Business review website Yelp has acquired Eat24, an online food delivery service that lets users order food from more than 20,000 restaurants in 1,500 cities in the United States.
Stocks of the San Francisco-based company rose as much as 7 percent in after-hours trading to $45.29 per share following the announcement that it spent $134 million -- $75 million in cash and 1.4 million Class A common stock -- to purchase Eat24.
The service competes with the likes of GrubHub, currently the biggest online food delivery company, connecting customers to more than 30,000 restaurants in the U.S. and UK.
"As more food ordering transactions move online, further integrating Eat24 will enhance our user experience with an easy-to-use product and service that allows our large consumer audience to transact directly with businesses," said Yelp co-founder and CEO Jeremy Stoppelman.
Yelp and Eat24 are no strangers to each other. In 2013, the two companies struck a partnership with each other that allowed Yelp's 135 million monthly active users, more than half of whom are mobile users, to order food and have them delivered to their locations using Eat24's platform. With the food delivery service now fully integrated into Yelp as a company, Eat24 could possibly allow Yelp users to use its food delivery service for the 1 million restaurants on Yelp.
The acquisition is all part of Yelp's bigger plan to increase user engagement and convince local businesses and advertisers to stay on the Yelp platform. At the same time, Yelp also has to come up with new ways to convince its users to continue opening Yelp for reviews of local businesses, even as other major Internet players such as Facebook and Google are actively moving into Yelp territory.
In 2013, Yelp acquired seat reservations app SeatMe, which became integrated into the main Yelp platform to allow users searching for local restaurant listings to reserve seats at certain restaurants and receive deals from them. With Eat24 now under Yelp's yoke, Yelp expands its reach to cater to customers who are not planning on visiting any local business.
The food delivery industry is steeped in competition, and Yelp has plenty to do to differentiate its future food delivery services from other providers.
GrubHub, for instance, has seen its shares rise 50 percent following its initial public offering last year. Since then, the company has snapped up smaller competitors such as DiningIn and Restaurants on the Run. Yelp could also face stiff competition from Google and Amazon, which launched their own door-to-door delivery services for consumer items and fresh produce.
However, Matt Maloney, co-founder and CEO of GrubHub, believes there is plenty of room for newcomers in the food delivery business, which he pegs at $70 billion a year. Maloney says GrubHub did not even process $2 billion in 2014, although he thinks the Eat24 acquisition does not make a dent in the industry.
"It's just business as usual for us," said Maloney. "Eat24 has been around and has had a business partnership with Yelp for years, so I'm questioning why they pulled the trigger on acquisition when the benefits of working together already existed."
