Can Yelp Overcome the Google Threat?

Yelp has accused Google of favoring its own services. What does this mean for both business?

Jul 17, 2014 at 6:00PM

Online local guide Yelp (NYSE:YELP) has appreciated remarkably over the last year, with shares gaining 80%. The company's key metrics have improved rapidly, and its focus on mobile should help it sustain that outstanding performance going forward. However, Yelp has raised a concern over the way Google (NASDAQ:GOOG) (NASDAQ:GOOGL) lists search results, claiming the company gives preference to its own services. Will this hurt Yelp's growth significantly going forward, or should investors ignore this concern, given Yelp's mobile moves?

Focus on mobile is delivering results
A look at Yelp's product development indicates that the company is gradually becoming more mobile-focused. It is trying to deliver a better mobile web experience to users and has added a new feature through which users can add photos to Yelp via mobile web.

The company is experiencing strong engagement in mobile, driven by the investment it made over the past few years. Management credited Yelp's solid first-quarter performance to higher revenue from local advertising on mobile devices. The mobile app combines reviews and other relevant information based on the consumer's location, which allows them to check in at local businesses.

According to Yelp, in the first quarter, 35% of new reviews and 60% of all searches came from mobile devices. The company also bolstered its business listing page by increasing the number and size of photos. It improved review highlights to focus on the information that consumers will most likely find useful. On the back of such moves, Yelp is trying to increase organic traffic and improve its mobile business.

Yelp's moves have helped it deliver strong results so far. For example, in the first quarter, revenue increased 66% year over year to $76.4 million, which was better than consensus estimates. Yelp's losses also declined to $2.6 million from last year's $4.8 million.  In addition, Yelp also boosted its revenue forecast for the current fiscal.

These numbers reflect Yelp's solid progress. In the first quarter, 132 million visitors visited Yelp on a monthly average basis, indicating the strength of its user base . Active local business accounts increased an impressive 65% year over year to 74,000. 

Features and partnerships are proving beneficial
Management says that the Yelp brand is becoming synonymous with local search. Yelp has also tied up with other players to improve its presence. For example, it is powering Bing local search and Apple Maps, besides integrating its services into several car navigation systems. It recently announced plans to partner with Yahoo! and 

Yelp is trying to make its platform better for advertisers, and it has launched certain products to address this. Last year, it had launched a new product, "Call to Action," which has gained popularity with both advertisers and consumers. It has been only a year since launch, and it is already generating around 100,000 leads for advertisers every week.

The company is continuously focusing on adding more features to its service to attract more advertisers. After acquiring Qype last year and integrating it into its platform, Yelp saw a significant increase in the number of contributors . In Germany alone, Yelp reported an increase of more than 350% in its contributors since October. More contributors will lead to more reviews, resulting in higher traffic, which will attract more advertisers to its platform.

Yelp has expanded its network to Mexico and Japan. International traffic grew 95% year over year in the previous quarter, and Yelp expects the trend to continue. The company is gradually trying to reduce its reliance on Google by making its own site feature-rich and aggressively promoting its mobile apps.

The Google threat
However, if Google is indeed altering search results to favor its Google+ and Google Places services, Yelp might be in for some short-term pain. According to TechCrunch, leaked documents from Yelp allege that Google is "blatantly highlighting its own products in searches made in the U.S., but not in Europe to avoid angering EU regulators who are reviewing Google antitrust complaints. "

A comparison between the growth in the number of businesses with reviews on Yelp and Google indicates that the search giant is cutting it close. As Fool contributor Adam Levy mentioned in his article, the number of businesses with reviews on Yelp was up only 3% last quarter, while Google+ saw a 2% jump. This is a point of concern going forward, and Yelp will need to continue innovating and aggressively pushing its own services to increase its lead over Google.

The bottom line
Yelp has done very well so far despite competition from bigwigs such as Google. The company's key metrics, such as active local businesses and mobile views, are increasing at a substantial pace, and it also increased its revenue forecast. Looking ahead, the company is expected to sustain its business momentum, as analysts expect its bottom line to increase at a compound annual rate of 72% over the next five years, making Yelp an enticing growth pick.

Leaked: Apple's next smart device (warning, it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Sharda Sharma has no position in any stocks mentioned. The Motley Fool recommends Google (A shares), Google (C shares), and Yelp. The Motley Fool owns shares of Google (A shares) and Google (C shares). 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information