Google’s Zagat Buy Makes Local Market Waves

Open Text shares immediately fall on the news

   

At a dinner party in 1979, Nina and Tim Zagat struck up a conversation about restaurant reviews. They realized that people weren’t impressed with what newspapers were doing.

Might this be an opportunity for a new business? It definitely was. Over the years, the Zagat review service has become a trusted brand, with coverage in over 100 countries. The company also has a thriving business for customized offerings, with clients including Coca-Cola (NYSE:KO), Visa (NYSE:V) and Toyota (NYSE:TM).

Interestingly enough, Zagat may also be a powerful weapon in the fight for the dominance of the lucrative local online market. To this end, Google (Nasdaq:GOOG) agreed Thursday to purchase the company (the price tag was not disclosed).

Perhaps Zagat’s most valuable asset is its 350,000+ surveyors. It’s a group that certainly understands how to rate restaurants, and it’s the kind of thing that is extremely difficult to replicate.

Zagat should be a great fit for Google. The online giant can populate the service across its wide distribution footprint – both on the desktop and on mobile devices. What’s more, Google could make all of Zagat’s content free.

The deal will also be a big problem for companies like Yelp. Ironically enough, Google tried to buy that company two years ago for $500 million.

Yet the biggest loser could be OpenTable (Nasdaq:OPEN), which saw its shares tumble nearly 9% on the news. Once trading at $118, this former Wall Street darling has slumped 35% in the past six months.

True, OpenTable has a great online reservation system and prolific reviews. But the company has seen a slowdown in its growth ramp. At the same time, OpenTable’s CEO, Jeffrey Jordan, departed to become a venture capitalist.

And even with the falloff in the stock price, OpenTable is still valued at a whopping 74 times earnings. It looks like a good idea for investors stay away from this one.

Tom Taulli is the author of various books, including “All About Commodities.” He does not own a position in any of the stocks named here.

 


Article printed from InvestorPlace Media, http://investorplace.com/2011/09/googles-zagat-buy-makes-local-market-waves/.

©2014 InvestorPlace Media, LLC

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