Depending on how you look at it, online review site Yelp’s recent purchase of Eat24 (NYSE:GRUB)might be a good or bad idea. On the positive side, investors are looking for good news regarding Yelp (NYSE:YELP). Yelp is, of course, a massive collection of online reviews of all sorts of establishments.
Just like with any kind of business-to-consumer online platforms, investors do tend to get quite scared of consumer trends. It only takes a prolonged weakness in the economy for advertising revenues for such consumer-focused websites to take a hit. From an investor perspective, the Eat24 acquisition is a great idea because it gives Yelp yet another revenue stream. Yelp gets another method of making money.
The downside of this acquisition is the fact that it sends the wrong message for people who want to use Yelp for restaurant reviews. If Yelp is an owner of a particular restaurant or food-ordering business, conflict-of-interest issues unnecessarily come to mind. While I am sure all sorts of safeguards will be put in place to prevent such conflict-of-interest issues from materializing, there is still the problem of perception. In many cases, it only takes a bad public perception, despite the lack of any evidence of wrongdoing, for a company to suffer.
Yelp’s acquisition of Eat24 is definitely a two-edged sword. It would be nice to know if Yelp’s management has gone through the proper decision-making processes before making this move. Never underestimate the power of bad perception. In fact, bad perceptions may be the only thing that smaller and nimbler competitors would need to get a powerful competitive advantage.