How To Buy Yelp Inc. (YELP) Stock

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Contributor, Benzinga
Updated: May 25, 2021

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Two former PayPal employees launched Yelp Inc. (NYSE: YELP) as a means to compile word-of-mouth reviews for local businesses and services. Jeremy Stoppelman and Russel Simmons developed the platform in July 2004, and its popularity soared almost immediately. 

Before Yelp, consumers relied on endorsements from those closest to them — a rather limiting notion since we usually associate with others of like minds. But with Yelp, varied users in local communities in the U.S., Canada and Europe placed reviews that others considered before making decisions to patronize businesses. Yelp was the first platform of its kind.

Yelp Stock and Company History

Stoppelman and Simmons initially toyed with naming the company Yocal, but the domain already existed. They ultimately decided on Yelp, which is a name combining “help” and “Yellow Pages.”  

Three key groups help drive Yelp’s online presence:

  • Contributors: Those who share their experiences with a local business or service by posting reviews, ratings or photos
  • Consumers: Those who proactively seek information on the platform; motivated buyers 
  • Local businesses: Entities that directly engage with consumers and therefore benefit (or suffer) from reviews posted on the platform

The platform’s popularity feeds off input. The more reviews that are written on the platform, the more it guides consumers’ purchasing habits. Increased purchasing habits make Yelp’s favorability grow, and with consumer traffic growth, the site becomes an effective advertising solution for companies interested in targeting a large number of intent-driven consumers. That remains a key component because businesses are now shifting advertising dollars to online ventures. 

Yelp’s initial public offering (IPO) was March 2, 2012. On the first day its stock price increased by 64% to close at $24.58. The platform at the time attracted 66 million users per month, and in the previous year it generated $83.3 million in revenue. Yet the company had yet to turn a profit, losing $16.9 million that year. 

Despite finishing in the red every quarter during the next 2 years, Yelp stock surged. On March 5, 2014, it peaked at $101.75 — a 313% increase from its IPO. It wasn’t until the following quarter that the company posted its first profit. Its net profit for the quarter was $2.7 million. 

In 2018, the company generated $943 million in total net revenue, an increase of 31.75% from 2016 ($716 million).

Yelp: A Look Ahead

Approximately 26 million businesses operate in the U.S., according to the U.S. Department of Commerce. Each day millions of consumers choose to spend their money with these businesses. Why and how consumers make purchasing decisions is largely based on the opinion of others. Yelp capitalizes on these consumer behavior decisions.

The company plans to initiate its next phase of growth that’s focused on 3 pillars:

  • Increase focus on advertisers and business owners.
  • Enhance go-to-market strategy by integrating product and product marketing with sales efforts.
  • Execute long-term targets for growth, profitability and capital return.

Yelp also intends to create long-term shareholder value through several strategies:

  • Drive margin expansion and optimize cost structure.
  • Accelerate strategy through effective partnerships.
  • Align capital allocation with shareholder value creation.
  • Continually develop company talent and board of directors.

The borderless world that technology has created connects us in ways that, among other things, affect our economic decisions. Yelp intends to be the driving force behind that continued evolution. It’s a critical position to occupy, filled with potential rewards and possible stumbling blocks. 

Here are several reasons why you should consider buying Yelp stock and the reasons why you might want to reconsider.

Reasons to Buy Yelp Stock 

The credibility of online reviews:

The public’s increasing reliance on the digital age naturally brings added credibility to online reviews. Numerous online surveys reveal that up to 90% of consumers base their purchasing choices on online reviews, thus cementing Yelp’s value and importance to the consumer experience.

Companies migrating to an online presence:

Imagine a time in the not-so-distant past when we had to scour newspapers or magazines to find relevant information about a business. Today, Yelp serves that purpose. Consequently, consumers flock to the site in a quest to gather information. The traffic makes Yelp an attractive advertising platform to businesses, increasing the company’s revenue.

Platform expansion: 

Yelp plans to fortify its distribution channels and features to include web-enabled televisions and voice-enabled mobile devices, as well as geographic targeting by advertisers. Some companies cover a larger regional area and desire a wider swatch of customers, while other companies prefer customers closer to their location.

New avenues to generate revenue:

The company looks to grow its sales force and expand its portfolio of revenue-generating products, thus reaching new businesses in local markets and increasing its advertising.

