Yelp Q1 2025 Earnings Call Transcript

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Operator

Hello, and welcome to Yelp's First Quarter twenty twenty five Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. I would now like to turn the conference over to Kate Kreger, Director of Investor Relations. You may begin.

Kate Krieger
Kate Krieger
Director of Investor Relations at Yelp

Good afternoon, everyone, and thanks for joining us on Yelp's first quarter twenty twenty five earnings conference call. Joining me today are Yelp's Chief Executive Officer, Jeremy Stoppelman Chief Financial Officer, David Schwarzbach and Chief Operating Officer, Jed Nachman. We published a shareholder letter on our Investor Relations website and with the SEC and hope everyone had a chance to read it. We'll provide some brief opening comments and then turn to your questions. Now I'll read our Safe Harbor statement.

Kate Krieger
Kate Krieger
Director of Investor Relations at Yelp

We'll make certain statements today that are forward looking and involve a number of risks and uncertainties that could cause actual results to differ materially. Please note that these forward looking statements reflect our opinions only as of the date of this call and we undertake no obligation to revise or publicly release the results of any revision of these forward looking statements in light of new information or future events. In addition, we are subject to a number of risks that may significantly impact our business and financial results. Please refer to our SEC filings as well as our shareholder letter for a more detailed description of the risk factors that may affect our results. During our call today, we may discuss adjusted EBITDA, adjusted EBITDA margin and free cash flow, which are non GAAP financial measures.

Kate Krieger
Kate Krieger
Director of Investor Relations at Yelp

These measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with generally accepted accounting principles. In our shareholder letter released this afternoon and our filings with the SEC, each of which is posted on our Investor Relations website, you will find additional disclosures regarding these non GAAP financial measures as well as historical reconciliations of GAAP net income or loss to both adjusted EBITDA and adjusted EBITDA margin and a historical reconciliation of GAAP cash flows from operating activities to free cash flow. And with that, I will turn the call over to Jeremy.

Jeremy Stoppelman
Jeremy Stoppelman
Co-Founder, CEO & Director at Yelp

Thanks, Kate, and welcome, everyone. Led by continued strength in our services business, Yelp delivered 8% year over year revenue growth and strong profitability in the first quarter. We generated $359,000,000 of net revenue while expanding net income margin by three percentage points and adjusted EBITDA margin by four percentage points from the prior year period. Our product led strategy has continued to strengthen our business and we recently rolled out 15 new features and updates. We continue to see a divergence in category performance in the first quarter.

Jeremy Stoppelman
Jeremy Stoppelman
Co-Founder, CEO & Director at Yelp

The operating environment for businesses in our restaurant, retail and other categories remain challenging and RR and O revenue declined by 3% year over year as a result. At the same time, our services categories where we focused our product efforts drove continued momentum. Services revenue increased by 14% year over year making it the sixteenth consecutive quarter of double digit year over year growth. Request to Quote projects increased by approximately 10% year over year, primarily as a result of improvements to the Request to Quote flow and adoption of the Yelp Assistant, even as our spend on acquiring projects through paid search was significantly lower than in the prior year period. Excluding projects acquired through paid search, request to quote projects increased by more than 15% year over year in the quarter.

Jeremy Stoppelman
Jeremy Stoppelman
Co-Founder, CEO & Director at Yelp

To help make the hiring experience even smoother, we recently enhanced Yelp Assistant by adding AI powered photo recognition. We also introduced response quality badges to highlight service pros who consistently provide helpful replies to project requests. In addition, we have increased our focus on multi location services businesses this year and announced an integration with workflow automation platform Zapier. Leveraging Yelp's leads API, the integration directly connects Yelp to over 800 CRM platforms and lead management tools. More broadly, our product and engineering teams continue to leverage AI to transform the way consumers connect with great local businesses across categories.

