TECH

Yelp Challenges GrubHub With New Food Delivery Buy

02/10/2015 10:45 am ET | Updated Apr 12, 2015
Bloomberg via Getty Images

* Buys Eat24 for $134 million

* Raises Q1 and full-year revenue forecasts

* Shares up 6.5 percent in afternoon trading (Adds background, analysts comment, updates shares)

By Subrat Patnaik and Sai Sachin R

Feb 10 (Reuters) - Yelp Inc said it bought online food-ordering service Eat24, expanding its business beyond consumer reviews into one of the hottest sectors of the online economy.

Faced with maturing growth in the United States, Yelp has been stepping up efforts to expand in international markets, but without much success.

Growth in average monthly unique visitors to Yelp's website, yelp.com, and its related app slowed to 13 percent in the December quarter from 39 percent a year earlier.

The acquisition of Eat24 for $134 million puts Yelp in direct competition with established operators such as market leader GrubHub Inc, whose shares have risen about 50 percent since the company went public in April.

B Riley & Co analyst Sameet Sinha said Eat24 has a 6 percent margin on an EBITDA basis, compared with GrubHub's 30 percent.

"So there's room for growth there," he said, adding that Yelp can Eat24 improved exposure through its site.

Yelp shares were up 6.5 percent at $44.88 in afternoon trading on the New York Stock Exchange.

Matt Maloney, GrubHub's chief executive and co-founder, has estimated the size of the U.S. online food delivery market at $70 billion. "..."We didn't even process $2 billion in 2014," he told Reuters in an interview last week.

GrubHub bought restaurant delivery service DiningIn last week and said it would buy another delivery firm, Restaurants on the Run. GrubHub currently only connects restaurants to hungry customers. It's up to the restaurant to deliver.

Yelp paid $75 million in cash and about 1.4 million Class A shares for San Bruno, California-based Eat24.

Eat24 offers online delivery and takeout services to about 20,000 restaurants in more than 1,500 cities in the United States.

In a Super Bowl commercial featuring Snoop Dogg and actor Gilbert Gottfried, the rapper touts Eat24 as a way to help people from becoming "Hangry." (http://bit.ly/1vh5jbQ)

The company says its three most popular searches are "Dominos," "Pizza Hut" and "Taco Bell."

Reflecting the Eat24 purchase, Yelp raised its revenue forecast for the current quarter to $118.5 million-$120.5 million from $114 million-$116 million.

It also increased its full-year revenue forecast to $574 million-$579 million from $538-$543 million.

Analysts on average were expecting revenue of $115.7 million for the quarter and $542.8 million for the full year, according to Thomson Reuters I/B/E/S. (Additional reporting by Lehar Maan; Editing by Savio D'Souza and Ted Kerr)

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