $ 3,745      $ 12,139      $ 25,808      $ 47,731      $ 32,457      $ 58,380   

Costs and expenses:

             

Cost of revenue (exclusive of depreciation and amortization shown separately below)

           232        608        1,121        3,137        2,168        4,098   

Sales and marketing

    1,078        3,977        10,039        17,979        33,919        24,069        38,515   

Product development

    869        1,472        2,047        3,243        6,560        4,651        8,424   

General and administrative

    714        1,809        5,113        4,597        11,287        8,575        11,967   

Depreciation and amortization

    10        175        571        1,201        2,334        1,483        2,790   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

    2,671        7,665        18,378        28,141        57,237        40,946        65,794   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (2,228     (3,920     (6,239     (2,333     (9,506     (8,489     (7,414

Other income (expenses), net

           606        434        33        15        80        (143
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

    (2,228     (3,314     (5,805     (2,300     (9,491     (8,409     (7,557

Provision for income taxes

           (2     (4     (8     (75     (48     (65
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

    (2,228     (3,316     (5,809     (2,308     (9,566     (8,457     (7,622

Accretion of redeemable convertible preferred stock

           (17     (30     (32     (175     (128     (141
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholders

  $ (2,228   $ (3,333   $ (5,839   $ (2,340   $ (9,741   $ (8,585   $ (7,763
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share attributable to common stockholders:

             

Basic

  $ (0.16   $ (0.17   $ (0.16   $ (0.05   $ (0.18   $ (0.16   $ (0.13
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

  $ (0.16   $ (0.17   $ (0.16   $ (0.05   $ (0.18   $ (0.16   $ (0.13
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares used to compute net loss per share attributable to common stockholders:

             

Basic

    14,337        19,899        36,983        49,377        55,099        54,327        60,083   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

    14,337        19,899        36,983        49,377        55,099        54,327        60,083   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Pro forma net loss per share attributable to common stockholders(1) (unaudited)

             

Basic

          $ (0.05     $ (0.04
         

 

 

     

 

 

 

Diluted

          $ (0.05     $ (0.04
         

 

 

     

 

 

 

Weighted-average shares used to compute pro forma net loss per share attributable to common stockholders(1) (unaudited)

             

Basic

            198,366          203,350   
         

 

 

     

 

 

 

Diluted

            198,366          203,350   
         

 

 

     

 

 

 

Other Financial and Operational Data:

             

Reviews(2)

    611        1,993        4,689        8,834        15,115        13,475        22,390   

Unique Visitors(3)

    1,808        5,717        15,736        26,077        39,356        37,496        61,102   

Claimed Local Business Locations(4)

    NA        NA        25        120        307        247        529   

Active Local Business Accounts(5)

    NA               4        7        11        11        19   

Adjusted EBITDA(6)

  $ (2,218   $ (3,651   $ (5,303   $ (575   $ (5,741   $ (6,129   $ (1,113

 

(1) Pro forma net loss per share attributable to common stockholders has been calculated assuming the conversion of all outstanding shares of our preferred stock into shares of our Class B common stock, as though the conversion had occurred as of the beginning of the first period presented or the original date of issue, if later.
(2) Represents the cumulative number of reviews submitted to Yelp since inception, as of the period end, including reviews that were then being filtered or that had been removed from our platform. As of December 20, 2011, an aggregate of approximately 4.9 million reviews were then being filtered and an aggregate of approximately 1.8 million reviews had been removed from our platform. We define a review as each individually written assessment submitted by a user who has registered by creating a public profile on our platform. For more information, including information regarding filtered and removed reviews, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics—Reviews”.

 

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(3) Represents the average number of monthly unique visitors for the last three months of the period. We define monthly unique visitors as the total number of unique visitors who have visited our website at least once in a given month, and we average the number of monthly unique visitors in each month of the three-month period to calculate monthly average unique visitors. For more information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics—Unique Visitors”.
(4) Represents the cumulative number of business locations that have been claimed on Yelp worldwide since 2008, as of the period end. We define a claimed local business location as each business address for which a business representative visits our website and claims the free business listing page for the business located at that address. For more information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics—Claimed Local Business Locations”.
(5) Represents the number of active local business accounts from which we recognized revenue during the last three months of the period. For more information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics—Active Local Business Accounts”.
(6) We define adjusted EBITDA as net income (loss), adjusted to exclude: provision (benefit) for income taxes, other income (expense), net, interest income, depreciation and amortization and stock-based compensation. See “Non-GAAP Financial Measures—Adjusted EBITDA” for more information and for a reconciliation of adjusted EBITDA to net income (loss), the most directly comparable financial measure calculated and presented in accordance with GAAP.

Stock-based compensation included in the statements of operations data above was as follows:

 

      Year Ended December 31,      Nine Months
Ended September 30,
 
     2006      2007      2008      2009      2010          2010              2011      
     (in thousands)  
            (unaudited)  

Cost of revenue

   $       $       $       $       $ 26       $ 18       $ 33   

Sales and marketing

             41         141         221         662         389         1,111   

Product development

             16         64         179         260         168         557   

General and administrative

             37         160         157         483         302         1,810   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total stock-based compensation

   $       $ 94       $ 365       $ 557       $ 1,431       $ 877       $ 3,511   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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    As of December 31,     As of September 30, 2011  
    2006     2007     2008     2009     2010     Actual     Pro Forma (1)     Pro Forma As
Adjusted
(2)(3)
 
    (in thousands)              
         

(in thousands, unaudited)

 

Consolidated Balance Sheet Data:

               

Cash and cash equivalents

  $ 12,910      $ 5,693      $ 14,869      $ 15,074      $ 27,074      $ 23,128      $ 23,128      $                    

Property, equipment, and software, net

    158        528        1,751        2,184        5,256        8,954        8,954     

Working capital

    12,668        8,985        17,032        15,092        28,741        21,743        21,743     

Total assets

    13,228        10,540        21,368        20,817        41,015        42,155        42,155     

Redeemable convertible preferred stock

    15,882        15,899        30,845        30,877        55,246        55,387            

Total stockholders’ equity (deficit)

    (3,031     (6,215     (11,548     (13,169     (20,889     (23,863     31,524     

 

