Is Yelp On The Block?

Despite its position at the top of many Web searches, review site Yelp is exploring a sale as it continues to struggle to expand its user base and advertiser pool. In fact, Yelp’s struggles have been numerous of late – apart from sluggish user and advertiser growth, the San Francisco-based firm is also facing rising costs, a return to a quarterly loss and a stock price that has lost 50 percent of its value in the last year.

Yelp has amassed hundreds of millions of consumer reviews, and recently it thought its hyperlocal approach to product search would be a go-to formula as commerce migrates to the smartphone. But, as Yelp, Square and any number of locally keyed in firms are learning – local business is a hard nut to crack in a way that is easily monetizable.

“Small and medium-sized businesses are always fickle with their advertising budgets,” said Sameet Sinha, an analyst at investment bank B. Riley & Co. in San Francisco, according to The Wall Street Journal.

Even when local advertisers do pay for ads, that purchase is often a one-off, as Sinha estimates that as many as 70 percent of Yelp’s advertisers stop buying ads on the site after a year.

Yelp is also inextricably tied to Google – which it relies on for search results – but Google is moving to compete with Yelp now with its own local advertising/review/product search business.

Yelp’s executive have in fact even officially complained before Congress that Google altered its search results to direct users to its own local listings rather than Yelp.

A Google spokesman declined to comment, reports The Journal.

Unique visitors to Yelp grew to 142.5 million in the first quarter, an increase of 7.5 percent from the prior year but a slowdown of the 12.8 percent growth first seen during Q4.

Now, The Journal reports, Yelp may be looking to be bought out- an idea investors are widely expected to warm to. Before a sale was mentioned, Yelp’s market cap was around $2.9 billion. The firm ended yesterday valued at $3.4 billion.

This is not the first takeover chat had about Yelp, as in 2009 Google was rumored to be considering a purchase for $500 million – though the deal eventually fell apart.

Today, the bulk of Yelp’s revenue comes from small businesses that pay to advertise on the site through specially tailored profiles and payments for customer referrals. The company is still struggling to become profitable, but this does not mean it is not an attractive investment, as Yelp’s reviewer base alone would be difficult for a firm to build from the ground up. Also, a website with a loyal following entices more users to visit the site directly, allowing its owner to avoid paying for search-engine advertising.