A Yelp Buyer Would Have to Contend With Google
Source: Douglas MacMillan CONNECT
elp CEO and co-founder Jeremy Stoppelman is seen in the Yelp offices in Chicago.
jim young
Any company considering a purchase of Yelp will have to weigh the local-review site’s fraught relationship with Google GOOGL +1.58%.
Yelp, which The Wall Street Journal reported Thursday is exploring a potential sale, relies on Google’s search engine for more than half of its online visitors.
That reliance has created tension between the two companies over the years, especially as Google has pushed further into its own listings for restaurants and other local points of interest. Yelp executives have complained that Google has altered its search results to direct users to its own local listings rather than Yelp and testified in Congress that such practices are anticompetitive.
Yelp has blamed Google’s changes in part for its slowing growth in online traffic. Unique visitors to Yelp grew to 142.5 million in the first quarter, an increase of 7.5% from the prior year. That was a slowdown compared with the company’s 12.8% growth in the fourth quarter.
Yelp Chief Financial Officer Rob Krolik said in a call with analysts last month that part of that slower growth was “a Google-driven phenomenon, based on their algorithmic changes last year” that mostly affected visits to Yelp’s site outside the U.S.
The review site has also told investors that Google’s changes did not diminish its U.S. traffic or visitors to its mobile website, which grew 29% in the first quarter to 79 million; or its mobile apps, which grew 47% to 16 million.
The Web is littered with companies that have suffered from relying too much on Google. Shares of Demand Media DMD -3.88% have plunged more than 80% over the past four years as changes to Google’s algorithm have cut off traffic to Demand-owned sites like eHow.
While their shared interest in the local review business could make Google a possible suitor for Yelp, a deal between the two is unlikely given their history and the regulatory scrutiny it would invite.
“The biggest hurdle to a marriage here would be the rocky historic relationship between Google and Yelp,” Jefferies analyst Brian Pitz said in a research note Thursday.
Google attempted to acquire Yelp in 2009. A few days after the two sides tentatively agreed to a deal worth over $500 million, the talks fell apart for reasons unknown.
A technology investment banker said Google would still love to own Yelp, but recent European Union antitrust charges and an on-going investigation means the company would likely face regulatory problems completing the deal.
“Though we also see a strategic fit for Google, we harbor considerable doubt that an acquisition of Yelp could pass regulatory scrutiny,” said Peter Stabler, an analyst at Wells Fargo Securities.
-Alistair Barr contributed to this article.
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