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Why Would Anyone Want to Buy Yelp?

Stocks in this article: YELP AMZN OPEN PCLN GOOG

NEW YORK (TheStreet) –– Yelp (YELP - Get Report), the all-purpose local business reviewer, may be the next target for a major technology company seeking to increase its reach with consumers, and that's because of one factor: user-generated content.

In an interview with TheStreet, Zillow (Z) Chairman Rich Barton argued that companies such as Yelp that feature user-generated content (UGC), are very hard to replicate. Once they've won the name recognition battle, more user content prompts begets even more user content.

"The UGC that Yelp has and that TripAdvisor (TRIP) has, those are just dreamy," Barton said in a June 11 interview. "The more content you have, it attracts the more users to it. The more users, the more content. Now you have more content, it attracts more content."

It's a waterfall, made heavier by the fury of social media.

Speculation of a Yelp buyout follows last week's announcement that Priceline.com (PCLN - Get Report) would buy OpenTable (OPEN) for $2.3 billion in cash. That deal prompted attention to turn to OpenTable's competitors, Yelp being chief among them.

The OpenTable deal prompted Yelp to surge on Friday, gaining 14%. Despite the surge, that's still sharply below Yelp's all-time high, set back in early March, when shares peaked at $101.75. Shares on Monday rose 0.4% to close at 71.53.

As Yelp continues to add more businesses and more users to its local-based services, the moat around the company gets bigger, and that's critical to sustaining the businesses, as it uses common language amid original content.

For the first-quarter, Yelp lost 4 cents a share on $76.4 million in revenue, as cumulative reviews grew 46% year over year to approximately 57 million. Yelp noted that active local businesses continue to take to the platform, as there are now approximately 74,000 local business accounts on the service, up 65% year over year.

Yelp's second-quarter guidance was above what Wall Street was expecting, as the company expects sales between $85 million and $86 million, slightly ahead of what Wall Street was thinking, at $85.44 million in sales. The company also bumped up its full year revenue guidance, as it now expects sales between $363 million and $367 million, representing 57% growth.

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