Social media companies are having tough time of it in the market but online review site Yelp Inc (NYSE:YELP) is proving to be an exception in more ways than one.
Earlier this week, large insider investors in the company finally got a chance to sell their shares after a six-month "lockup" period that followed Yelp's IPO in March.
Shareholders had braced themselves for a wave of sell-offs - in fact the stock came under selling pressure on this apprehension. There were the frightening examples of Facebook, Groupon and Zynga before that had seen relentless selling when the expiry of their lock-in shares came up. High profile investors had exited the companies without a second thought.
However, Yelp's early investors held on to their shares and the stock soared by 22.5 percent, bucking a slump for social media companies on the stock market.
Analysts are seeing this as a vote of confidence by investors in the company, which allows users to post reviews about neighbourhood businesses and services. The fact that they stuck by the company and did not run away when they had the chance has boosted investor confidence in the stock.
Its recent partnership with Apple to integrate local content into software for the iPhone and the iPad has further bolstered its image in the market.
However "Yelp faces the same challenges of other young internet companies," says Evelyn M. Rusli at The New York Times. Yelp relies on businesses for revenue with vendors given "the option to spend money on advertisements or other services." However, while revenue is rising, "only a fraction of businesses with profiles on Yelp -- about 4 percent -- pay the company anything." Like Facebook and Groupon, Yelp still has to show investors that it has a sustainable model for revenue.