Yelp Gives IPOs a Good Name

The lockup expiration jinx is broken -- for now.

Shares of Yelp (Nasdaq: YELP  ) were trading as much as 25% higher today, even though the lockup restrictions for pre-IPO investors are expiring today.

We've seen plenty of recent debutantes tank the day that insiders can begin unloading shares in the open market. Angie's List (Nasdaq: ANGI  ) and Facebook (Nasdaq: FB  ) were smacked around as they approached the milestones earlier this month, and at least one Facebook backer took advantage of the expiration to unload most of his shares.

Things could have gone exactly that way for the fast-growing local reviews website operator. The stock actually opened 4% lower this morning, but that's when optimists outwrestled the pessimists for the car keys.

The lesson is clear. There is no free lunch on Wall Street. The logic behind a stock sliding after the lockup restrictions are eased makes sense. Insiders and early backers who have been holding significant stakes can finally cash in on their good fortune. However, bucking the self-fulfilling prophecy are post-IPO investors bent on unloading their positions ahead of the expiration. We also don't know the intentions of early holders.

The expiration of a lockup will never be a positive event, but today we're seeing how it can be an opportunity to exhale. Yelp shares tumbled when Angie's List restrictions eased earlier this month, sensing that today would be a dark day.

Well, it hasn't worked out that way -- for now.

Yelp continues to trade well above March's IPO price of $15, and investors have another exception to the rule to toss at the next trader who argues that betting against a company with lockup restrictions easing is a can't-miss opportunity.

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The Motley Fool owns shares of Facebook. Motley Fool newsletter services have recommended buying shares of Facebook. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


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