Google’s Zagat Buy Makes Local Market Waves

by Tom Taulli | September 8, 2011 1:28 pm

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[1]), Visa (NYSE:V[2]) and Toyota (NYSE:TM[3]).

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[4]) 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[5]), 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[6].” He does not own a position in any of the stocks named here.

Endnotes:

KO: http://studio-5.financialcontent.com/investplace/quote?Symbol=KO
V: http://studio-5.financialcontent.com/investplace/quote?Symbol=V
TM: http://studio-5.financialcontent.com/investplace/quote?Symbol=TM
GOOG: http://studio-5.financialcontent.com/investplace/quote?Symbol=GOOG
OPEN: http://studio-5.financialcontent.com/investplace/quote?Symbol=OPEN
All About Commodities: http://goo.gl/6Q4x5

Source URL: https://investorplace.com/2011/09/googles-zagat-buy-makes-local-market-waves/