(1) The pro forma column reflects the automatic conversion of all outstanding shares of our preferred stock into 143,267,115 shares of our Class B common stock immediately prior to the closing of this offering.
(2) The pro forma as adjusted column reflects (i) the automatic conversion of all outstanding shares of our preferred stock into 143,267,115 shares of our Class B common stock immediately prior to the closing of this offering and (ii) the sale by us of              shares of our Class A common stock offered by this prospectus at an assumed initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
(3) A $1.00 increase (decrease) in the assumed initial public offering price of $         per share would increase (decrease) the amount of cash and cash equivalents, working capital, total assets and total stockholders’ equity (deficit) by approximately $         million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of one million shares in the number of shares of our Class A common stock offered by us would increase (decrease) the amount of cash and cash equivalents, working capital, total assets and total stockholders’ equity (deficit) by approximately $         million, assuming that the assumed initial public offering price remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. The pro forma as adjusted information discussed above is illustrative only and will be adjusted based on the actual public offering price and other terms of this offering determined at pricing.

 

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Non-GAAP Financial Measures

Adjusted EBITDA

To provide investors with additional information regarding our financial results, we have disclosed in the table above and elsewhere in this prospectus adjusted EBITDA, a non-GAAP financial measure. We have provided a reconciliation below of adjusted EBITDA to net loss, the most directly comparable GAAP financial measure.

We have included adjusted EBITDA in this prospectus because it is a key measure used by our management and board of directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short- and long-term operational plans. In particular, the exclusion of certain expenses in calculating adjusted EBITDA can provide a useful measure for period-to-period comparisons of our core business. Accordingly, we believe that adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.

Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

 

  Ÿ  

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements;

 

  Ÿ  

adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

 

  Ÿ  

adjusted EBITDA does not consider the potentially dilutive impact of equity-based compensation;

 

  Ÿ  

adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us; and

 

  Ÿ  

other companies, including companies in our industry, may calculate adjusted EBITDA differently, which reduces its usefulness as a comparative measure.

Because of these limitations, you should consider adjusted EBITDA alongside other financial performance measures, including various cash flow metrics, net income (loss) and our other GAAP results. The following table presents a reconciliation of adjusted EBITDA to net loss for each of the periods indicated:

 

     Year Ended December 31,      Nine Months
Ended
September 30,
 
     2006     2007     2008     2009     2010      2010      2011  
     (in thousands)  
            (unaudited)  

Reconciliation of Adjusted EBITDA:

                

Net loss

   $ (2,228   $ (3,316   $ (5,809   $ (2,308   $ (9,566    $ (8,457    $ (7,622

Provision for income taxes

            2        4        8        75         48         65   

Other income (expense), net

            (606     (434     (33     (15      (80      143   

Depreciation and amortization

     10        175        571        1,201        2,334         1,483         2,790   

Stock-based compensation

            94        365        557        1,431         877         3,511   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ (2,218   $ (3,651   $ (5,303   $ (575   $ (5,741    $ (6,129    $ (1,113
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion of our financial condition and results of operations in conjunction with the consolidated financial statements and the notes thereto included elsewhere in this prospectus. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this prospectus, particularly in “Risk Factors.”

Overview

Yelp connects people with great local businesses. Our users have contributed more than 22 million reviews of almost every type of local business, from restaurants, boutiques and salons to dentists, mechanics, plumbers and more. These reviews are written by people using Yelp to share their everyday local business experiences, giving voice to consumers and bringing “word of mouth” online. The information these reviews provide is valuable for consumers and businesses alike. Approximately 61 million unique visitors used our website, and our mobile application was used on more than 5 million unique mobile devices, on a monthly average basis during the quarter ended September 30, 2011. Businesses, both small and large, use our platform to engage with consumers at the critical moment when they are deciding where to spend their money. Our business revolves around three key constituencies: the contributors who write reviews, the consumers who read them and the local businesses that they describe.

As of September 30, 2011, we are active in 43 Yelp markets in the United States and 22 Yelp markets internationally. This footprint represents a fraction of the potential domestic and international markets that we are currently targeting for expansion. Our domestic expansion plans include growth in our existing markets as well as expansion into new markets, many of which are smaller than our current markets, as we look to expand our breadth of coverage. Internationally, as we are in the early stages of establishing our footprint, we are targeting a mix of both large and small markets. We develop each market in the following stages:

Identification.    We select new markets based on a number of different city- or country-specific criteria, including population size, local gross domestic product, or GDP, pre-existing base of reviews on our platform, internet and wireless penetration, proximity to existing markets, number of local businesses and local ad market growth rate.

Preparation and Launch.    Before launching a market in any country, we license business listing information from third-party data providers and create individual pages for each business location in the entire country. We sometimes hire temporary local employees, called “scouts,” to provide additional rich content, such as reviews, photos and hours of operation. At launch, consumers can read and write reviews about any business on our platform and contribute information about businesses that are not already listed. We have active Yelp markets in Austria, Canada, France, Germany, Ireland, Italy, the Netherlands, Spain, the United Kingdom and the United States.

Growth.    After launch, we focus on attracting contributors, consumers and local businesses to our platform. In each Yelp market, we hire a Community Manager, a local resident who helps increase awareness of our platform and who fosters a local community of contributors. The primary responsibilities of a Community Manager include:

 

  Ÿ  

planning and executing fun and engaging events for the community;

 

 

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  Ÿ  

meeting with consumers and contributors, attending local civic events and promoting Yelp within the local community; and

 

  Ÿ  

writing weekly local newsletters promoting local business within the community.

Through these activities, we believe Community Managers help increase the frequency of use of our platform that drives a network effect, whereby contributed reviews expand the breadth and depth of our review base and this expansion draws an increasing number of consumers to access the content on our platform, thus inspiring new and existing contributors to create additional reviews that can be shared with this growing audience.

Scale.    At scale, our platform reaches a critical mass of reviews, consumers and active local business accounts, and we begin an active sales effort to local businesses. Thereafter, our largest expense is related to sales efforts to attract local business advertising customers. In Yelp markets that have attained this level of development, we expect to achieve economies of scale and operating cost leverage.

