Leading online local guide, Yelp Inc. (YELP) recently agreed to pay $450,000 as penalty in order to settle charges brought against it by the Federal Trade Commission (FTC).
Earlier FTC had accused Yelp of illegally collecting personal information from children aged below 13 years during 2009 to 2013. Per FTC, this information was collected without the permission of the respective parents, which is mandatory according to the Children’s Online Privacy Protection Act (COPPA).
Moreover, the complaint alleges that Yelp did not adequately test its apps to ensure that users under the age of 13 were prohibited from registering. Yelp claimed that this failure had occurred due to the presence of certain bugs in its mobile registration process.
In addition to paying the aforementioned penalty, Yelp has also agreed to delete the accounts of all those users who were underage at the time of their registrations. Further, Yelp also agreed to submit a compliance report to FTC annually going forward.
Meanwhile, BottoBistro, a California-based restaurant has accused Yelp of offering preferntial treatment to all those enterprises that advertise on the site in the form of better ratings. It has even asked for a delisting of its business from the site.
For the first time in its history, Yelp reported a profit in the second quarter of fiscal 2014. Management provided an optimistic guidance for the third quarter and full year. The positive guidance reflects strong growth in user base (particularly mobile), its entry into new markets (both domestic & international) and also new partnerships.
We believe that new and innovative products, strategic partnerships and international expansion will be the key growth drivers for the company in the near future.
Moreover, the acquisition and integration of its European competitor, Qype, has led to a contribution of 1.8 million reviews and 1.4 million photographs.
Although fierce competition from the likes of Facebook (FB), Google (GOOGL) and Twitter (TWTR) in the brand related revenue market and rising product development costs remain headwinds, we believe that Yelp will benefit from robust growth in active local business accounts and improving mobile customer engagement.
Currently, Yelp has a Zacks Rank #2 (Buy).
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