Jeremy Stoppelman
Jeremy Stoppelman
Co-Founder, CEO & Director at Yelp

During the first quarter, we introduced several improvements to our matching algorithms and experimented with themed ad formats to deliver greater value to our advertisers. At the same time, our consumer teams continued the expansion of AI powered business summaries and made progress bringing Yelp Assistant to other categories and entry points. We recently announced two upcoming AI powered call answering services, one for service pros and another for restaurants to help business owners manage incoming calls like booking reservations and collecting project details. Our research has found that consumer phone calls are a critical lead source, yet many go unanswered. There's a clear opportunity to provide additional value to local businesses and we see these products as a strong solution.

Jeremy Stoppelman
Jeremy Stoppelman
Co-Founder, CEO & Director at Yelp

In summary, our focus on services continues to strengthen our business and we remain excited by the opportunities ahead to drive profitable growth and shareholder value over the long term. With that, I'll turn it over to David.

David Schwarzbach
David Schwarzbach
CFO at Yelp

Thanks, Jeremy. In the first quarter, net revenue increased by 8% to $359,000,000 4 million dollars above the high end of our outlook range. Driven by our disciplined approach, net income increased by 72% year over year to $24,000,000 or $0.36 per share on a diluted basis, representing a 7% margin. Adjusted EBITDA increased by 32% year over year to $85,000,000 representing a 24% margin, putting it $15,000,000 above the high end of our outlook range. Continued strength in our services business drove this growth.

David Schwarzbach
David Schwarzbach
CFO at Yelp

Services revenue increased by 14% year over year to $232,000,000 Revenue growth in services accelerated from the fourth quarter, driven by the inclusion of RepairPal in our auto services category. As Jeremy mentioned, restaurants and retailers remain pressured in the quarter, resulting in a 3% year over year decline in RR and O revenue to $110,000,000 A decrease in RR and O locations offset growth in services locations in the quarter. This resulted in an overall decline of 3% year over year in paying advertising locations to 517,000. Ad clicks declined by 3% year over year in the quarter, primarily due to macro pressures in RR and O categories and, to a lesser extent, reduced spend on paid search in the current year period. At the same time, advertiser demand in services remained strong, contributing to a 9% year over year increase in average CPC.

David Schwarzbach
David Schwarzbach
CFO at Yelp

Turning to expenses. Our first quarter results demonstrate the margin potential of our business with a net income margin of 7% and an adjusted EBITDA margin of 24%. We achieved these strong results through disciplined expense management. As we continue to focus on allocating resources towards our best opportunities, we again expect headcount will be approximately flat year over year by the end of twenty twenty five. In the first quarter, we reduced stock based compensation expense percentage of revenue by two percentage points year over year to 10%.

David Schwarzbach
David Schwarzbach
CFO at Yelp

We remain focused on reaching our targets of less than 8% by the end of the year and less than 6% by the end of twenty twenty seven. We expect these efforts to stack over time, improving the quality of our adjusted EBITDA and benefiting GAAP profitability in the years to come. Our capital allocation strategy consists of three main elements: first, maintaining a healthy cash balance to fund our operations second, retaining balance sheet capacity for potential acquisitions and third, returning excess capital to shareholders through share repurchases. In the first quarter, we repurchased $62,500,000 worth of shares at an average purchase price of $37.01 per share. As of 03/31/2025, we had $268,000,000 remaining under our existing repurchase authorization.

David Schwarzbach
David Schwarzbach
CFO at Yelp

We plan to continue repurchasing shares through the remainder of 2025 subject to market and economic conditions. Turning to our outlook. When we provided our initial outlook range in February, we noted that there were considerable macroeconomic and policy uncertainties. Since then, we delivered a strong first quarter with results exceeding our own expectations. At the same time, macro uncertainties increased.

