Today: Yelp shares have their best day yet after a post-IPO lockup expires, but short-selling traders and a lack of insider sales could be behind big move. Also: Wall Street is stable, but Facebook falls; Pandora and TiVo beat earnings expectations and soar in late trading.

Yelp stock surges as lockout expires

Yelp shares jumped more than 20 percent Wednesday, as a lockup period for inside investors expired, the same occurrence that pushed Facebook's share price down heavily earlier this month. While Yelp is viewed more rosily by investors than Facebook right now, the reason for Yelp's best day yet on Wall Street could lie in the fact that investors bet insiders would sell, and they didn't.

Yelp jumped 22.5 percent to $22.37 at the close, after almost 53 million more shares owned by early investors and executives in the company became available for sale, after the company sold only about 7 million shares in its IPO six months ago. Those insiders apparently didn't sell, however, unlike in the case of Facebook, where early investor Peter Thiel unloaded 20 million shares.

Fortune reporter Dan Primack confirmed that venture capital firms with large investments in the company, such as Bessemer Venture Partners, Benchmark Capital, DAG Ventures and Elevation Partners, did not sell or distribute their shares. While Primack was unable to verify Yelp executives such as CEO Jeremy Stoppelman did not sell, trading volume indicated there were not a ton of extra shares hitting the market.


Advertisement

"That's something we didn't see with Facebook," Wedbush Securities analyst Michael Pachter told the New York Times. "Facebook clearly didn't have any control over Peter Thiel."

When insiders didn't sell, investors who had bet big on Yelp falling after the lockup were in a bind. Short selling -- borrowing shares on the assumption that they will fall and can be purchased for less, then given back at the lower price for an instant gain -- was prevalent in Yelp, as Reuters reported that 97 percent of the shares available to borrow were claimed. After the price began to rise, many of the short-selling investors were forced to rush to buy shares to avoid paying even higher prices later in the day, creating a "short squeeze" that pushed the shares even higher.

"I haven't seen a good old-fashioned tech short-squeeze in a long time, but this has all the behavior of that," Mike Shea, managing partner and trader at Direct Access Partners, told Reuters, adding, "People felt it would be a lock -- pun intended -- that you'd see the stock get hit when the lockup ended, and that clearly didn't happen. So now everyone is running for cover."

Traders squeezed by short sales may not have been the only reason the stock surged, however. Many investors see Yelp's revenue growth continuing after its recent deal with Apple (AAPL), while growth falls at other social-media companies like Facebook.

"Yelp is on its way to becoming a household name because of this Apple integration," Wedge Partners analyst Brian Blair told Bloomberg News in an article that mostly credited the company's fundamentals for the jump.

Bloomberg reported that analysts believe Yelp's revenues will double in the next year, more than the 67 percent rise it saw last quarter, which is "pretty strong revenue growth," Raymond James analyst Aaron Kessler told Bloomberg earlier this month. "Mobile is definitely helping drive traffic," he added.

Those fundamentals might have pushed investors into the market Wednesday, as they had an opportunity to buy a stock that debuted with a small number of shares.

"The IPO, at a little more than 7 million shares, was small enough that some larger investors might not have been comfortable playing in that environment," Randy Warren, chief investment officer at Warren Financial Service, told the Wall Street Journal. "This might be the first opportunity where these big investors felt safe."

However, the more popular theory on Wall Street was that short sellers messed up and paid for it, while sending the company's stock through the roof.

"The shorts got caught with their pants down today, plain and simple," Seth Setrakian, co-head of trading at First New York Securities, told the Journal.

Tech stocks mixed as markets remain calm

The rest of Wall Street was calm again Wednesday, with none of the three major U.S. stock indexes moving more than 0.1 percent. All three were in slightly positive territory, however, as U.S. economic growth in the second quarter was revised upward slightly, from a previous estimate of 1.5 percent to 1.7 percent.

While the positive movement for the GDP estimate helps, it still suggests a slower-than-needed U.S. recovery, economists said.

"The economy was sluggish in the second quarter and the slight upward revision ... does nothing to change that picture," said John Ryding, an economist at RDQ Economics, in a note to clients.

Facebook, however, continued to suffer. Despite receiving permission to issue shares in order to finally close the acquisition of Instagram, the company's stock declined 1.2 percent Wednesday to close at $19.10, its second-lowest closing price yet. At Menlo Park headquarters, however, everybody is focused on the business and not the stock, according to Mercury News staff writer Brandon Bailey, despite loud doubts about CEO and co-founder Mark Zuckerberg.

"There's a growing sense that Mark Zuckerberg, talented though he may be, may be feeling in-over-his-hoodie as CEO of a multibillion-dollar company," Sam Hamadeh of investment research firm PrivCo told Bailey.

Facebook partner Zynga fell back below $3 a share Wednesday with a decrease of 4 percent, but Hewlett-Packard's (HPQ) decline seemed to halt for now, as the stock moved up 0.2 percent.

Mountain View search giant Google (GOOG) continued to bounce back from Apple's victory over Samsung's Android-based devices in a San Jose court, notching its second straight day of strong gains at 1.6 percent. Apple declined slightly for a second straight day since hitting a bevy of new stock records, losing 0.2 percent.

Pandora, TiVo beat expectations

Two Silicon Valley stocks beat expectations in earnings reports released after the bell Wednesday, sending their stocks higher.

Oakland online radio service Pandora beat earnings expectations and increased its forecast for yearly revenue, sending its stock up more than 9 percent in late trading. The company later announced that its chief financial officer would be leaving the company, but that did not immediately dent the stock increase.

Pandora has struggled to increase revenues, but has put effort into its advertising business and has apparently seen results. The company said it could even post a profit for the first time in its current quarter.

"This quarter exceeded our expectations as our strong momentum continues with both listeners and advertisers," Pandora CEO Joe Kennedy said in a news release.

San Jose-based TiVo also exceeded analysts' expectations with a quarterly earnings release Wednesday. The company announced it added 230,000 subscribers in the second quarter, thanks to a deal with Virgin Media that brought it 261,700 subscribers.

"The number of TiVo subscriptions across the globe grew 41 percent year-over-year this quarter, highlighted by continued success at Virgin Media, which recently reached one million TiVo subscriptions," CEO Tom Rogers said in a news release.

The company's stock rose more than 4 percent in after-hours trading.

Silicon Valley tech stocks

Up: Yelp, Google, LinkedIn, Palo Alto Networks, eBay (EBAY), Yahoo (YHOO), Netflix (NFLX), Juniper, NetApp, Applied Materials

Down: Zynga, Intel (INTC), Facebook, Tesla, Jive, Advanced Micro Devices, Splunk

The tech-heavy Nasdaq composite index: Up 4.05, or 0.13 percent, to 3,081.19

The blue chip Dow Jones industrial average: Up 4.49, or 0.03 percent, to 13,107.48

And the widely watched Standard & Poor's 500 index: Up 1.19, or 0.08 percent, to 1,410.49

Check in weekday afternoons for the 60-Second Business Break, a summary of news from Mercury News staff writers, The Associated Press, Bloomberg News and other wire services. Contact Jeremy C. Owens at 408-920-5876; follow him at Twitter.com/mercbizbreak.