Yelp for help

Yelp's cry for help heard around the internet

Yelp's cry for help will be heard around the internet. When the review site, currently worth $3.4 billion, rebuffed the advances of Google back in December 2009, its future looked almost limitless. After all, Facebook had rejected Yahoo when it dangled a billion dollars - and that was when the social network had just 9 million college students. Today Facebook is five times larger than Yahoo.

Things have turned out differently for Yelp. Not terribly, but enough to explain why the company, which went public three years ago, is exploring a potential sale, according to the Wall Street Journal. Yelp's surrender will resonate through boardrooms and the offices of venture capitalists as they ponder slowing growth and the limits of some online business models.

Not that Yelp was wrong to turn down Google's $500 million six years ago. Before sale talks were revealed on Thursday, Yelp sported a $2.9 billion market value. It has since bounded up another half a billion. Nonetheless, that still leaves the stock price off about 45 per cent from its September 2014 high.

That reflects the broken expectations of ambitions to monetize the user-generated content that makes its application a popular fixture of the American iPhone. Its first-quarter results were not encouraging. Unique visitor growth was just eight per cent, down from 30 per cent a year earlier.

Yelp's direct, high-margin advertising business is under pressure from an industry switching to platforms that automatically match viewers with pitches. And while sales grew 55 per cent last quarter, Yelp had an operating loss of $4.2 million. That's about the same amount it lost the year before, which hints at a model lacking operating leverage.

The content competition is fierce. Google claims Zagat restaurant reviews, Facebook is filled with friends impersonating R W Apple, while TripAdvisor overflows with reviews. Yelp's information may be of higher quality, but the scale of Google and Facebook gives them the wherewithal to better target advertising and higher rates.

True, a Yelp purchase would barely make a dent in either company's cash piles. For Google, which is facing antitrust sanctions in Europe, acquiring Yelp now might further infuriate the watchdogs in Brussels. Then again, Yelp appears to have been one of the companies complaining of Google's dominance. Maybe a deal would remove one more wailing rival.