Yelp Buys Another 4-Letter Word

Yelp (NYSE: YELP  ) is making a bigger push for European foodies.

The fast-growing website for restaurant and venue reviews is paying roughly $50 million in cash and stock for Qype, Europe's largest local reviews site.

It's a smart move -- at a fair price -- but it's not the company's first trek overseas. Yelp has been trying the organic route in the past, expanding its own website to cover major European metro areas. However, sometimes it just makes sense to snap up the category killer in a region than to try to penetrate a market where someone else already has the upper hand.

This isn't the first time that a growing dining-oriented website has acquired the top dog in Europe. Reservations specialist -- and Yelp ally -- OpenTable (Nasdaq: OPEN  ) also got a good price when it bought into European peer TopTable.

In both acquisitions, investors need to realize that Europe isn't as fanatical about tethering the dining experience to the Internet as we are across the pond. There's a reason why Yelp, with a $1.5 billion market cap, is only shelling out $50 million for Europe's leading reviews website.

You can see the disparity in the metrics. Yelp is drawing roughly 78 million unique visitors a month to its site loaded with 30 million user-generated reviews. Qype, on the other hand, attracts just 15 million unique visitors a month to its 2 million reviews.

Both sites can use a bit more engagement to get the silent majority of lurkers to actually post reviews, though Yelp's average of reviews per visitor is substantially higher.

Buying Qype is a smart way to expand its global reach at a time when bigger online companies may be making a play here. Google's (Nasdaq: GOOG  ) been collecting local reviews to beef up its search and mapping features, but it turned heads by snapping up restaurant ratings giant Zagat last year. Facebook (Nasdaq: FB  ) has taken a page out of the Foursquare playbook, encouraging its more than a billion active users to check in wherever they go, and it revealed this summer that it's looking to raise the bar on search by incorporating the data that it's been collecting. In other words, Facebook and Google can emerge as significant threats to Yelp's model.

Covering as much geographic real estate as possible before the big boys wake up is the right approach for one of the few Internet IPOs this year that's actually holding up nicely. Yelp has nearly doubled since going public at $15 in March.

Yelp is also living up to its end of the bargain. The online speedster is also revealing this morning that it's going to surpass its earlier guidance when it reports next week. Preliminary results also show positive adjusted EBITDA of $2.2 million on $36.4 million in revenue. Back in August, the company was looking for adjusted EBITDA of no more than $1.25 million on $34.5 million to $35.5 million in revenue. Yelp is also eyeing a slightly smaller quarterly deficit than Wall Street is currently targeting.

It's nice to see that Yelp isn't ordering international dishes on an empty stomach.

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Longtime Fool contributor Rick Aristotle Munarriz has no positions in the stocks mentioned above. The Motley Fool owns shares of Facebook and Google and has the following options: long JAN 2014 $20.00 calls on Facebook. Motley Fool newsletter services recommend Facebook, Google, and OpenTable. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On October 25, 2012, at 11:31 AM, Bot1 wrote:

    What is a "good price". Youmay not have noticed, but Top Table has been a complete disaster for OpenTable to this point.

    I don't know why companies insist on paying large sums of money for lousy businesses that can't make a profit.

    Oh wait, maybe I do get it. It is so that the CEOs are not perceived as doing "nothing".

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