David Schwarzbach
David Schwarzbach
CFO at Yelp

As a result, we currently expect second quarter net revenue will be in the range of $362,000,000 to $367,000,000 For the full year, we are modestly widening our range with net revenue now expected to be between $1,465,000,000 and $1,485,000,000 While our performance based ad platform has proven resilient in previous periods of macroeconomic pressure, our guidance does not reflect the substantial decline in economic conditions. Turning to margin. We expect expenses to increase modestly for the remainder of the year, primarily driven by cost of revenue. In addition, we expect our efforts to reduce SBC will act as a headwind to adjusted EBITDA as we move throughout the year, but will not impact net income. As a result, we expect second quarter adjusted EBITDA will be in the range of $84,000,000 to $89,000,000 Balancing our first quarter outperformance with heightened macro uncertainties, we are also widening our range and now expect full year adjusted EBITDA to be between $345,000,000 and $365,000,000 In closing, Yelp's first quarter results reflect the underlying profitability of our business.

David Schwarzbach
David Schwarzbach
CFO at Yelp

We continue to believe in the opportunities ahead to create shareholder value over the long term as we focus our investments in areas that we believe will drive business performance. With that, operator, please open up the line for questions.

Operator

Thank you. Your first question comes from Sergio Segura with KeyBanc. Your line is open.

Sergio Segura
Sergio Segura
Vice President at KeyBanc Capital Markets

Great. Thanks for taking the questions. I guess first, you mentioned in the business outlook seeing some steady spend in April that was below typical seasonality, but some encouraging signs in early May. So maybe if you could just dive into the trends you're seeing quarter to date and anything to call out from a vertical perspective?

Jed Nachman
Jed Nachman
COO at Yelp

Hi, Sergio, I can take that. I think the question is really around advertiser sentiment and kind of impacts from the macro environment. In Q1 specifically, I would say it was really resilient. We characterize it as hanging in there. On the local side of the business, services continued to perform well with 14% year over year growth.

Jed Nachman
Jed Nachman
COO at Yelp

Many of these projects are nondiscretionary, which provides at least a degree of insulation from some of the broader macro pressures. Multilocation advertisers, particularly in R and O, are a little bit more cautious. While spend held steady in Q1, they're taking a quarter by quarter approach given some of that macro uncertainty. We are encouraged by the early traction in our multi location services initiative. Adoption of the leads API continued throughout the quarter.

Jed Nachman
Jed Nachman
COO at Yelp

In Q1, we announced the Zapier integration, which has really strong early signs as well. And we did see acceleration in revenue growth in multi location services from Q4 to Q1, which are all positive signals. Ultimately, our down funnel ad product continues to deliver really measurable ROI, which is especially valuable in uncertain environments. We continue to keep an eye on inflation and potential tariff related supply chain disruptions, but we believe that the product positioning and attribution capabilities help advertisers really justify that spend. When you talk about April specifically, certainly some of the macro uncertainties have increased.

Jed Nachman
Jed Nachman
COO at Yelp

We believe this caused some of our advertisers to maintain steady spend in April when we typically see an increase in budgets. Despite the signals in early May have been encouraging and net net we've reflected that in our guide.

Sergio Segura
Sergio Segura
Vice President at KeyBanc Capital Markets

Great. And maybe a follow-up on those comments. Just on, I know RRNO typically is more enterprise or larger advertisers versus SMB, but anything to call out what you're seeing, within the RRNO and services category on enterprise versus SMB strength?

Jed Nachman
Jed Nachman
COO at Yelp

Yes, thanks. Ultimately R and O continues to face headwinds and that is a lot of our multi location revenue. And so they've not been as full throated in kind of their commitment on the year and ability to go spend. On the SMB side, certainly that's the majority of our revenue is there. And in fact, you look at our paying advertiser locations, this is the first quarter where we have more services paying advertiser locations than we do RR and O.

Jed Nachman
Jed Nachman
COO at Yelp

We do continue to invest in the RR and O core the core consumer experience. And we've announced products coming up like Yelp Assistant for other categories. So it continues to be an investment area for us. We don't have a crystal ball as to kind of when it turns around. We don't believe on premise signing is going away, but and our relationships really remain strong within the multi location R and O category.

