While YELP is down over 39% from its highs in March, now might be a good time to think about building a small low risk position. I never buy a stock specifically for a takeover, but its always nice to have that possibility out there. In the case of YELP, I see two potential suitors, Google and Apple, that could benefit from acquiring and integrating YELP into its current offerings.
Case for Google:
Do a simple local search in Google Maps and see what you find. Below is a screenshot of a local screenshot in Times Square, NY.
So what do you notice? The screenshot is littered with local restaurants. As is the situation for many tourists or even local residents, the question ultimately leads to, “Where is the best place to eat?” In order to figure this out, a great feature would be if Google allowed you to mouse over the restaurant on your screen and read reviews by fellow patrons to see how good the food really is. Google understood the value of this feature and integrated it early on in the form of Google Reviews which rank local businesses on a scale of 1 to 5 stars. So why would Google want to buy Yelp if they already have their own version of local business reviews? The answer to that is simple. From my experience, Yelp reviews are of much higher quality and involve more social interaction. Lets just take a look at one example of the quality difference by looking at some reviews on Le Bernardin.
The first thing I notice is the difference in the amount of user engagement between Google Reviews and Yelp. You might think I cherry picked these examples, but they come from the top areas of each page. Im sure you could find examples where Yelp does not offer as in depth reviews as Google Reviews, but in general from my years of using both services, I find Yelp much more engaging. I constantly find myself using Google to find local companies, and then using Google to go to Yelp to see the reviews for that restaurant. As Google tries to streamline search results, it makes sense for them to take out that extra step and fully integrate Yelp with their current product offerings.
Case for Apple:
The case for Apple is really the same as it is for Google. Apple is all about integrating different services into one streamlined experience. With rumors that the new iPhone will no longer use Google Maps, I see Yelp as a great way for Apple to integrate local business reviews into their mapping service the same way Google has done with Google Reviews. With a current market cap of only 1 billion, Apple could purchase Yelp with a large premium and still not dent their cash hoard.
Please dont buy YELP just on takeover speculation….thats a fools game. Lately it seems like Facebook has taken down all social media stocks, which for many investors will provide great long term opportunities. Just make sure you have a risk mangement strategy in place, as trying to pick a bottom in many of these names can blow up your account in a very short period of time. For other ideas on longer term trends to invest in, check out Five Long Term Trades to Invest In.
5 Responses to YELP – The Takeover Target
Google’s purchase of Zagat is surely going to help them with quality reviews. It’s already integrated into their Google Local. Yelp is still pretty valuable just based on their crowdsourcing of reviews as opposed to Zagat’s ‘business of reviews’ though.
Yea Zagat helps, but even with it I find the integration lacking, especially their crowd reviews. I just know that me personally, I only use Google reviews if I cant find good information on Yelp first….and I doubt Im the only one.
Nice article with examples.
Google’s offer of $500 mil places the value of Yelp at $8 a share. Yelp’s tripling of losses, 800+ employees, recent lawsuit loss for underpaying employees and bad reputation make it a poor takeover target. Apple has never paid more than $300 mill for any acquisition and only for technology. Nice write up though.
Great minds think alike? I wrote on the same topic within an hour.
I think the key differentiator is Google Maps. Context is king when search happens on a mobile device. GOOG has that covered across AAPL and Android mobile.