Is Google Putting the Hurt on Yelp?

When it comes to reviewing local businesses, Yelp is still king. Google , 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.

The article Is Google Putting the Hurt on Yelp? originally appeared on Fool.com.

Adam Levy 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.

Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.


Increase your money and finance knowledge from home

Income Investing

Grow your nest-egg.

View Course »

Bonds for Beginners

Learn about fixed income investments.

View Course »

Add a Comment

*0 / 3000 Character Maximum