Jed Nachman
Jed Nachman
COO at Yelp

And when it turns, we believe we have the ability to capture that upside.

Sergio Segura
Sergio Segura
Vice President at KeyBanc Capital Markets

Great. Very helpful. Thank you.

Operator

The next question comes from Jason Kreyer with Craig Hallum. Your line is open.

Cal Bartyzal
Equity Research Analyst at Craig-Hallum Capital Group LLC

Great. Thank you. This is Cal on for Jason. So maybe first, can you just kind of walk through the drivers of the CPC growth that you saw? How much of this was just from services demand becoming a bigger piece of the mix?

Cal Bartyzal
Equity Research Analyst at Craig-Hallum Capital Group LLC

And what are some ways that you can kind of maintain the budget growth that you've seen while maybe decelerating or reducing CPC to deliver more value to your advertisers?

David Schwarzbach
David Schwarzbach
CFO at Yelp

Kyle. It's David. Thanks for the question. Just to touch first on what's happening with click growth and CPCs. We definitely saw robust advertiser demand in the first quarter that enabled us to deliver the performance that we did.

David Schwarzbach
David Schwarzbach
CFO at Yelp

That being said, to Jed's comments, it is and has been softer in restaurant retail and other. And those trends have led to fewer clicks. So it's predominantly driven by the dynamics at play in restaurant, retail and other as compared to services. Now on the services side, there is an element of that where we were investing in paid search in the first quarter of twenty twenty four, and that did lead to an increase of clicks. So you have a year on year comparison there.

David Schwarzbach
David Schwarzbach
CFO at Yelp

But underneath, the overall performance continued to be strong. In terms of delivering value to advertisers on the CPC side, there's a couple of thoughts. One, we are very focused on delivering valuable clicks to advertisers and where it makes sense for us to actually deliver fewer clicks but of higher quality, we're very focused on that and willing to do that. So that's one dynamic at play because at the end of the day, the advertiser wants a great lead, not just the clicks. So that's the first dynamic around being able to deliver value.

David Schwarzbach
David Schwarzbach
CFO at Yelp

The second is there are category mix shifts that are occurring as our services business continues to grow and grow significantly, and that can lead to an increase in CPCs while still delivering the exact same value since it's a mixed question. And then the third point is we want to ensure that when consumers come to Yelp, they're really getting a great experience. And we have been investing heavily in the pro experience on Yelp, including now providing badging that indicates whether or not that pro is providing a great experience. And we do believe there's a lot of opportunity for us to continue to guide Pros to create great experiences for consumers who are visiting them, and we think that leads to higher quality leads, better responses for them. And that's certainly something that we think makes the experience on Yelp more valuable to consumers, and we'll encourage them to come back.

David Schwarzbach
David Schwarzbach
CFO at Yelp

So we have a broad set of initiatives that we think really go after the opportunity, first and foremost, to deliver more valuable leads. And then if we are delivering those more valuable leads, we believe that we can charge higher rates for the clicks. So net net, when you put all that together, we feel like we are making great progress, and we look forward to continuing to execute against the road map that we set for ourselves there.

Cal Bartyzal
Equity Research Analyst at Craig-Hallum Capital Group LLC

Great. And then just on the Yelp Assistant, you know, adoption was very strong again despite, as you noted, a lower paid search budget you're still spending in Q1 of twenty twenty four. So is there something that you're doing internally to continue driving strength and adoption?

Jeremy Stoppelman
Jeremy Stoppelman
Co-Founder, CEO & Director at Yelp

Hey, Kyle. This is Jeremy. I'll take that. Yeah, we're pleased with the performance of Yelp Assistant. There continues to be a lot of room for growth there and development of the product.

Jeremy Stoppelman
Jeremy Stoppelman
Co-Founder, CEO & Director at Yelp

We have new entry points that we continue to roll out and there are some significant ones that are still untapped. For instance, if you go to a business details page and tap on Request a Quote, you're not going to see Yelp Assistant yet. So there's plenty of room to run there. We also see a big opportunity in bringing Yelp Assistant to many more categories, in fact, all categories. And really as you think about it more broadly, I think Yelp Assistant and that conversational format can be really the future of how you're interacting with Yelp and tapping into information.