Our success is primarily the result of significant investment in our communities, employees, content, brand and technology. As we continue to launch new markets, we believe that we will follow a similar pattern of investment preceding revenue growth. The table below summarizes the expansion of our business since inception:

 

    2005   2006   2007   2008   2009   2010   September 30,
2011

Cumulative Yelp Markets(1)

  1   6   14   20   27   49   65

New Yelp Markets(1)

  1   5   8   6   7   22   16

Yelp Markets(1)

(United States)

  SF   Boston

Chicago

LA

NYC

Seattle

  San Diego

DC

Austin

Atlanta

Portland

Houston

Phoenix

San Jose

  Philadelphia

Denver

Minneapolis

Dallas

Miami

Detroit

  Sacramento

Honolulu

St. Louis

Orlando

  Raleigh-Durham

Kansas City

Las Vegas

San Antonio

Columbus

Indianapolis

Charlotte

Cincinnati

Tucson

Nashville

New Orleans

Cleveland

Salt Lake City

Providence

  Milwaukee

Pittsburgh

Tampa Bay

Louisville

Baltimore

Yelp Markets(1)

(International)

          London

Toronto

Vancouver

  Dublin

Leeds

Paris

Berlin

Glasgow

Manchester

Calgary

Edmonton

  Amsterdam

Halifax

Edinburgh

Vienna

Hamburg

Lyon

Madrid

Munich

Marseille

Montreal

Rome

Metrics (in thousands):

             

Reviews(2)

  114   611   1,993   4,689   8,834   15,115   22,390

Unique Visitors(3)

  253   1,808   5,717   15,736   26,077   39,356   61,102

Claimed Business Locations(4)

  NA   NA   NA   25   120   307   529

Active Local Business Accounts(5)

  NA   NA     4   7   11   19

 

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(1) A Yelp market is defined as a city or region where we have hired a Community Manager. Cumulative Yelp markets represents the cumulative number of Yelp markets as of December 31 for each of the years in the period from 2005 through 2010 and as of September 30, 2011.
(2) Represents the cumulative number of reviews submitted to Yelp since inception, as of December 31 for each of the years in the period from 2005 through 2010 and as of September 30, 2011, including reviews that were then being filtered or that had been removed from our platform. As of December 20, 2011, an aggregate of approximately 4.9 million reviews were then being filtered and an aggregate of approximately 1.8 million reviews had been removed from our platform. We define a review as each individually written assessment submitted by a user who has registered by creating a public profile on our platform. For more information, including information regarding filtered and removed reviews, see “Key Metrics—Reviews”.
(3) Represents the average number of monthly unique visitors for the last quarter of each of the years in the period from 2005 through 2010 and the three months ended September 30, 2011. We define monthly unique visitors as the total number of unique visitors who have visited our website at least once in a given month, and we average the number of monthly unique visitors in each month of the three-month period to calculate monthly average unique visitors. For more information, see “Key Metrics—Unique Visitors”.
(4) Represents the cumulative number of business locations that have been claimed on Yelp worldwide since 2008, as of December 31 for each of the years in the period from 2008 through 2010 and as of September 30, 2011. For more information, see “Key Metrics—Claimed Local Business Locations”.
(5) Represents the number of active local business accounts from which we recognized revenue during the last quarter in each of the years in the period from 2007 through 2010 and during the three months ended September 30, 2011. For more information, see “Key Metrics—Active Local Business Accounts”.

We provide local businesses both free and paid services to connect with our large audience of consumers. Our free services include a business owner’s account that allows local merchants to update business listing information and respond to reviews in real time. We generate revenue from our paid services to local businesses, which include enhanced business listings, search advertising solutions and Yelp Deals, as well as the sale of brand advertising. Many of our active local business accounts pay us on a monthly basis, primarily by credit card. To date, almost all of our revenue and a majority of our expenses have been denominated in U.S. dollars. As we expand internationally, however, we will incur an increasing percentage of our expenses in foreign currencies and, over time, expect to generate revenue in foreign currencies as well.

While our core local online advertising business in the United States has a significant and growing base of revenue, we have invested in several initiatives to enhance our future growth opportunities. We first launched internationally in Canada in 2008 and have continued to expand across Canada and Europe and other regions to cover 22 Yelp markets internationally as of September 30, 2011. We do not currently generate any material revenue in these international markets, but we plan to begin building an international sales force in 2012. We introduced our first mobile app in 2008, and, during the quarter ended September 30, 2011, our mobile app was used on over 5 million unique mobile devices on a monthly average basis. We do not currently offer local and brand advertising on our mobile app; however, we see the mobile market as an attractive monetization opportunity.

Each day, millions of consumers come to our platform to connect with great local businesses. In 2010, our net revenue was $47.7 million, which represented an increase of 85% from 2009. In this same period, we generated a net loss of $9.6 million and an adjusted EBITDA loss of $5.7 million. For the nine months ended September 30, 2011, our net revenue was $58.4 million, which represented an increase of 80% from the nine months ended September 30, 2010. In this same period, we generated a net loss of $7.6 million and an adjusted EBITDA loss of $1.1 million.

We are making significant investments to position our company for long-term growth. We expect to continue to invest in market and product development to improve both the consumer and local business experience on our online and mobile platforms. We expect to continue to expand our sales organization both domestically and abroad, with plans to begin hiring an international sales force in 2012. As such, we expect to expend approximately $15.0 million internationally in 2012. We also

 

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expect to invest between $6.0 million and $10.0 million annually for the next two years in capital expenditures as we grow our business, the majority of which we expect to use to upgrade our technology and infrastructure to improve the ability of our platform to handle the projected increase in usage and enable the release of new features and solutions.

Factors Affecting Our Performance

Ability to Attract and Retain Local Businesses.    In order to increase our revenue, we must continue to acquire and retain local business advertisers that purchase our advertising solutions. Our largest sales and marketing expenses consist of the costs associated with acquiring local business advertisers. We spent a majority of our $38.5 million sales and marketing expense for the first nine months of 2011 on initiatives relating to local business advertiser acquisition and expect to continue to expend significant amounts to attract additional local business advertisers. Failure to effectively attract and retain paying local business advertisers would adversely affect our revenue and operating results.

