Facebook Inc (FB) Most Likely To Buy Yelp Inc? Not So, Say Some

Since reports that Yelp has begun the process of selling itself began, there have been speculations about which company might be buying it. Facebook is the leading candidate to purchase the online review company, according to one firm, although another sees Google as being the most likely buyer. A third firm suggests Amazon or TripAdvisor are more likely than either of the first two.

Facebook Inc (FB) Most Likely To Buy Yelp Inc?  Not So, Say Some

Will Yelp really sell itself?

Deutsche Bank analysts suggest that there’s a 60% likelihood that Yelp will be bought out at a price of $59 to $85 per share, which would be a premium of between 25% and 81% on today’s current price. Further, they say if Wall Street is let down because no deal emerges, then Yelp shares could plunge by as much as 37.22%.

But whichever company snaps up Yelp, they expect it to face some stiff competition because of Yelp’ massive user base and positioning with local businesses.

Why Facebook (FB) may or may not buy Yelp

Deutsche Bank analysts argued that Facebook Inc (NASDAQ:FB) is the most likely buyer of Yelp in a research note today. In fact, they’re so convinced that the social network is Yelp’s suitor that they raised their price target for the online review firm. Their new price target is $56, up from their previous target of $51 per share.

They believe Facebook Inc (NASDAQ:FB is Yelp’s most likely buyer because it has always been interested in local businesses. By grabbing up the review website, Facebook will gain a plethora of local business advertisers. In addition to increasing its advertiser base, the social network will also gain direct access to all the business reviews posed on Yelp, which should help it improve its mobile Graph Search.

Jefferies analysts Brian Pitz and Brian Fitzgerald and their team also see Facebook Inc (NASDAQ:FB as a likely suitor for Yelp, although they put it in second place behind Google. They also argued for Facebook’s aim to grow its local ad business, pointing to comments CEO Mark Zuckerberg made on the company’s last earnings call when he commented that their more than 1 billion daily mobile searches could benefit greatly from recommendations made by users. Of course Yelp would help greatly in this area.

UBS analyst Eric Sheridan and his team argue the other side, saying that Facebook Inc (NASDAQ:FB appears to be “more focused on converting its 40mm business pages to paying advertisers.” They don’t go into detail about their view, however.

What about Google?

The Jefferies team suggests that Google is the most likely buyer of Yelp, noting that in 2009, the search giant offered $550 million to purchase the review website but was rejected. They add that a Google / Yelp combination makes sense because it would combine the dominant overall online advertising company with the dominant local ad company.

Further, Google would benefit from getting more local advertisers because it just doesn’t have a large enough local review base to draw interest from small- to medium-sized businesses. Also traditional search engine marketing is difficult for local businesses, so Yelp could help Google build a bridge here, although the Jefferies team points out that the relationship between the two companies has been “rocky,” so that would have to be overcome.

The UBS team, on the other hand, thinks Google is unlikely to make a play for Yelp because of the ongoing antitrust probes in the European Union.

TripAdvisor or Priceline?

Sheridan and his team suggest that the two most likely buyers of Yelp are Amazon and TripAdvisor. They like Amazon in this respect because its “recent pivot to home and local services could benefit from separate mobile app and reviews.” They think TripAdvisor is likely because the travel website already utilizes user reviews in its positioning as both an ad and content platform. They see the possibility of significant synergies if the two companies would merge.

The Jefferies team suggests Priceline might also be a good fit for Yelp it would complement the OpenTable acquisition it made last year by providing restaurant reviews and a booking platform in in front of its traveler who are looking for dining options on their trips. The UBS team argues against Priceline, however, saying that the company has been “investing in adjacencies, but [is] tilted toward transactional businesses.”

How about GrubHub or Yahoo?

Another possible buyer, according to the Jefferies team, is GrubHub, which would make sense because Yelp’s restaurant reviews would go nicely with GrubHub’s food delivery service. The biggest hurdle here is GrubHub’s much smaller size and balance sheet, which would mean the company would have to issue some stock to get a deal done.

And finally, the Jefferies team suggests Yahoo might be interested in Yelp because it could help push Yahoo’s big audience over to Yelp. The firm did not mention rumors that Yahoo was talking with Foursquare about a buyout, which makes the idea of a Yahoo – Yelp combination make sense if there was any truth to the Foursquare rumor. Perhaps Yahoo is courting both of them with the possibility of snapping up one of them.

One problem here, however, is that CEO Marissa Mayer said when she took the helm at Yahoo that they weren’t going to try to compete in the local ad business because they are disadvantaged there. Further, Yahoo already partners with Yelp for Yahoo Local Reviews. The UBS team doesn’t like Yahoo as a potential buyer because the company still faces activist pressure in connection with its returns and cost structure.

As of this writing, shares of Yelp were up 6.53% to $50.08 per share.