YELP INC Q3 FY2024 earnings call

Key Points

• Yelp delivered record net revenue and strong profitability in Q3. Net income margin was 11% and adjusted EBITDA margin was 28% due to disciplined expense management.
• Services categories drove growth, with home services revenue up ~15% and Services revenue up 11% year-over-year for 14 consecutive quarters of double-digit growth.
• Paid project acquisition initiative was narrowed in focus, targeting businesses with fewer reviews. Plans to spend more modestly in 2025. Leveraging AI to optimize ad content and improve search experience.
• Announced acquisition of RepairPal for ~$80 million to expand auto services offerings, with Yelp's auto services advertising vertical having an annual run rate of ~$90 million.
• Disciplined expense management led to reduced stock-based compensation expense as a percentage of revenue, with focus on reaching less than 8% by end of 2025. Share repurchased $62.5 million worth of shares in Q3, with $393 million remaining under authorization.

Net revenue for Yelp in the third quarter was $360 million, a 4% year-over-year increase, reaching a record. Services revenue was a key driver, increasing 11% year-over-year to $228 million, with home services revenue up approximately 15%. In contrast, RR&O revenue declined 6% year-over-year to $116 million due to challenges in restaurant, retail, and other categories. Paid advertising locations decreased 7% year-over-year to 524,000. Self-serve advertising grew approximately 15% year-over-year, while multi-location revenue was flat year-over-year. Services revenue contribution was significant, with Services accounting for a large portion of the net revenue growth.

Forward-Looking Statements

• Full-year net revenue now expected to be in the range of $1.397 billion to $1.402 billion, a decrease of $18 million at the midpoint from prior outlooks.
• Adjusted EBITDA expected to be in the range of $341 million to $346 million, an increase of about $14 million at the midpoint despite RR&O headwinds.
• Spending on paid search reduced, with plans to spend more modestly going forward, no longer breaking out specific amounts.
• Headcount expected to be approximately flat year-over-year by end of 2024, excluding RepairPal employees joining.

Risks Identified

• Macro headwinds impacting RR&O categories, including elevated input costs and consumer squeeze due to compounded inflationary environment.
• Uncertainty around the cyclical recovery of RR&O categories.
• Potential impact of market and economic conditions on share repurchases.
• Risks associated with forward-looking statements and potential differences between actual results and projections.

Q: What is the opportunity in auto services and why now?

A: RepairPal acquisition fits within Yelp's Services strategy. Yelp's auto services advertising vertical has an annual run rate of ~$90 million. RepairPal brings expertise in auto, including knowledge of the industry, relationships, and repair costs, which will enhance products like Request-A-Quote and Yelp Assistant, benefiting both consumers and service providers.

Q: Can you elaborate on RR&O commentary?

A: RR&O categories have faced continued macro headwinds throughout 2024, including elevated input costs, consumer squeeze from inflation, and external factors like delivery fees. It's a cyclical moment, but Yelp has strong relationships and is well-positioned to capture recovery opportunities when it occurs.

Q: Talk about paid search and top of funnel for Request-A-Quote?

A: Learned from paid search efforts, with strong top of funnel metrics like more projects, ad clicks, and lower CPCs than year-ago quarter. However, bottom of funnel signals weren't sufficient for continued investment at current levels, so spending on paid search will be more modest, with learnings used to iterate the initiative.

Q: Thoughts on generative search landscape and Yelp's role?

A: Excited about new entrants in generative search and antitrust enforcement creating opportunities. Yelp has local content in North America and APIs that can be licensed to companies pursuing generative search. Yelp's trustworthy local content, including location, hours, and reputation information, positions it well in this landscape.

Q: Discuss SCM investment and results?

A: Top of funnel projects were good with more projects, ad clicks, and lower CPCs, but needed advertiser behavior change for ROI. While top of funnel metrics were positive, advertiser retention and spending didn't reach desired levels, leading to adjusting spend levels to focus on ROI.

Q: Margin profile post-RepairPal integration?

A: RepairPal had ~$30 million revenue over prior 12 months at breakeven. Excited about leveraging Yelp's SEO, SEM, and other strengths with RepairPal's expertise in auto to drive revenue and potential margin benefits, with details to be shared in Q4 call.

Q: Pressure within RR&O by sub-segment?

A: Weakness is broad-based across restaurant, retail, and other RR&O categories, all facing macro headwinds from a consumer squeeze and elevated input costs.

Q: Impact of TCPA regulations on Yelp?

A: TCPA regulations haven't been a significant driver for Yelp's business, as they haven't had a major impact on Yelp's operations or revenue streams.