New Market Development.    Our long-term growth depends on our ability to successfully develop new and existing domestic and international markets. It can take years for our platform to achieve a critical mass of consumers and reviews to drive meaningful traction of our advertising solutions and begin to generate revenue in a particular market. As a result, we may continue to generate losses in new markets for an extended period, and different markets can be expected to grow at different rates and generate varying levels of revenue. As with most businesses, we expect our revenue growth to slow as our business matures over time. Local advertising revenue for our oldest cohort of U.S. markets, which launched in 2005-2006, grew at a 51% year-over-year rate for the nine months ended September 30, 2011, compared to the nine months ended September 30, 2010. This rate is lower than the growth rate of local advertising revenue for the 2007-2008 cohort which grew at 87% in the same period. We believe this is indicative of continued revenue growth, but slowing revenue growth for more mature markets.

We also plan to begin hiring an international sales force in 2012. While we do not currently generate any local advertising revenue internationally, we plan to do so in the near future as we seek to emulate the same model that we have employed in the U.S.

Investment in Growth.    We have aggressively invested in the growth of our platform and intend to continue to invest to support this growth as we expand our platform, grow our contributor and local business base, hire additional employees and further develop our technology.

Impact of Economic Conditions on Local Businesses.    We generate a significant portion of revenue from local businesses advertising on Yelp. Many local businesses have limited financial resources, making them more vulnerable to weak economic conditions. A worsening economic outlook would likely cause businesses to decrease investments in advertising, which would adversely affect our revenue.

 

 

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How We Generate Revenue

We generate revenue from local advertising, brand advertising and other services, including Yelp Deals and partner arrangements. The following table provides a breakdown of our net revenue.

 

     Year Ended December 31,     Nine Months Ended
September 30,
 
     2008     2009     2010     2010     2011  
     (dollars in thousands)  
                       (unaudited)  

Net revenue by product:

          

Local advertising

   $ 9,057      $ 20,097      $ 33,759      $ 24,120      $ 40,325   

Brand advertising

     2,955        5,393        12,046        7,592        12,653   

Other services

     127        318        1,926        745        5,402   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 12,139      $ 25,808      $ 47,731      $ 32,457      $ 58,380   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Percentage of total net revenue:                               

Local advertising

     75     78     71     74     69

Brand advertising

     24        21        25        24        22   

Other services

     1        1        4        2        9   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     100     100     100     100     100
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Local Advertising. We generate revenue from local advertising programs, including enhanced profile pages and performance and impression-based advertising in search results and elsewhere on our website.

Brand Advertising. We generate revenue from brand advertising through the sale of display advertisements (both graphic and text) on our website, including advertisements from leading national brands in the automobile, financial services, logistics, consumer goods and health and fitness industries.

Other Services. We generate other revenue through the sale of Yelp Deals, monetization of remnant advertising inventory through third-party ad networks and various partner arrangements related to reservations. Yelp Deals allow merchants to promote themselves and offer discounted goods and services on a real-time basis to consumers directly on our website and mobile app and via email. Recently, we have focused on Yelp Deals displayed on our website and mobile app to target intent-driven consumers who are searching for a specific product or service on our platform. We earn a fee on Yelp Deals for acting as an agent in these transactions, which we record on a net basis and include in revenue upon a consumer’s purchase of the deal. We also generate a small portion of our revenue through revenue-sharing arrangements with partner companies. Currently, our revenue-sharing partner arrangements provide for the ability for consumers to make reservations on OpenTable and Orbitz through Yelp.

Key Metrics

We regularly review a number of metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends in our business, prepare financial projections and make strategic decisions.

Reviews.    Number of reviews represents the cumulative number of reviews submitted to Yelp since inception, as of the period end, including reviews that were then being filtered or that had been removed from our platform. In addition to the text of the review, each review includes a rating of one to five stars. We include filtered and removed reviews because all of them are either currently accessible

 

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on our platform or were accessible at some point in time, providing information that may be useful for users to evaluate businesses and individual reviewers. Because our filtering technology continually reassesses which reviews to filter based on new information, the “filtered” or “unfiltered” status of reviews may change over time. Reviews that are being filtered or have been removed do not factor into a business’s overall star rating. By clicking a link on a reviewed business’s page on our website, users can access the filtered reviews for the business, as well as the star rating and other information about reviews that we removed for violation of our terms of service. As of December 20, 2011, an aggregate of approximately 4.9 million reviews were then being filtered and an aggregate of approximately 1.8 million reviews had been removed from our platform, either by us for violation of our terms of service or by the users who contributed them.

From December 31, 2009 to December 31, 2010, the cumulative number of reviews contributed to Yelp increased by 71% from approximately 9 million to 15 million, and from September 30, 2010 to September 30, 2011, the cumulative number of reviews contributed to Yelp increased by 66% from approximately 13 million to 22 million. This increase in reviews is a key driver of our platform’s value proposition to consumers seeking information on local business and to local businesses seeking to engage consumers. Growth in reviews also provides us with the benefit of a network effect that attracts more consumers, contributors and local businesses. As we expand internationally, growth in reviews will depend, in part, on our ability to include additional languages on our website and mobile app.

Unique Visitors.    Unique visitors represent the average number of monthly unique visitors over a given three-month period. We define monthly unique visitors as the total number of unique visitors who have visited our website at least once in a given month, and we average the number of monthly unique visitors in each month of a given three-month period to calculate monthly average unique visitors. We track unique visitors based on the number of visitors with unique cookies who have visited our website using either a computer or mobile browser, as measured by Google Analytics, a product that provides digital marketing intelligence. Unique visitors do not include visitors who access our platform through our mobile app. For the quarter ended September 30, 2011, our mobile app was used on more than 5 million unique mobile devices on a monthly average basis. Because the number of unique visitors is based on visitors with unique cookies, an individual who accesses our website from multiple devices with different cookies will be counted as multiple unique visitors, and multiple individuals who access our website from a shared device with a single cookie will be counted as a single unique visitor.

From the quarter ended December 31, 2009 to the same period of 2010, monthly average unique visitors to our website increased by 51% from approximately 26 million to 39 million, and from the quarter ended September 30, 2010 to the same period of 2011, monthly average unique visitors increased by 63% from approximately 37 million to 61 million, reflecting an increase in brand awareness and our domestic and international expansion. We view unique visitors as a key indicator of our brand awareness among consumers and whether we are providing consumers with useful products and features, thereby increasing their usage of our platform. We believe that a higher level of usage may contribute to an increase in sales of our advertising solutions, as businesses will have access to a larger potential customer base.

