Just a week after GrubHub ( GRUB ) announced its entry into the food delivery business with a couple of acquisitions, Yelp ( YELP ) announced one of its own for $134 million, which it intends to fund with cash and shares. Investors were thrilled, sending shares up 5.9% in yesterday's trade.
GrubHub closed the DiningIn acquisition last week and signed a definitive agreement to acquire Restaurants on the Run, another food delivery service. It is paying $80 million for the roughly 3,000 restaurants with which the two companies have delivery arrangements.
This sounds like Yelp overpaid for the 2,000 restaurants that have arrangements with Eat24, the food delivery business it is acquiring. But its still in the early stages, and Yelp might be seeing greater synergies and a stronger distribution network (Eat24 operates in 1,500 cities across the country).
The restaurant delivery business seems to be heating up, with many startups breaking ground, only to be gobbled by larger players (for example Square acquiring Caviar). It also offers these niche companies room for diversification and growth.
But these moves could just as easily be a defense against the really large tech companies Google ( GOOGL ) and Amazon ( AMZN ), or maybe even Facebook ( FB ), which now seems to be weighing the opportunity.
Google is one with deep pockets and advanced search capabilities. It also has a not-very-popular Local application through which it provides reviews. Worse, Google has the world's most popular search engine, which directs (or refuses to direct) traffic to Yelp.
Thankfully for Yelp, Google search is not the way most people connect to Yelp services on mobile devices and its app does a good job here. But Yelp has also been in the news for alleged fraudulent reviews, which has turned away a few users.
At any rate, it would be a good idea to strengthen the business further by getting more cozy with restaurants and customers. This would also help it take on the challenge in the form of Amazon, which has been testing on-demand deliveries and which, like Google, seems to have an appetite for just about any line of business.
Yelp shares were punished last week because of a deceleration in the user growth rate and management's decision to step up marketing investments. But the company did beat our estimates on both the top and bottom lines.
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