It used to be that Yelp (YELP) and Facebook (FB) had a few things in common: They were both tech stocks with some sort of social functionality.
Today, in some respects, the similarities run a little deeper.
On June 1, I warned Yelp investors about FB, and how its fast-moving, uber-innovative environment could spell doom for YELP stock. At the time, Facebook had two budding features that elbowed directly into Yelp’s vertical, which is online consumer reviews.
Today, FB has another one in the works, and this feature should easily be the scariest of the three for YELP stock holders.
Facebook M: AI With Taste
Although Facebook’s applications increasingly overlap with Yelp’s capabilities, the performance of the two stocks could not be more different.
When I first warned of the threat FB posed to Yelp, FB stock was up 25% over the last year, while YELP was down 27%.
Nearly five months later, FB stock is still sitting on a 25% gain, now for the year-to-date. Yelp stock? It’s down an incredible 58% on the year.
That discrepancy will only exaggerate in time if FB continues to invest and innovate while Yelp sits idly by and gets clowned on by the trenchant wit of South Park. (Yes, that happened last week).
Facebook M, a virtual personal assistant Mark Zuckerberg is developing for use in its Facebook Messenger app, is the latest FB feature to directly threaten Yelp as a sustainable business.
An exclusive report from TechCrunch yesterday revealed that the number one thing early Facebook M users are asking for is restaurant suggestions and reservations. But there’s a lot more to artificial intelligence than that.
In 1997, IBM (IBM) achieved a monumental feat in modern-day computing and AI, as its supercomputer Deep Blue defeated reigning champion Garry Kasparov in a six-game match. In 2011, IBM’s Watson dominated a Jeopardy! game against two of the best humans to ever play the game.
In 2015, Facebook developed a program that could find you decent food in your area. but FB sees M potentially being able to negotiate cable fees, book flights and help plan a wedding when all is said and done.
In light of this new revelation, owners of YELP stock should again consider shedding it from their portfolio. With professional restaurant reviews from the likes of Bon Appétit, New York Magazine and others, FB is already directly competing with Yelp on desktop and mobile.
When Facebook added Place Tips, a service that uses GPS to find nearby businesses and pull up what your friends have said about them, Yelp had no visible response.
This third innovation from FB incorporating AI into the wildly popular Facebook Messenger application shows that Facebook is doubling down on user convenience, youthful customers and the growth runway in mobile.
If you can’t bring yourself to ditch Yelp, I’m sure you have your reasons. But consider hedging that bet by picking up some FB stock, which happens to do a whole lot more than consumer reviews.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