Claimed Local Business Locations.    The number of claimed local business locations represents the cumulative number of business locations that have been claimed on Yelp worldwide since 2008, as of a given date. We define a claimed local business location as each business address for which a business representative visits our website and claims the free business listing page for the business located at that address.

From December 31, 2009 to December 31, 2010, the number of claimed local business locations increased by 157% from approximately 120,000 to 307,000, and from September 30, 2010 to September 30, 2011, the number of claimed local business locations increased by 114% from

 

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approximately 247,000 to 529,000. We view the number of claimed local business locations as an indicator of an increased brand awareness among local businesses and an opportunity to introduce those local businesses to Yelp’s advertising solutions.

Active Local Business Accounts.    The number of active local business accounts represents the number of active local business accounts from which we recognized revenue in a given three-month period. We treat business accounts that have the same payment and/or user information as a single business account.

From the quarter ended December 31, 2009 to the quarter ended December 31, 2010, the number of active local business accounts increased by 61% from approximately 7,000 to 11,000, and from the quarter ended September 30, 2010 to the quarter ended September 30, 2011, the number of active local business accounts increased by 75% from approximately 11,000 to 19,000. We view the number of active local business accounts as an indicator of the health of our business, our brand awareness, and the benefit that a business ascribes to the consumers coming to our website or using our mobile app, as well as our ability to grow our market share. It also provides us with a measure of how productive our sales force is in engaging new active local business accounts.

Adjusted EBITDA.    Adjusted EBITDA is a non-GAAP financial measure that we calculate as net income (loss), adjusted to exclude: provision (benefit) for income taxes, other income (expense), net, interest income, depreciation and amortization and stock-based compensation. We believe that adjusted EBITDA provides useful information to investors in understanding and evaluating our operating results in the same manner as our management and board of directors. This non-GAAP information is not necessarily comparable to non-GAAP information of other companies. Non-GAAP information should not be viewed as a substitute for, or superior to, net income (loss) prepared in accordance with GAAP as a measure of our profitability or liquidity. Users of this financial information should consider the types of events and transactions for which adjustments have been made. For more information about adjusted EBITDA and a reconciliation of adjusted EBITDA to net income (loss), see ”Selected Consolidated Financial and Other Data—Non-GAAP Financial Measures—Adjusted EBITDA.”

Cost of Revenue and Expenses

Cost of Revenue.    Our cost of revenue consists primarily of credit card processing fees, web hosting, internet services costs, and salaries, benefits and stock-based compensation for our infrastructure teams related to operating our website, as well as creative design for brand advertising, video production expenses and allocated facilities costs.

Sales and Marketing.    Our sales and marketing expenses primarily consist of salaries, benefits, stock-based compensation, travel expense and incentive compensation for our sales and marketing employees. In addition, sales and marketing expenses include business acquisition marketing, community management, branding, advertising and public relations costs, as well as allocated facilities and other supporting overhead costs. We spend almost no sales and marketing expenses to acquire traffic to our website or mobile app. Our Community Managers are responsible for growing and fostering local communities, and coordinating events to raise awareness of our brand. We expect our community management costs to increase as we continue to expand to new markets and within existing markets. We plan to continue to invest in sales and marketing to expand our domestic and international footprint, increase the number of active local business accounts and continue to build our brand. We expect to spend approximately $15 million internationally in 2012 as compared to approximately $4 million for the first nine months of 2011. The substantial majority of these expenses will be related to hiring an international sales force. We expect sales and marketing expenses to increase and to be our largest expense for the foreseeable future.

 

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Product Development.    Our product development expenses primarily consist of salaries, benefits and stock-based compensation for our engineers, product management and information technology personnel. In addition, product development expenses include outside services and consulting, allocated facilities and other supporting overhead costs. We believe that continued investment in features, software development tools and code modification is important to attaining our strategic objectives, and, as a result, we expect product development expense to increase for the foreseeable future.

General and Administrative.    Our general and administrative expenses primarily consist of salaries, benefits and stock-based compensation for our executive, finance, user operations, legal, human resources and other administrative employees. In addition, general and administrative expenses include outside consulting, legal and accounting services, and facilities and other supporting overhead costs not allocated to other departments. We expect our general and administrative expenses to increase for the foreseeable future as we continue to expand our business.

In addition, we believe that additional costs of becoming a public company will be between $3.0 million and $5.0 million per year given the expected increase in audit fees, regulatory compliance (including Sarbanes-Oxley Act), listing fees and the increase in director and officer insurance, among other costs.

Depreciation and Amortization.    Depreciation and amortization expenses primarily consist of depreciation on computer equipment, software, leasehold improvements, capitalized website and internal software development costs and amortization of purchased intangibles. We expect depreciation and amortization expenses to increase for the foreseeable future as we continue to expand our technology infrastructure.

Other Income (Expense), Net.    Other income, net consists primarily of the interest income earned on our cash and cash equivalents and foreign exchange gains and losses.

Provision for Income Taxes.    Provision for income taxes consists of federal and state income taxes in the United States and income taxes in certain foreign jurisdictions, deferred income taxes reflecting the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and the realization of net operating loss carryforwards.

 

 

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Results of Operations

The following tables set forth our results of operations for the periods presented as a percentage of net revenue for those periods (certain items may not foot due to rounding). The period-to-period comparison of financial results is not necessarily indicative of future results.

