Yelp gets bad review after Facebook initiative

Shares of the local directory service fall after the social network announces its new search feature.

By MSN Money Partner Jan 16, 2013 5:16PM

Shares of Yelp (YELP), a website that features user reviews on local businesses, fell for a second day after Facebook (FB) announced that it would launch a new search product.

Called Knowledge Graph Search, Facebook's initiative will enable users to view reviews of local businesses written by their friends. As a result, some believe that Knowledge Graph Search will compete with Yelp's offerings.

However, in a note to investors earlier today, Piper Jaffray analyst Gene Munster wrote that Facebook will have difficulty attracting a large number of users to its reviews, since there are already 37 million reviews on Yelp's website. Moreover, Yelp users can already see reviews written by their Facebook friends on Yelp, Munster noted.

Yelp has already successfully withstood challenges from Google (GOOG) and will continue to be a leader in local commerce, the analyst added. Munster maintained a "neutral" rating on the stock, due to its volatility over the past six months, which the analyst believes could continue over the next six to 12 months.

Similarly, First Analysis analyst Todd Van Fleet wrote that the decline Tuesday in Yelp's stock was unwarranted. Facebook isn't likely to replace Yelp as the premiere local search tool, and the market is large enough to support both companies, according to Van Fleet, who maintained an "overweight" rating on Yelp.

Taking the opposite view earlier Wednesday was Northland Securities, which downgraded the stock to "underperform" from "market perform" due to increased competition from Facebook.

In mid-morning trading Wednesday, Yelp fell more than 3%, but it pared some losses later in the day. The stock is down about 10% since reaching a high of $22.29 Tuesday before Facebook unveiled Knowledge Graph.

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