Will Yelp Lose Its Apple Ties?

Yelp’s (NYSE:YELP) relevance and future profitability was brought into question on Thursday after Google (NASDAQ:GOOG) announced its long-awaited map application for Apple’s (NASDAQ:AAPL) iOS and a report in TechCrunch suggested that Apple may be considering acquiring Foursquare or integrating its software into the company’s operating system.

What do Analysts Have to Say?

In recent months, Foursquare has edged into Yelp’s territory. Currently iOS relies heavily on recommendations provided by Yelp to help users find nearby restaurants. However, as TechCrunch reported, “Apple likes to do everything in-house, and to own every part that makes Apple’s products useful,” and Foursquare could “replace everything related to Yelp in iOS.” In October, the location-based social networking company made its services even more appealing to Apple, and more like Yelp, by incorporating a search box into its homepage design.

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Google’s release of its new map app is another problem for Yelp, because it means that iPhone owners who were displeased with Apple Maps now have a tried-and-true alternative.

But Yelp has one advantage over Foursquare: its U.S. reviews. Furthermore, as JPMorgan analyst Kaizad Gotla noted in his coverage of the company, Yelp has a great deal of room to expand its advertising base. JPMorgan upgraded Yelp to Neutral and gave the stock a $19 price target. Yelp is “well positioned to continue driving strong revenue growth and margin expansion,” wrote Gotla in a note seen by Barron’s. However, he acknowledged that this potential was already priced into the stock.

Credit Suisse analyst Stephen Ju made a similar assessment, but gave the company an Outperform rating and a $25 price target, stating that Yelp’s advertising efforts have become increasingly successful.

CHEAT SHEET Analysis: Are These Developments a Catalyst for Facebook’s Stock?

One of the core components of our CHEAT SHEET Investing Framework focuses on catalysts that will move a company’s stock. Like Facebook (NASDAQ:FB), Yelp operates a service that relies heavily on advertising. As analysts’ coverage shows, the company has steadily grown its local advertising base, which enables Yelp to grow its service. However, competition will continue to limit this growth.

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