Contour Will Be Screaming for Yelp Inc (YELP)

Going into 2Q, there were a total of 25 hedge funds long the stock, a 19% increase form the previous quarter. Of the hedge funds making bets on Groupon, the hedge fund owner having the largest position is Chase Coleman’s Tiger Global Management (check out all of Tiger’s small cap picks).

Valuation

Among some of the the top IPOs of late, Yelp has outperformed some of its peers nicely. Since March 2012, Yelp is up more than 20%, while Groupon and Zynga are down more than 60%.

Even still, I remain cautious on the stock. Yelp’s valuation is well above some of the other major tech companies. Yelp trades at a enterprise value-to-sales multiple of 11.8, compared to Groupon’s 1.4, Zynga’s 7.6 and Facebook’s 9.

Bottom line

One possibility for Yelp is for the company to partner with with the likes of Google or Facebook. Otherwise, I fear that Yelp’s business could be rendered useless. The real issue is; why would either Google or Facebook partner with Yelp? Google has already made its own segue into the industry and Facebook has access to enough data to make its own form of a social-review platform.

I think the competitive pressures for Yelp is robust and its over reliance on Google is still a concern. As well, compared to other major newly IPO’ed companies, Yelp appears to be overvalued.

The article Contour Will Be Screaming for Yelp originally appeared on Fool.com and is written by Marshall Hargrave.

Marshall Hargrave has no position in any stocks mentioned. The Motley Fool recommends Facebook. The Motley Fool owns shares of Facebook. Marshall is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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