Groupon Inc (GRPN), Yelp Inc (YELP), Google Inc (GOOG): Want to Make Money on Internet, Go Local

Groupon Inc (NASDAQ:GRPN)When Groupon Inc (NASDAQ:GRPN) first came for an IPO, its business model was heavily criticized. Some commentators even called it a ponzi scheme. The stock also reacted negatively and lost a significant amount of its value going all the way from $26 in November 2011 to $2.60 in November 2012.

The stock has recovered since then and is now trading at $8.71. Bears have a lot of reasons on why Groupon Inc (NASDAQ:GRPN) is a bad investment but one argument from bulls is good enough to counter them all – Local is the way to go for Internet companies and targeting local customers will be a secular growth story for the next few years in the space.

As investors continue to realize the potential which the local market offers, Groupon’s stock price is expected to see more upside. However, Groupon Inc (NASDAQ:GRPN) isn’t alone when it comes to listed internet companies which are a play on local market potential.

Yelp Inc (NYSE:YELP), another player in the local space, is up 121% Year to Date and offers significant potential. Even bigger diversified players like Google Inc (NASDAQ:GOOG) have made going local an integral part of their strategy. In this article, I am taking a look at these companies in detail.

Groupon: Key metrics turning positive, Wall-Street expectation still low

Groupon Inc (NASDAQ:GRPN)’s stock has gained 82.2% Year to Date. The company’s key fundamental metrics troughed in the fourth quarter of 2012 (4Q12) and are improving since then. In 1Q13, the company reported North American (NA) billing growth of 23% year-over-year (YoY). Mobile transactions grew to 45% of the total from 40% in 4Q12, while the number of active customers were up 13% YoY.

Recently Groupon Inc (NASDAQ:GRPN) expanded its offerings to include travel, live events and product sales (Groupon Goods). I believe Groupon is well positioned to take market share in these areas. The company is using its loyal subscriber base to cross-sell these services. Groupon Goods in particular is showing good results, making Groupon more of an  e-commerce company.

Groupon Inc (NASDAQ:GRPN) is currently trading at a market cap of $5.86 billion. This is lower than $6 billion Google offered it for a buyout before it went public. Most of the sell side analysts have a sell or hold rating on the company. I believe sentiment on the Wall Street will continue to turn as Groupon keeps positively surprising the analyst community.

Yelp: Secular growth to continue

Yelp Inc (NYSE:YELP) has posted more than 50% YoY topline growth for the past several quarters and I believe it can continue this performance for the next few years. The company’s penetration in the US small and medium business (SMB) market is still very low and it has only recently began to monetize its international presence. Good execution, low penetration and ample market potential means the company is likely to deliver strong growth for the next several years.

In addition, increasing mobile usage is another major tailwind for Yelp Inc (NYSE:YELP). On the, one hand, it reduces Yelp’s dependence on Google search as mobile users directly visit Yelp’s app on mobile. On the other hand, more and more consumers are now using Yelp Inc (NYSE:YELP)’s mobile app which is adding to its revenue growth. Yelp Inc (NYSE:YELP)’s monetization of mobile users is almost comparable to that of desktop users, hence there is no worry of cannibalization of high paying desktop users by low paying mobile users.