Is Google Putting the Hurt on Yelp?

When it comes to reviewing local businesses, Yelp (NYSE: YELP  ) is still king. Google (NASDAQ: GOOG  ) (NASDAQ: GOOGL  ) , one of its closest competitors, isn't even closing the gap.

A recent independent study showed that the number of businesses with reviews on Yelp increased just 3% last quarter, after that number improved 8% in the first quarter of the year. Meanwhile, Google+ increased that number a minuscule 2%. Despite the clear lead it has over Google, Yelp is still upset with certain tactics Google is using to increase the presence of Google+ in its organic search results.

Should investors worry about Google's increasingly competitive nature toward Yelp?

Reviewing Yelp's business page growth
As of the end of the first quarter, Yelp had about 1.6 million businesses claim their pages on its platform. A 3% increase would be little more than a rounding error for Yelp.

Claimed local business accounts have been growing slowly but steadily over the past year. Over the last twelve months, Yelp increased claimed local business pages from 1.1 million to 1.6 million. Note that includes the integration of Qype, which added millions of reviews of tens of thousands of businesses.

Still, last quarter, the company added about 135,000 new claimed businesses without the help of Qype. 3% growth this quarter would be just 50,000 new claimed businesses. That would be, by far, the fewest number of claimed businesses added in a quarter since the company came public. Typically, the company adds close to 100,000 new claimed businesses per quarter.

A slow down like that is concerning, but it's certainly not damning. It could be attributed to numerous factor including a slow attach rate in newer markets and more saturation in older markets. There are more important metrics for investors to pay attention to.

Active businesses and traffic growth
Active businesses are one of the keys to Yelp's business. As of the end of last quarter, the company has 74,000 active accounts buying its advertising and reservation products. In other words, there are over 1.5 million businesses with a presence on Yelp, that aren't buying anything from the company.

Yelp spends heavily to attract those 1.5 million businesses to its advertising products. On top of hiring more sales reps, the company also agreed to a strategic partnership with YP that ought to have at least a modest impact on the company's sales. Nonetheless, management isn't factoring the YP partnership into its 2014 outlook, which it raised after the first quarter. Management clearly expects strong sales this year.

The other key factor is traffic growth. Without traffic there's no one to advertise to. Last quarter, Yelp attracted 132 million unique visitors, an increase of 30% year-over-year. Traffic continues to get a boost from mobile, which saw 61 million unique visitors. The majority of those visitors, however, came from one source: search traffic.

Indeed, Yelp is heavily reliant on Google for traffic to its website. With Google's more competitive stance, Yelp is worried the search giant may direct users to its own products over its competitor's.

A leaked internal report shows how Google's search results affect Yelp's traffic. The report detailed a study where users typed in a restaurant name followed by "yelp" into Google in order to find Yelp reviews. It found that about 20% clicked somewhere on the first result -- the restaurant website with additional information from Google Plus -- instead of the Yelp page in the second result.

Interestingly, the study also states that Google's actions don't appear to have negatively affected Yelp's overall traffic.

Despite Google's best efforts to promote its own local review products, it hasn't had a huge impact on Yelp's overall traffic. Still, Yelp and its investors can expect Google to keep trying new ways to attract web users to its products including local business reviews on Google Plus.

Best Frenemies
For now, Google is Yelp's best frenemy. The search leader refers a ton of traffic to the website, but it has a competitive product that it's willing to put a lot of money behind. The local advertising market is huge, and Google wants its piece of the pie. Meanwhile, Yelp continues to grow its number of businesses and local ad revenue, particularly on mobile, much faster than anyone else.

A slowdown in claimed businesses is somewhat concerning, but investors should wait for Yelp's full results in a few weeks to get a better picture of what's going on at the company.

Warren Buffett: This new technology is a "real threat"
At the recent Berkshire Hathaway annual meeting, Warren Buffett admitted this emerging technology is threatening his biggest cash-cow. While Buffett shakes in his billionaire-boots, only a few investors are embracing this new market which experts say will be worth over $2 trillion. Find out how you can cash in on this technology before the crowd catches on, by jumping onto one company that could get you the biggest piece of the action. Click here to access a FREE investor alert on the company we're calling the "brains behind" the technology.

Read/Post Comments (2) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 14, 2014, at 1:42 AM, HMAN1234 wrote:

    Google trying to take over as usual, If we didn't use them so much they wouldn't have so much power, that's why I use the non tracking search engine the leave me alone so I can search the internet. Give it a try I have been using it for about a year.

  • Report this Comment On July 21, 2014, at 5:38 AM, SeattleDouglas wrote:

    July 2013 - FTC complaints against Yelp 865.

    May 2014 - FTC complaints against Yelp 2,046.

    Complaints rising at a rate of 118 per month.

    These complaints are from business owners,

    Claiming Yelp asks for $300 per month

    for "advertising".

    If the business refuses to pay all of the 5 star ratings

    are removed - replaced by one star ratings.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 3026216, ~/Articles/ArticleHandler.aspx, 9/4/2015 7:37:39 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Adam Levy

Adam has been writing for The Motley Fool since 2012 covering consumer goods and technology companies. He spends about as much time thinking about Facebook and Twitter's businesses as he does using their products. For some lighthearted stock commentary and occasional St. Louis Cardinal mania

Today's Market

updated Moments ago Sponsored by:
DOW 16,102.38 -272.38 -1.66%
S&P 500 1,921.22 -29.91 -1.53%
NASD 4,683.92 -49.58 -1.05%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/4/2015 3:59 PM
GOOG $600.70 Down -5.55 -0.92%
Google (C shares) CAPS Rating: ****
GOOGL $628.96 Down -8.09 -1.27%
Google (A shares) CAPS Rating: ****
YELP $24.21 Up +0.04 +0.17%
Yelp CAPS Rating: **