"This is a case where there are actually interested strategic buyers," he said, as opposed to Netflix (NFLX), which he says is too big of an asset to be a ripe takeover candidate.
Yelp could "fit into a lot of different companies," he noted.
Perhaps the biggest reason that Yelp is the in the spotlight as a potential takeover target is because of the end of the dual class share structure in September, Mahaney said. "Plain investors usually don't like [that structure] because their voting rights get diluted," he explained.
"So when you saw that shift in Yelp, it just made it more plausible for somebody to come in and bid for the asset," Mahaney said.
The number one thing Yelp needs to prove to suitors is that it can "really build out the transactions capability of the Yelp network," he noted.
"We want more than reviews. Can you actually show that you're leading people to take-outs, to doing restaurant reservations, to actually lining up directly with plumbers in the area. Not just advertising, but can you show transactions revenue," Mahaney explained.
But while Yelp's revenue has increased dramatically, its cost of goods sold is increasing even faster, noted CNBC's Brian Sullivan. "That's not a good balance sheet recipe," he said.
"No, it's not. It's not a good P and O recipe either," Mahaney admitted.
Yelp would probably be bought for a 30% premium, he predicted.
Separately, TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author.
TheStreet Ratings team rats Yelp as a Sell with a ratings score of D. This is driven by several weaknesses, which the team believes should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks the team covers.
You can view the full analysis from the report here: YELP