half a billion dollars for Yelp

Is Yelp really worth that much?

A quick back-of-the-envelope calculation makes me think not.
They've had $31 MM in funding, so the VCs will be getting a 16x exit, which is rather high. But then, Yelp has done rather well.
At 150+ employees, that's $30 MM /yr straight out. Plus some other SG&A expenses. With $30 MM revenue in 2009, I'd say they might be almost breaking even. Projected revenues in 2010 are $50 MM, so they might bring in a little less than $20 MM profit.
If I were the Yelp board, I'd take the $500 MM.

However, everyone seems to look at 2010 as the year of recovery, and online advertising is expected to grow quite a bit. If they do better than projected, the same offer might be worth more 6-9 months down the line.

If they want to go IPO, I think that as a retail investor I wouldn't buy. Not because of what it is worth today, but because I haven't seen much innovation there - how will it keep up with the fast changing landscape? I fear Yelp.com, as in the website by itself, might be plateauing out.

However, it seems to be worth half a billion dollars to Google. Think about who else might acquire Yelp.

Microsoft.
Yelp fits right in with Microsoft's Bing. Bing is approaching search vertical by vertical (which I think is the right way, and Google might be coming around to it too - it has been looking at Yelp and Trulia; but I digress). And Microsoft is the only company offering some real competition to Google's core business right now. So it is probably worth for Google to pay a few millions extra to acquire Yelp and thus block Microsoft.

Another important strategic advantage Yelp can bring to either of the two companies is local data and a social angle. Neither MS nor G are strong in these areas. The social aspect of Yelp is not been fully tapped into yet, but users participate on Yelp like nowhere else (except, perhaps, Twitter). Not even Facebook - activities on Facebook are becoming quite frivolous and there is little likelihood of anything serious to catch on there.

I think Microsoft would do more justice to Yelp, than Google. The Search Wars will get much more interesting if either of them does eventually acquire Yelp.

(numbers used in estimations taken from Crunchbase and/or Wikipedia)