If you have an IOS 6 device, try this simple experiment. Hold the home button to activate Siri, and then say “Find me a Thai Restaurant.” You will be presented with a list of restaurants in the surrounding area with quality rankings based on Yelp (YELP) reviews. The IOS integration was announced on September 19, 2012 on the Yelp blog and applies to all countries where Yelp is active.

On the day of the IOS announcement, Yelp stock closed at $25.71. Three months later, the installed based of IOS 6 devices was almost 300 million. Despite this massive influx of new users, Yelp’s stock price closed on March 8, 2013 at $25.01.

Smartphone searches have become a portal into the local economy. Consumers are using their phones to find all types of vendors. Yelp is not just for restaurants. It has reviews for gyms, plumbing supplies, carpet and all types of services. In the 2012 10-K filing, Yelp shows the types of reviewed businesses with the chart below.

Reviewed business types from Yelp 2012 10-K filing

According to the Yelp 10-K, the number of reviewed business locations grew 64% as of December 2012 from the prior year. Revenue for the year ending December 2012 was $137.6 million, rising 65% from 2011. Yelp is not yet profitable and has not attracted positive ratings from many analysts. According to Yahoo Finance, Yelp has a Price/Sales ratio of 10.87. By comparison, Facebook has a Price/Sales ratio of 13.38.

The scope of the Yelp business search is wide. The company’s main competitor is Google (GOOG) with Bing (MSFT) and Yahoo (YHOO) being secondary challengers. Facebook (FB) is showing interest in business search also. I am skeptical about the potential for Facebook Graph Search to become a competitor for Yelp.

Yelp is a high-risk speculative investment. As the smartphone transition continues, it could become a key player in local business search. At market close on March 8 2013, Google had a market capitalization of $274 billion compared with $1.59 billion for Yelp. If Yelp can leverage its IOS integration to become a major competitor in local search, then I would expect its value to increase significantly.

Disclosure: I am long YELP. 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…)

Additional disclosure: I am an amateur investor, not a licensed financial adviser or experienced investment professional. Information provided should never be construed as investment advice. It is for educational and informational purposes only.