 

    Year Ended December 31,     Nine Months Ended
September 30,
 
    2008     2009     2010     2010     2011  
    (as a percentage of net revenue)  
                      (unaudited)  

Consolidated Statements of Operations Data:

         

Net revenue by product

         

Local advertising

    75 %     78 %     71 %     74 %     69

Brand advertising

    24        21        25        24        22   

Other services

    1        1        4        2        9   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total net revenue

          100 %         100 %           100 %           100 %           100
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Costs and expenses:

         

Cost of revenue (exclusive of depreciation and amortization shown separately below)

    5     4     7     7     7

Sales and marketing

    83        69        71        74        66   

Product development

    17        13        14        14        14   

General and administrative

    42        18        23        26        21   

Depreciation and amortization

    5        5        5        5        5   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

    152        109        120        126        113   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (52 )     (9 )     (20     (26     (13

Other income (expense), net

    4                               
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

    (48 )     (9 )     (20     (26     (13

Provision for income taxes

                                  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

    (48 )%     (9 )%     (20 )%     (26 )%     (13 )% 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Nine Months Ended September 30, 2010 and 2011

Net Revenue

 

     Nine Months Ended
September 30,
       
     2010     2011     % Change  
     (dollars in thousands)        
     (unaudited)        

Net revenue by product:

    

Local advertising

   $ 24,120      $ 40,325        67 %

Brand advertising

     7,592        12,653        67 %

Other services

     745        5,402        625 %
  

 

 

   

 

 

   

Total

   $ 32,457      $ 58,380        80 %
  

 

 

   

 

 

   

Percentage of net revenue by product:

    

Local advertising

     74 %     69 %  

Brand advertising

     24        22     

Other services

     2        9     
  

 

 

   

 

 

   

Total

     100 %     100 %  
  

 

 

   

 

 

   

 

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Total net revenue increased $25.9 million, or 80%, in the nine months ended September 30, 2011, compared to the nine months ended September 30, 2010. Our local advertising revenue increased $16.2 million, or 67%, primarily due to a significant increase in the number of customers purchasing local advertising plans as we expanded our sales force to reach more prospective local businesses. Our brand advertising revenue increased $5.1 million, or 67%, primarily due to an increase in the average spend per brand advertiser driven primarily by increased advertising impressions and, to a lesser extent, by a higher effective price. In addition, our other services revenue increased $4.7 million, primarily due to an increase in revenue from the sale of Yelp Deals and remnant advertising inventory and from added partnership arrangements.

Cost of Revenue

 

     Nine Months Ended
September 30,
       
         2010             2011         % Change  
     (dollars in thousands)        
     (unaudited)        

Cost of revenue

   $ 2,168      $ 4,098        89

Percentage of net revenue

     7 %     7 %  

In the nine months ended September 30, 2011, cost of revenue increased $1.9 million, or 89%, compared to the nine months ended September 30, 2010. This increase was primarily attributable to an increase of $0.5 million in outside hosting and internet services fees, which are necessary to support the increase in visitors and transactions completed on our website as well as an increase in merchant fees related to credit card transactions for local advertising of $0.5 million. Additionally, we added personnel to support our website infrastructure resulting in an increase of $0.2 million and experienced an increase in expenses related to creative design for brand advertising customers of $0.7 million.

Sales and Marketing

 

     Nine Months Ended
September 30,
       
     2010     2011     % Change  
     (dollars in thousands)        
     (unaudited)        

Sales and marketing

   $ 24,069      $ 38,515        60

Percentage of net revenue

     74     66  

In the nine months ended September 30, 2011, sales and marketing expenses increased $14.4 million, or 60%, compared to the nine months ended September 30, 2010. The increase was primarily attributable to an increase in headcount and related expenses of $11.3 million as we expanded our sales organization to take advantage of the market opportunity created by increased recognition of the value of our platform and increased use of our free online business accounts. As a result of our increase in net revenue, our commission expenses also increased $1.6 million. In addition, we experienced an increase in facilities and related allocations of $1.0 million and general marketing and advertising costs of $0.7 million.

Product Development

 

     Nine Months Ended
September 30,
       
         2010             2011         % Change  
     (dollars in thousands)        
     (unaudited)        

Product development

   $ 4,651      $ 8,424        81

Percentage of net revenue

     14 %     14 %  

 

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In the nine months ended September 30, 2011, product development expenses increased $3.8 million, or 81%, compared to the nine months ended September 30, 2010. The increase was primarily attributable to an increase in headcount and related expenses of $3.6 million, including an increase in stock-based compensation of $0.4 million, as we continued to invest in adding features and functionality to our website and mobile app. In addition, we experienced an increase in facilities and related allocations of $0.2 million.

General and Administrative

 

     Nine Months Ended
September 30,
       
         2010             2011         % Change  
     (dollars in thousands)        
     (unaudited)        

General and administrative

   $ 8,575      $ 11,967        40

Percentage of net revenue

     26 %     21  

In the nine months ended September 30, 2011, general and administrative expenses increased $3.4 million, or 40%, compared to the nine months ended September 30, 2010. The increase was primarily attributable to an increase in headcount and related expenses of $4.0 million, including an increase in stock-based compensation expense of $1.5 million related primarily to refresh grants, as we continued to invest in key accounting, finance and management positions within the organization. Additionally, we invested in our systems and support for the growth of the business through the use of outside consultants, which contributed to the increase by $1.1 million. These year-over-year increases were partially offset by the accrual of a $1.3 million legal settlement recorded in the quarter ended March 31, 2010.

Depreciation and Amortization

 

     Nine Months Ended
September 30,
       
         2010             2011         % Change  
     (dollars in thousands)        
     (unaudited)        

Depreciation and amortization

   $ 1,483      $ 2,790        88 %

Percentage of net revenue

     5 %     5 %  

In the nine months ended September 30, 2011, depreciation and amortization expenses increased $1.3 million, or 88%, compared to the nine months ended September 30, 2010. The increase was primarily the result of our investments in expanding our technology infrastructure and capital assets to support our increases in headcount across the organization. Depreciation and amortization related to our capitalized website and internal use software development costs and fixed assets increased $0.3 million and $0.5 million, respectively.

Other Income (Expense), Net

 

     Nine Months Ended
September 30,
 
         2010             2011      
     (in thousands)  
     (unaudited)  

Interest income

   $ 22      $ 10   

Transaction gains (losses) on foreign exchange

     64        (143

Other non-operating loss, net

     (6     (10
  

 

 

   

 

 

 

Total other income (expense), net

   $ 80      $ (143
  

 

 

   

 

 

 

 

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In the nine months ended September 30, 2011, other income, net decreased $0.2 million compared to the nine months ended September 30, 2010. The decrease in other income, net was largely driven by an unfavorable change in our foreign currency exchange rates, which contributed to transaction losses on foreign exchange in the nine months ended September 30, 2011 compared to a gain in the same period in 2010.

