Why Yelp Shares Skyrocketed

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Yelp (NYSE: YELP  ) have skyrocketed today by upward of 25%, despite the fact that today was the expiration of its IPO lockup restrictions on insiders.

So what: I sure feel plain silly. Last night, I warned that today would see a massive sell-off upon the expiration, just like what happens to just about every other freshly public company when the lockup restrictions expire. Chances are we're seeing shorts being squeezed out before our very eyes.

Now what: As of the middle of the month, there were 3.2 million shares being held short, more than 5% of shares outstanding, and some of the selling pressure heading into the expiration was likely shorts piling on in anticipation of a sell-off, which would follow historical norms. But instead of Yelp investors yelping in pain today as I predicted, shorts are the ones yelping -- and I don't mean they're looking up reviews of their favorite local eatery. It would appear that the excessive pessimism may have been overdone, and the lockup expiration jinx is broken.

Interested in more info on Yelp? Add it to your watchlist by clicking here.

Fool contributor Evan Niu holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool has a disclosure policy.

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