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Time To Buy This Web 2.0 Company? Yelp Inc (YELP), Tripadvisor Inc (TRIP)

For 2013, revenues should range in between $210-$212M, which represents a projected 53% top line growth compared to 2012. It is very likely that based on a not so rosy picture painted by the company’s management, losses might be ongoing.

Competitive Threats

Google+ Local is Yelp’s major competitor for online reviews for restaurants, hotels and shopping etc. As most of Yelp’s traffic comes in from search engine, the threat of Google is ever increasing. Yelp and Google along with Tripadvisor Inc (NASDAQ:TRIP) have been entangled in a lawsuit, accusing Google of tweaking search results in favor of Google’s own services and for scraping content from Yelp and TripAdvisor. However, the lawsuits have been settled, and Google continues to have a strong array of local and travel content from Frommers, Zagat using Search, Maps and ITA Software which represents a strong threat for Yelp and other players.

The global travel information platform, Tripadvisor Inc (NASDAQ:TRIP) is working towards building a stronger app on Facebook Inc (NASDAQ:FB) and on mobile. TripAdvisor has more than 50 million monthly unique visitors, and averaged more than 40 million visitors from Facebook Inc (NASDAQ:FB) and its app on Facebook, according to AppData.  In addition, TripAdvisor keeps on getting tailwind for growth from Facebook as a large portion of Facebook’s users contribute heavily in posting reviews for the company. TripAdvisor is already very popular with travelers for providing them a one-stop shop for all their travel information when visiting a new place and now poses an even stronger threat to Yelp and even Google+.

In addition to the other big players, Facebook itself has portrayed its intentions to build a local search platform in its social media setting with the collective wisdom of friends and family of its 1 Billion users. However, Facebook is still in data collection mode, and will take the social media giant months if not years to collect in-depth reviews that are useful right away. And also, many Yelp users would be reluctant to post the same review on Facebook again or other competing social platform, which limits competitive threats for Yelp.

The Takeaway

Yelp has unveiled a number of notable positives recently, in particular its solid positioning in mobile and improved monetization. Unfortunately, the company has been unable to attract big brand advertisers who command large marketing budgets, compared to its target market of small local businesses. Even though, the company continues to drain its cash, the users are growing at a rapid rate, in spite of many large competing firms like TripAdvisor, Google and Facebook.

Yelp is increasingly enhancing its probability of being a good and robust social platform down the road. The company hasn’t been delivering the profits, but once users flock the site in larger numbers, monetization will take-off big time, and so will the stock.

The article Time To Buy This Web 2.0 Company? originally appeared on Fool.com and is written by Ishfaque Faruk.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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