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Yahoo! Inc. (YHOO - Analyst Report) has announced its partnership with Yelp, Inc. (YELP - Snapshot Report) to enhance its local search results and attract more users.

Yelp, a U.S.-based company, is an online guide and a business review site. It was founded in 2004 to help people locate local businesses, events and lists through a search tool provided on the company’s website. In addition, visitors can access business reviews for organizations that offer specific types of products and services in their area. Yelp is available on Apple Inc.’s (AAPL - Analyst Report) iPhone, BlackBerry and Android phones.

Per the agreement, Yahoo! will combine its key search results with important information from Yelp such as ratings, review site’s listings and reviews of local businesses. The move can help improve traffic to Yahoo Local, which is not currently very popular. It could also generate additional advertising revenues.

Additionally, the partnership could increase competition for Google Inc. . We believe the Yelp deal could play an important role in helping the company improve its search revenues, going forward. Last quarter, the company’s search revenues were up sequentially due to improvements in the quality of ads, better user experience and new ad products.

Yahoo! is focused on improving its search business and aggressively trying to retain and boost its user base. As per a multi-year agreement, Yahoo!’s main search technology provider is Microsoft. The technology is integrated with Yahoo!’s own features and interface. However, this partnership did not turn out well and resulted in market share losses for Yahoo!. The company's revenues declined for three consecutive years before registering a small gain in 2013.

For now, Yahoo still has much to prove, given the growing success of archrival Google and Facebook. Facebook has become extremely popular among users, so much so that it is already the most popular social networking platform. Additionally, failure to protect user information could hurt its reputation and credibility, thus slowing down financial growth.

Currently, Yahoo! holds a Zacks Rank #3 (Hold).

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