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Yelp Is In A Good Position To Grow Through Partnering

Yelp Inc. (YELP) is an Internet related company I would describe as an “online urban city guide.” It gathers information and opinions from local people and then helps people that search online find different things like places to eat, shop, relax…etc. Its mobile app is very popular as it combines reviews and other relevant information with knowledge of particular locations that consumers are interested in going to. This has made it much easier for people to discover local businesses that they like to go to.

There are rumors in the business world that Yelp might partner with Facebook (FB) to supply the services. What could possibly be the reason that these two companies would suddenly work together?

I believe this might be happening because Facebook’s “graph search” could be a threat to Yelp. If you are unfamiliar with the “graph search” feature of Facebook let me briefly introduce it to you. On a limited basis, the feature was introduced in March 2013, in the United States to a number of users. Much like Yelp, it goes through big data acquired from millions upon millions of users as well as geographical external data that have formed into a search engine. Instead of just providing links like a general search engine, it provides user – specific search results. Facebook has been planning a slow steady expansion of the service.

It looks like direct competition for Yelp! So what is a smaller company supposed to do when larger companies like Facebook decide to emulate the same services the smaller company provides? This is pretty tough considering the larger companies can do this over a larger audience, which means a huge negative for Yelp. What can a smaller company do but join forces with a larger company? Suddenly Yelp is very” open” to partnering with the social networking giant.

Is Yelp that Popular?

It wasn’t long ago that Google (GOOG) was interested in Yelp. This was back at the end of 2009 going into 2010. Google has its “Plus Local” service that recommends businesses to its users and combines reviews, circles of influence, and location to make its recommendations. Users can also publish reviews and upload photos of their favorite places for others to look at.

Cannibalizing Yelp would have extended Google’s desire to provide targeted advertising to its users. Through a mobile app, it would be able to target ads based upon personal preference and real-time location.

Imagine what Google could really do! Even local small businesses could get in to the mobile ad advertising campaign. When one combines a real time geographically-based ad for consumers who are walking by small businesses, anybody can participate. Imagine walking through a shopping center and a “two dollar off coupon” comes up for a local coffee/pastry shop. One might be more apt to act on that in real time. This is where advertising is going.

Obviously the deal was never made though.

Will the partnership between Yelp and Facebook take place? That’s the question investors need to be aware of. If it did, some analysts believe Yelp would be the greatest benefactor at the same time competition for Facebook in this area would also be cut down. Yelp would immediately get a wider distribution of its reviews because more people would be reading it and theoretically this means it could generate more revenue because the value of advertising with the company would increase with increased users.

Yelp is in a Good Position

Quite honestly, Facebook, Google (if it tries again), or even Apple (AAPL) would increase their productivity with a partnership under Yelp. Of those three though, I am of the opinion that Yelp has better ties with Facebook right now than any of the other three. The company already has ties with Facebook “Connect.” Someone who uses Yelp presently can see if one of his or her Facebook friends has reviewed a business or not without having to create two separate accounts.

Yelp is expected to show its first profit in 2014, and that is expected to be a mere penny.

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Technically Speaking

Since January, the company has grown over 90% in value and continues to look like it’s going to move up. The RSI indicator continues to be above the 50 mark, which separates bulls and bears. The MACD indicator supports the RSI indicator also as its moving averages continue to stay well above the zero mark. For this reason there are no signs that the stock is going to slow down yet. Although the Bollinger bands are not far apart, the stock has consistently remained closer to the top than it has to the bottom bands. Recently it has risen the point where the 50-day moving average may not be supported anymore and we may see the 20-day moving average on the Bollinger bands as future support.

Because this stock is so popular, I would expect that any of the big three companies that I have mentioned in this article would still be very interested in taking Yelp under its wing. Each company would benefit greatly if it did. This puts Yelp in a very good position and as an investor I would consider purchasing shares of this company. If a buyout were to take place investors could benefit greatly.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More…)

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Mystic Maggie

All of the Mystic Maggie Posts are RSS Reader Feeds from around the web. All copyright remains with the original publisher. No copyright is claimed or intended. Where supplied, links back to the original article are included.

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