Cloud Hangs over Yext despite Successful IPO

Yext Inc (NYSE: YEXT) is a software company that prides itself as a knowledge engine. Unlike search engines such as Google (NASDAQ: GOOG) which only offer listings, Yext combines local business listings with the internet. That means that Yext allows users to access any information about a business in the surrounding area at the touch of a button.

Riding on the IPO wave of successful tech companies, Yext’s IPO raked in millions in revenue for the company. The hype caused by the lucrative issuance of companies such as Snap Inc (NASDAQ: SNAP) and MULE steered Yext’s profitable entry into the public company sphere. The offer proposed by the company was topped by over $1 billion by investors, who were comfortable buying up over 11 million shares at a varying rate of $11 per share, culminating in about $115 million in monetary value for the software firm. Yext’s shares closed at $13.50 at the close of business day on Friday.

How Yext Works

Many parties raised concerns over the company’s long-term plan in spite of Yext’s initial success. Most of those concerns circulated the company’s business model. First, we need to analyze this model before we can understand why investing in Yext is risky business.

Started in 2006 as an advertising platform, Yext’s advertising division grew and was sold in 2012 as IAC/Interactive. That is when the company consolidated and launched another platform centering on search engines called Yext Knowledge Engine Platform.

When users type into Google, they usually receive different links to their search request say, in nearby hospitals. This result comes about because engines like Google rely on third-party data in relaying their searches. Yext, on the other hand, allows businesses to directly store their data and sync them with other apps. This way, when a user looks something up, it gives immediate results. A search on say, McDonald’s (NASDAQ: MCD) on Google would turn up links to various locations and the firm’s history. A query of the same on Yext would just turn up the McDonald’s closest to you on Google Maps (NASDAQ: GOOGL).

Other businesses that subscribe to Yext in addition to McDonald’s include Best Buy (NASDAQ: BBY), Facebook (NASDAQ: FB) and Yelp (NYSE: YELP).

Why the Concern

The only feature that separates the 925,000 Yext listings with pages and reviews from those of software magnates like Google is that Yext’s results are specific thanks to direct business information storage. Were other search engines such as Google and Yelp to consolidate with internet providers, then the service provided by Yext would be outdated. For an investor looking for long-tem returns, talk of market consolidation is thus a cause for concern.

Another unfavorable condition for Yext is that the company has been making increasing losses over the past two years, averaging at 29% and 35% of sales respectively. The trend leaves to question whether the IPO will be enough to curb the trend for a short while.

Finally, Yext caters to renowned businesses but not smaller ones. CEO Howard Lerman stated that the company aimed to change this, thus distinguishing it from other tech companies.