Provision for Income Taxes

 

     Nine Months Ended
September 30,
 
     2010      2011  
     (in thousands)  
     (unaudited)  

Provision for income taxes

   $ 48       $ 65   

In the nine months ended September 30, 2011, income tax expense was relatively flat compared to the nine months ended September 30, 2010, and primarily related to taxes due in foreign jurisdictions.

Years Ended December 31, 2008, 2009 and 2010

Net Revenue

 

     Year Ended December 31,     2008 to
2009 %
Change
    2009 to
2010 %
Change
 
     2008     2009     2010              
     (dollars in thousands)              

Net revenue by product:

          

Local advertising

   $ 9,057      $ 20,097      $ 33,759        122 %     68

Brand advertising

     2,955        5,393        12,046        83        123   

Other services

     127        318        1,926        150        506   
  

 

 

   

 

 

   

 

 

     

Total

   $ 12,139      $ 25,808      $ 47,731        113 %     85
  

 

 

   

 

 

   

 

 

     

Percentage of net revenue by product:

          

Local advertising

     75 %     78 %     71 %    

Brand advertising

     24        21        25       

Other services

     1        1        4       
  

 

 

   

 

 

   

 

 

     

Total

     100 %     100 %     100 %    
  

 

 

   

 

 

   

 

 

     

During 2008, 2009 and 2010, we focused on revenue growth related to our local advertiser customer base as well as the development of relationships with brand advertising agencies. Additionally, during the second half of 2010, we began selling Yelp Deals through our platform.

2009 Compared to 2010.    Total net revenue increased $21.9 million, or 85%, from 2009 to 2010. Our local advertising revenue increased by $13.6 million, or 68%, primarily due to a significant increase in the number of customers purchasing local advertising plans as we expanded our sales force to reach more prospective local businesses. Our brand advertising revenue also increased by $6.7 million, or 123%, due primarily to an increase in the average spend per brand advertiser driven primarily by increased advertising impressions and, to a lesser extent, by a higher effective price. In addition, mid-2010, we began selling Yelp Deals through our platform and during 2010 we added partnership relationships which in total contributed to an increase in other revenue of $1.6 million.

 

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2008 Compared to 2009.    Total net revenue increased $13.7 million, or 113%, from 2008 to 2009. Our local advertising revenue increased by $11.0 million, or 122%, primarily due to a significant increase in the number of customers purchasing local advertising plans. Our brand advertising revenue also increased by $2.5 million, or 83%, primarily due to an increase in the number of brand advertisers. In addition we added partnership relationships in 2009, which in total contributed to an increase in other revenue of $0.2 million.

Cost of Revenue

 

     Year Ended December 31,     2008 to
2009 %
Change
    2009 to
2010 %
Change
 
     2008     2009     2010              
     (dollars in thousands)              

Cost of revenue

   $ 608      $ 1,121      $ 3,137        84 %     180 %

Percentage of net revenue

     5 %     4 %     7 %    

2009 Compared to 2010.    Cost of revenue increased $2.0 million, or 180%, from 2009 to 2010. This increase was attributable to a $0.5 million increase in outside hosting and internet services fees necessary to support the increase in visitors and transactions completed on our website as well as an increase of $0.3 million in merchant fees related to credit card transactions for local customer plans. Additionally, we added personnel to support our website infrastructure resulting in an increase of $0.5 million and experienced an increase in expenses related to creative design for brand advertising customers of $0.6 million.

2008 Compared to 2009.    Cost of revenue increased $0.5 million, or 84%, from 2008 to 2009. This increase was primarily attributable to a $0.1 million increase in outside hosting and internet services fees necessary to support the increase in visitors and transactions completed on our website as well as a $0.3 million increase in merchant fees related to credit card transactions for local customer plans.

Sales and Marketing

 

     Year Ended December 31,     2008 to
2009 %
Change
    2009 to
2010 %
Change
 
     2008     2009     2010              
     (dollars in thousands)              

Sales and marketing

   $ 10,039      $ 17,979      $ 33,919        79 %     89 %

Percentage of net revenue

     83 %     69 %     71 %    

2009 Compared to 2010.    Sales and marketing expenses increased $15.9 million, or 89%, from 2009 to 2010. The increase was primarily attributable to an increase in headcount and related expenses of $11.7 million as we expanded our sales organization. In addition, we experienced an increase in facility costs of $1.3 million, general marketing and advertising costs of $1.1 million and international marketing expenses of $1.2 million.

2008 Compared to 2009.    Sales and marketing expenses increased $7.9 million, or 79%, from 2008 to 2009. The increase was primarily attributable to an increase in headcount and related expenses of $5.2 million as we expanded our sales organization. In addition, we experienced an increase of $1.9 million in facilities and other related allocations, as well as general marketing and advertising costs of $0.4 million.

 

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Product Development

 

     Year Ended December 31,     2008 to
2009 %
Change
    2009 to
2010 %
Change
 
     2008     2009     2010              
     (dollars in thousands)              

Product development

   $ 2,047      $ 3,243      $ 6,560        58 %     102 %

Percentage of net revenue

     17 %     13 %     14 %    

2009 Compared to 2010.    Product development expenses increased $3.3 million, or 102%, from 2009 to 2010. The increase was primarily attributable to an increase in headcount and related expenses of $2.7 million as well as expenses related to outside consultants of $0.3 million as we continued to invest in adding features and functionality to our website and mobile app. In addition, we experienced an increase in facility costs of $0.3 million.

2008 Compared to 2009.    Product development expenses increased $1.2 million, or 58%, from 2008 to 2009. The increase was primarily attributable to an increase in headcount and related expenses of $0.9 million as we continued to invest in adding features and functionality to our website and mobile app. In addition, we experienced an increase in facility costs of $0.2 million.

General and Administrative

 

     Year Ended December 31,     2008 to
2009 %
Change
    2009 to
2010 %
Change
 
     2008     2009     2010              
     (dollars in thousands)              

General and administrative

   $ 5,113      $ 4,597      $ 11,287        (10 )%     146 %

Percentage of net revenue

     42 %     18 %     23 %    

2009 Compared to 2010.    General and administrative expenses increased $6.7 million, or 146%, from 2009 to 2010. The increase was primarily attributable to an increase in headcount and related expenses of $2.6 million as we continued to invest in key accounting, finance and management positions within the organization. In addition, we experienced an increase in legal expenses primarily related to the accrual of a $1.3 million legal settlement recorded in the quarter ended March 31, 2010, an increase in consulting and outside services of $1.1 million related to our ERP system implementation and other efforts to build a global organization and an increase in facility costs of $0.3 million.

