Will Facebook Inc.'s Newest Feature Crush Yelp Inc.?

Facebook recently launched Professional Services, an online business directory that takes direct aim at Yelp . This move isn't surprising, since Facebook already hosts over 50 million small business pages and launched a business-to-consumer chat platform for Messenger earlier this year. A Yelp-like business directory could also be considered a natural evolution of Facebook's check-in and review system.

Google's Local Guides program. Source: Google.

Meanwhile, Facebook is approaching from the other side with its massive business directory and evolving location-based services. In the past, Facebook differentiated itself from Yelp by prioritizing check-ins and reviews from friends. With Professional Services, Facebook reaches further and organizes those businesses into a directory.

In Yelp's latest S-1 filing, it admits that Google, Facebook, and other companies "may be more successful than us in developing and marketing online advertising offerings directly to local businesses, and may leverage their relationships based on other products or services to gain additional share of advertising budgets."

But don't count Yelp out yet

But against all odds, Yelp continues to grow. The company finished last quarter with 89 million unique mobile visitors, up from 73 million a year earlier. Cumulative reviews rose 35% annually to 90 million as local advertising accounts grew 37% to 104,200. Revenue surged 40% to $143.6 million and beat estimates by $2.2 million. Those numbers keep improving because Yelp still has a first-mover's advantage in the local reviews space.

However, Yelp's problem is its lack of bottom line growth. Last quarter, it posted a net loss of $8.1 million, compared to a net profit of $3.6 million in the prior year quarter. Total costs and expenses soared 58% annually to $154.3 million, due to surging sales, marketing, and product development costs.

This indicates that Yelp needs to spend more heavily to remain competitive -- which is bad news when deep-pocketed rivals like Facebook and Google are out for blood. If Yelp is forced to spend more heavily to keep pace with Facebook's Professional Services, its losses could keep piling up and cause investors to flee.

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The article Will Facebook Inc.'s Newest Feature Crush Yelp Inc.? originally appeared on

Leo Sun has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Facebook, LinkedIn, and Twitter. The Motley Fool recommends Yelp. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

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