The media is devouring the news that Yelp is supposedly on the hunt for a strategic buyer.
Triggered by a report in the Wall Street Journal that Yelp is “exploring a sale,” the global interest in the story has buoyed Yelp’s battered stock price by over 20%.
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Who could buy?
Let’s talk TripAdvisor first since they are the gold standard for global reviews. While mostly focused on hotels, its restaurant review stable is strong and growing.
Where TripAdvisor is weak is where Yelp is strong: in its broader base of review types.
However, this may not matter as much to TRIP since it’s focused on the “trip” part of its brand. The company could muddle its brand by taking on a Yelp.
Even more critically, Yelp could muddle the TripAdvisor community. Speaking from personal experience as a small business owner, there is a great distinction between the attitudes and approaches of those who use and review on TripAdvisor and those who use and review on Yelp.
These two communities are like oil and water — they won’t mix well.
All that being said, TripAdvisor did buy LaFourchette and may be looking to get into restaurants stateside.
Yelp would provide access to restaurants via SeatMe and could position it clearly against OpenTable in the US. This would also continue to place the company as a mean competitor to Priceline.
Yelp’s purchase of Eat24 could go either way for a TRIP acquisition, positive insofar as its a new vertical or negative because it isn’t currently a space familiar to the company.
Expedia spun off TripAdvisor in 2011, which created the two beasts that breathe today. This means that Expedia doesn’t have the sort of reviews that TripAdvisor is known for, which would be the main reason for Expedia to purchase Yelp.
However, this one just doesn’t quite make sense.
Expedia is focused right now on enhancing its technology to deliver a device agnostic user experience while also acquriing to grow market share in the online travel booking business.
While Yelp might offer some advantages in the form of bookings via SeatMe and reviews, those reviews are not heavily hotel-focused and so buying Yelp makes less sense as an acquisition than La Fourchette did for TripAdvisor since Expedia doesn’t have any restaurant focus currently.
Google is generally one of the first to be mentioned as the company nearly bought Yelp back in 2009 for around $500 million. The rumors of Google targeting Yelp keep swirling periodically, leading to spikes and crashes for Yelp’s stock.
However, the union is far from certain. Google could certainly benefit from placing Yelp’s listings more favorably in its searches — especially since recent algorithm changes deeply impacted Yelp’s rankings.
Yet this sort of behavior would trigger further scrutiny from regulators as the company is already embroiled in anti-trust issues in Europe. Adding another product that ranks higher than competitors would only add fuel to that fare.
Also, even though it splashed out on Zagat, Google has been investing heavily on its own local places product to compete with Yelp.
It wants to avoid listing third party reviews so highly on its rankings. Buying Yelp would negate some of that investment, but would also keep Yelp out of the hands of competitors.
Any serious search engine would want to beat out Google at its own game and Google has enough cash that they could just buy Yelp and shut it down completely.
And many merchants would likely cheer.
Facebook wants to succeed in local listings to increase relevance to users on mobile. Its own product is doing well, with businesses being rated regularly by users.
Local business information, such as phone and addresses, are also easy to surface both via web and mobile.
It seems unlikely that buying Yelp would lead to dominance of an emerging sector.
Facebook likes to splash out large on genre-defining investments, such as Occulus Rift, Instagram and WhatsApp, that fill a huge void for the company. It’s not clear how Yelp — and its slowing growth — could add much value here.
Apple is another company flush with cash. In fact, Apple could buy Yelp for a hefty premium and not even notice a dent in its cash balance. So that’s not an issue.
Apple also has the deepest integration with Yelp in its mapping application and so would stand to lose the most if the service fell into enemy hands.
The map would be left without user reviews, which would be a significant blow to a product that has only recently emerged from the nightmarish launch a few years back.
All that being said, Apple may not even see any value in Yelp’s business listings because it is trying to build out its own with Apple Maps Connect.