2008 Compared to 2009.    General and administrative expenses decreased $0.5 million, or 10%, from 2008 to 2009. The decrease was primarily attributable to facility costs of $1.4 million, partially offset by the increase in headcount and related expenses of $0.8 million.

 

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Depreciation and Amortization

 

     Year Ended December 31,     2008 to
2009 %
Change
    2009 to
2010 %
Change
 
     2008     2009     2010              
     (dollars in thousands)              

Depreciation and amortization

   $ 571      $ 1,201      $ 2,334        110 %     94 %

Percentage of net revenue

     5 %     5 %     5 %    

2009 Compared to 2010.    Depreciation and amortization expenses increased $1.1 million, or 94%, from 2009 to 2010. The increase was primarily the result of our investments in expanding our technology infrastructure and capital assets to support our increases in headcount across the organization. Depreciation and amortization related to our capitalized website and internal-use software development costs and fixed assets increased $0.3 million and $0.6 million, respectively.

2008 Compared to 2009.    Depreciation and amortization expenses increased $0.6 million, or 110%, from 2008 to 2009. The increase was primarily the result of our investments in expanding our technology infrastructure and capital assets to support our increases in headcount across the organization. Depreciation and amortization related to our capitalized website and internal use software development costs and fixed assets increased $0.2 million and $0.4 million, respectively.

Other Income (Expenses), Net

 

     Year Ended December 31,  
         2008              2009              2010      
     (in thousands)  

Interest income

   $ 433       $ 20       $ 30   

Transaction gains (losses) on foreign exchange

                     9   

Other non-operating income (loss), net

     1         13         (24
  

 

 

    

 

 

    

 

 

 

Total other income (expenses), net

   $ 434       $ 33       $ 15   
  

 

 

    

 

 

    

 

 

 

2009 Compared to 2010.    Other income (expense), net was relatively flat from 2009 to 2010.

2008 Compared to 2009.    Other income (expense), net decreased $0.4 million from 2008 to 2009, primarily as a result of a decrease in interest and investment income related to our short term investments that we sold in 2009 as well as a significant decline in interest rates.

Provision for Income Taxes

 

     Year Ended
December 31,
 
     2008      2009      2010  
     (in thousands)  

Provision for income taxes

   $ 4       $ 8       $ 75   

2009 Compared to 2010.    Income tax expense increased $67,000 from 2009 to 2010, primarily related to taxes due in foreign jurisdictions.

2008 Compared to 2009.    Income tax expense was relatively flat from 2008 to 2009, primarily related to taxes due in foreign jurisdictions.

 

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Table of Contents

Quarterly Results of Operations and Other Data

The following tables set forth our unaudited quarterly consolidated statements of operations data and our unaudited statements of operations data as a percentage of net revenue for each of the seven quarters in the period ended September 30, 2011. We also present other financial and operational data and a reconciliation of net loss to adjusted EBITDA. We have prepared the quarterly data on a consistent basis with the audited consolidated financial statements included in this prospectus. In the opinion of management, the quarterly financial information reflects all necessary adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of this data. This information should be read in conjunction with the audited consolidated financial statements and related notes included elsewhere in this prospectus. The results of historical periods are not necessarily indicative of the results of operations for a full year or any future period.

 

    Three Months Ended  
    Mar 31,
2010
    Jun 30,
2010
    Sep 30,
2010
    Dec 31,
2010
    Mar 31,
2011
    Jun 30,
2011
    Sep 30,
2011
 
    (dollars in thousands, except per share data)  

Consolidated Statements of Operations Data:

             

Net revenue by product

             

Local advertising

  $ 7,088      $ 8,152      $ 8,880      $ 9,639      $ 11,222      $ 13,357      $ 15,746   

Brand advertising

    1,935        2,462        3,195        4,454        3,583        4,471        4,599   

Other services

    113        113        519        1,181        1,695        1,750        1,957   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total net revenue

  $ 9,136      $ 10,727      $ 12,594      $ 15,274      $ 16,500      $ 19,578      $ 22,302   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Costs and expenses:

             

Cost of revenue (exclusive of depreciation and amortization shown separately below)(1)

    572        718        878        969        1,276        1,285        1,537   

Sales and marketing(1)

    6,687        7,917        9,465        9,850        11,271        12,347        14,897   

Product development(1)

    1,207        1,522        1,922        1,909        2,319        2,661        3,444   

General and administrative(1)(2)

    3,092        2,793        2,690        2,712        3,617        3,584        4,766   

Depreciation and amortization

    444        453        586        851        819        924        1,047   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

    12,002        13,403        15,541        16,291        19,302        20,801        25,691   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

    (2,866 )     (2,676     (2,947     (1,017     (2,802     (1,223     (3,389

Other income (expense), net

    (39 )     15        104        (65     108        75        (326
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

    (2,905 )     (2,661     (2,843     (1,082     (2,694     (1,148     (3,715

Provision for income taxes

    (11 )     (10     (27     (27     (12     (17     (36
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

    (2,916 )     (2,671     (2,870     (1,109     (2,706     (1,165     (3,751

Accretion of preferred stock

    (33     (48     (47     (47     (47     (47     (47
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholders

  $ (2,949 )   $ (2,719   $ (2,917   $ (1,156   $ (2,753   $ (1,212   $ (3,798
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share attributable to common stockholders:

             

Basic

  $ (0.06 )   $ (0.05   $ (0.05   $ (0.02   $ (0.05   $ (0.02   $ (0.06
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

  $ (0.06 )   $ (0.05   $ (0.05   $ (0.02   $ (0.05   $ (0.02   $ (0.06
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares used to compute net loss per share attributable to common stockholders:

             

Basic

    52,297        54,032        56,605        57,390        58,214        59,944        62,048   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

    52,297        54,032        56,605        57,390        58,214        59,944        62,048   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Stock-based compensation

             

Cost of revenue

  $ 5      $ 5      $ 8      $ 8      $ 9      $ 11      $ 13   

Sales and marketing

    121        139        129        273        271        281        559   

Product development

    55        38        75       </