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The Internet was all the rage in the early 2000s. Now, there’s the “mobile first” movement. The idea of building a mobile app before a website or desktop platform has led to a boom in mobile apps.
These apps are attracting the attention of some of the market’s biggest companies.
Facebook paid a whopping $19 billion for WhatsApp earlier this year. Before that it tried to purchase Snapchat for $3 billion. Facebook also paid a cool $1 billion for Instagram.
Twitter paid right at $1 billion for Vine. Google also got in on the frenzy, paying $1 billion for the navigation app Waze.
The latest acquisition in the online world is OpenTable (NASDAQ: OPEN). The travel booking site, Priceline (NASDAQ: PCLN), is making an interesting foray into the restaurant reservation business with its $2.6 billion acquisition of OpenTable. With the buyout offer, shares of OpenTable soared 50% on the buyout news.
There are some synergies to being able to book a flight, hotel, car rental, and now restaurant reservation, all from one place.
But more importantly, the Priceline-OpenTable deal has brought a number of other companies into focus. The acquisition puts all eyes are on these three 3 stocks as the mobile app market booms:
1. Yelp (NYSE: YELP)
Yelp is the popular restaurant review app. TripAdvisor (NASDAQ: TRIP), which is more of a travel review company than a travel booking one, could find value in Yelp.
TripAdvisor already knows all about restaurant reviews and advertising. About 86% of TripAdvisor’s revenues are generated via advertising. Meaning Yelp could be a natural addition to its business, with Yelp generating 94% of its total revenues from ads.
TripAdvisor recently bought up La Fourchette, which gives it a presence in the online reservation market. The thing about Yelp is that it’s one of the most expensive mobile app companies around. The stock trade at a P/S ratio of 20 and a P/E ratio of 227 based on next year’s earnings estimates.
2. Groupon (NASDAQ: GRPN)
The daily deals company is down 40% year-to-date, and down 75% since its 2011 IPO. Google offered to buy Groupon back in 2010 for $6 billion. Its market cap is now $4.3 billion.
Yahoo will get a windfall later this year after Alibaba’s IPO, and it’s speculated that the search company could be in the market for an acquisition. It would seem that Groupon’s large database of local businesses would be advantageous to Yahoo, which gets over 80% of its revenue from advertising.
LivingSocial, Groupon’s top competitor, is backed by Amazon.com. A key player in the ecommerce market could find value in Groupon’s daily deals business model.
Priceline’s top peers, Expedia and Orbitz, could also be interested Groupon. Groupon started a joint venture with Expedia back in 2011, where it started selling online travel deals via Groupon Getaways.
Compared to the other two companies listed, Groupon is much more reasonably priced, trading at 1.5 times sales.
3. GrubHub (NASDAQ: GRUB)
This online and mobile app company allows users to place takeout and delivery orders at restaurants. It is also one of newest internet companies to come public. Shares are essentially flat since their debut on the NASDAQ back in April.
The company is a play on convenience; question is, does GrubHub make sense as an acquisition target? It’s tough to see where GrubHub could fit into a larger company. Unlike, Yelp and OpenTable, which are cloud-based and highly scalable, GrubHub requires infrastructure and “boots on the ground” in order for its delivery model to work.
It also trades at the highest P/S ratio of all the stocks listed. Its P/E ratio is 21, which is just above Yelp’s 20.
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With the penetration of smartphones on the rise, the mobile app market is in a boom. The acquisitions of some of the best performing apps have been mind blowing, but as companies continue to look for new ways to grow revenues, the buyouts will keep on coming.
The key is to invest in companies that are have strong fundamentals and have a sustainable business model. Investing on the speculation of a buyout alone is a fool’s game.
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