Small business owners can log in and claim their listings to update information and ensure accuracy. As of yet, there are still no user reviews in this product so that still remains an area that Apple has no ownership (whereas Facebook, YP and Google do).
Yelp reviews are embedded in Yahoo results, putting Yahoo at the top of the fold as far as an acquirer who stands much to gain.
Marissa Meyer has been on an acquisition spree as she gradually works on restoring Yahoo’s lustre. And after the inherent value of the lucrative stake in Alibaba is unwound, Meyer will need to keep propping up that stock price.
Snapping up Yelp would give it instant credibility and make its search results far more useful. It would also be a direct competitor to what Google is doing and give Yahoo an instant-in with small businesses that could be sold joint Yelp/Yahoo search packages.
Yahoo also has over a billion in cash on its balance sheet and could easily cash in some Alibaba cash to make that deal happen.
Meyer is either going to be pressured to return cash to shareholders directly or to reinvest in a way that makes for a great return. The time is also now for her to make a giant move that could re-center the industry.
Yelp signed a partnership deal with YP last year which brought the company into YP’s small business arsenal.
While the partnership was solely to expose more merchants to Yelp’s offering, YP could see an opportunity to shore up its strong mobile offering with the younger, hipper Yelp.
Even though YP has solid revenues, valuation would be a hurdle here. The business was sold off to private equity from AT&T a couple of years back at a reported valuation of $1.42 billion.
Yelp’s stock is still trading at a sky-high P/E, making its market cap over $3.5 billion. YP would need a massive hand to make that deal happen — unless it sits tight to wait for Yelp’s stock price to be buffeted more by the headwinds.
MOST LIKELY TO BUY: Priceline
Priceline is my pick for the following reasons:
- Less reliance on Google. Priceline Group has a massive content inventory that doesn’t need to rely on Google for inbound traffic. There would be an easy synergy to port Yelp’s review content into Priceline brands, including OpenTable.
- OpenTable. While OpenTable has its own review functionality, its not what users are logging in for. They simply want to book a table. Yelp’s purchase of SeatMe was intended to take on OpenTable but didn’t manage to dethrone the king of restaurant reservations. In fact, Yelp begrudgingly continues to offer reservations via OpenTable on its site because it has to. It makes perfect sense for Yelp to bite the bullet, stop competing and gain direct access to the best. For OpenTable, there’s a huge jump in access to reservation-seeking customers — not to mention synergies on the sales side since only one sales team could sell both OpenTable access and advertising on Yelp.
- Zomato is coming. The Indian restaurant tech company makes no attempt to hide its disdain for Yelp and its desire to take the fight to its rival in North America. Yelp will need more cash on hand if it intends to continue merger-funded growth, not to mention a warchest to take on a full-frontal assault by Zomato.
- Zomato is actually a threat to Priceline! Let’s not forget that Zomato is a snake in Priceline’s grass. This is just not discussed and it’s a vital piece of this puzzle. Why? Because Priceline owns OpenTable. Sure, Zomato is not in the hotel business (yet) but Priceline Group CEO Darren Huston told Tnooz last year “Our whole company is about how you take friction out of local experience, and that’s how we think.” There’s not another company out there like Yelp that lists
- Yelp’s done the heavy lifting as far as acquiring other companies globally. There are few national review sites remaining because Yelp has been growing internationally by gobbling up local-specific competition. This means that Priceline would have access to global review inventory, in addition to the installed base of Yelp’s SeatMe and the expansion into food delivery with Eat24. Or, if Priceline feels that delivery doesn’t take the right kind of friction out of the local experience, it could slice off Eat24 and sell it back to its founders or on the open market to avoid that vertical.
- Mobile. Darren Huston pointed to mobile as a reason for purchasing OpenTable, as the brand gave it another inroad into the mobile consumer. Yelp fits this bill and would instantly offer a whole new stream of traffic for both OpenTable and Priceline’s other brands on mobile.