Groupon Inc (NASDAQ:GRPN) has never been allowed comfort at the top of the social deals industry. The company has lost more than 70% of it value since it went public at the end of 2011, and competition seems to be constantly toughening. Yelp Inc (NYSE:YELP) is the latest company to barge into the business, and its unique advantages may push Groupon beyond recovery.

Yelp Logo

Yelp Inc (NYSE:YELP) is the place for online reviews. Restaurants, bars, and hotels are just some of the incredible array of businesses that the online review house gives information on. Since the company went public in March of 2012, it’s been trying to find a way to monetize its user numbers and the trust that the public puts in its ratings system. Groupon Inc (NASDAQ:GRPN)’s business may finally open up room for the company to augment its growth, at least according to one analyst.

Yelp looks to dominate deals

According to Randy L. Hugen, analyst at Feltl and Company, Yelp Inc (NYSE:YELP) may do well in the long run on its deals offerings. Although “current revenue from deals is relatively small we think there is great long-term potential,” according to Hugen. Groupon Inc (NASDAQ:GRPN) currently handles around $2.6 billion in deals revenue, and Yelp revenue growth rate could accelerate if the business gains a slice of that market.

Hugen reckons that success in local online advertising is already priced into the company’s stock, given the lack of real competition. Growth in the company’s value will have to come from outside its current core. Yelp Inc (NYSE:YELP) has the user base, and user information, to create appreciable cash flow. Low costs should keep the company’s margins high and keep investors interested. Hugen expected revenue growth to still be in the 30% range in 2020.

Yelp earnings are looking good

Yelp Inc (NYSE:YELP) is set to announce its earnings for the first quarter of 2014 on Monday April, 28th. The company is expected to report earnings of 7 cents per share, according to 21 analysts surveyed by Bloomberg. The company is on track to grow revenue at an appreciable pace according to those analysts, who see revenue going from 2013’s $233 million to $511 million in 2015. Hugen, however, expects more from the firm and that’s how he justifies his massive price target.

According to the analyst, Yelp Inc (NYSE:YELP) will bring in $534 million in revenue in 2015. The long term opportunity, assuming the deals gambit works out, is even greater. Hugen values the company at 16 times expected 2015 revenue and enterprise value.

Yelp Inc (NYSE:YELP) is proving itself competent at turning its success with users into success with investors, but the company is still too much of a risk for many investors. The firm has lost more than 10% of its value in the momentum bust of early 2014, and there’s no telling where the company, which has substantial growth priced in, will go in the coming two years.