Reasons to Be Cautious of Buying Yelp Stock

Strong Competition

Google reportedly offered to buy Yelp in 2009 for $550 million. Stoppelman and Simmons declined. Google and Bing decided to develop review features and, in effect, become real competitors. 

Possibility of Ongoing Litigation

Businesses claim that reviews posted by Yelp users affect them in a way that infringes on their ability to conduct business. Addressing these claims could divert management’s attention away from the core business and negatively affect Yelp’s profitability.

Operating in the Red

Yelp has incurred significant losses in the past. Market conditions, software malfunctions and a host of other factors (in and out of the company’s control) could affect Yelp’s bottom line. A return to sustained losses could harm the company’s stock performance.

Inherent Risks of Globalization

Recruiting and retaining qualified, multilingual employees, complying with applicable foreign laws and regulations, and political and economic instability in other countries are all significant hurdles in Yelp’s everyday business. 

How To Buy Yelp Stock

Investing can be a bewildering process for some. To others, it’s an exercise that’s as second nature as driving a car. Wherever you fall in that continuum, you must master the basics. Doing so allows you to expand your knowledge and perspective of investing in a way that makes the process more rewarding.

Depending on your level of expertise, the 5 basic steps below can help establish your foundational understanding of the process or serve as a refresher. These are simple steps and are similar to those outlining how to purchase Nintendo stock.

  1. Conduct Your Research.

    Before you purchase stock, conduct as much research as possible about the company and its industry. It may be easier to rely on professionals to help guide your investment decisions, but first become familiar with the process. It will help eliminate the mystery of investing. In your information gathering you’ll gain confidence to help you navigate through stocks and Yelp itself. The more information you have, the simpler and less intimidating the process can be.

  2. Choose a broker.

    Some investors choose to go about it alone, using online brokers to manage their transactions. Others prefer one-on-one interaction and relationship-building from full-service investment firms. There’s no right or wrong answer; it’s an individual decision. But while each has its pros and cons, it’s about personal preference and what suits you as an investor. 

  3. Establish and build a relationship with a broker.

    This is a critical step toward building the kind of investment portfolio that fits your needs. It’s important because it allows you to build trust with your broker. It also allows them to become familiar with your goals and suggest the kinds of investment vehicles to get you there. Always remember that the brokers work for you and that you make the ultimate decision.

  4. Fund your account.

    Interested in an online brokerage? Create an account and link your banking information to transfer funds or wire money into the account. Either way, once you deposit the funds, you’re ready to start trading.

  5. Finalize your Yelp stock purchase.

    Yelp trades on the New York Stock Exchange under the symbol YELP. You’re now ready to purchase Yelp stock at the current per-share price, less any fees or related costs using either your online or your neighborhood broker. 

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Yelp Stock: A Synopsis

It’s undeniable that technology has made us a more enlightened citizenry. We’re better-informed consumers with the world of commerce at our fingertips, just a click away, 24 hours a day, 7 days a week. This evolution has effectively given power to the consumer in a way that they’ve never had it before. It’s a formidable tool to possess. No longer are disgruntled customers limited to conversing with their spouse or neighbor or co-worker at the water cooler about the poor service they received at a local business. And likewise, no longer are satisfied customers limited to conversing with those closest to them when they have a pleasant experience at a local business. They now have access to a wider audience to share their experiences with. 

Yelp uniquely expanded consumer dialogue. With sales propositions flooding our daily existence, the competition for our hard-earned dollars is fierce. Our decision, however, is made easier with a visit to Yelp. It’s interesting how the opinions of total strangers can sway our choices in such a way. But at our core, strangers or not, we all share a simple economic principle: We want a pleasant experience in exchange for our dollars. 

Yelp exists to chronicle the times in which businesses find themselves on either extreme of that basic economic principle — praise and adulation in one instance, ridicule and displeasure in another. Word of mouth travels fast, and a tool such as Yelp, in an indirect way, helps improve the customer service process for all of us. Businesses know the power that customers possess, so it behooves them to be as accommodating as possible. 

It delivers an incredible value for all involved: to the consumer, who wishes to make an informed decision; to the local business, who looks to have its stellar customer service rewarded with repeat patronage; and to the advertisers, who expect a return-on-investment with the high traffic expected on Yelp.