Jeremy Stoppelman
Jeremy Stoppelman
Co-Founder, CEO & Director at Yelp

So it gives us an opportunity to really reinvent the consumer experience, reinvent the search experience. So we're really excited about the possibilities of that. And then once we have that fully built out, there's also the opportunity to take it off of Yelp. And so you think about chatbots, new age or new fangled search engines that need to tap into local content. We think our local content is the best that's out there, the quality, the data that we have.

Jeremy Stoppelman
Jeremy Stoppelman
Co-Founder, CEO & Director at Yelp

And to be able to turn that into an API and provide Yelp assistant, I think, to other platforms is an interesting possibility too. So there's a lot of runway for us as we continue to work on Yelp Assistant. We're really excited about it.

Cal Bartyzal
Equity Research Analyst at Craig-Hallum Capital Group LLC

Great. Thank you very much for taking my questions.

Operator

The next question comes from Shweta Khajuria with Wolfe Research. Your line is open.

Analyst

Hi, this is Brian on for Shweta. Thank you for taking my question. Could you just please expand on your broader AI strategy and what early incrementality you're unlocking here with some of the new product announcements, like the photo recognition and response quality announced last week and then the 135% project submissions as well? I'm starting to see. With some of the experimentation that you mentioned at Letter as well with the summaries and visual experiences, what are some really green shoots that you could point to from any of these initiatives?

Analyst

And any visibility onto the road map to capitalize within this momentum would be great. And just as a follow-up, would any of these be supporting the jump in CPCs that you saw this quarter? Thank you.

Jeremy Stoppelman
Jeremy Stoppelman
Co-Founder, CEO & Director at Yelp

Thanks for the question, Brian. We see a ton of opportunities ahead, leveraging AI. So as I was just talking about, Yelp Assistant, I think, represents a great example of something where we're leading the industry, within local services where you can have a conversation. You know, the consumer can tell you all about their project. We use that to do intelligent matching.

Jeremy Stoppelman
Jeremy Stoppelman
Co-Founder, CEO & Director at Yelp

We know which questions to ask based on LLM technology. And there was an additional feature, that we added, which is you can now upload a photo. And, again, the AI understands what's in the photo. If it's a photo of something, let's say, a washer dryer, it perhaps can pick out the model number for you and and pick up details that you might not have even thought to include as your messaging, trying to get to the right pros. And so we can deliver that valuable lead information to pros, which is really exciting.

Jeremy Stoppelman
Jeremy Stoppelman
Co-Founder, CEO & Director at Yelp

Of course, there's other applications making search more intelligent, summarizing our incredible content. So we see lots of opportunities to enhance the product. And speaking of product, we actually have, as we announced with our release today, new products coming leveraging AI, which will be answering services. So both on the restaurant side, front of house answering service to help restaurant customers. And then on the services side, we know from talking to pros that they miss a lot of phone calls, and that is often business that just dropped on the floor.

Jeremy Stoppelman
Jeremy Stoppelman
Co-Founder, CEO & Director at Yelp

Some of those leads, they've actually paid good money for, and so that's just a real shame. So we wanna solve that problem leveraging LLMs, leveraging voice technology that's now available, pick up the phone for that pro when they can't answer, gather the necessary information, qualify that lead, and deliver it in a convenient way to the pro. And we think that's going to unlock a ton of value, not just from Yelp leads, but anywhere that they're getting leads. Those calls are being dropped and we can provide a solution. We've been working on that for a while now and we expect to have that out soon.

Operator

The next question comes from Nitin Bansal with Bank of America. Your line is open.

Nitin Bansal
Nitin Bansal
Vice President at Bank of America

Hi, thank you for taking my question. So first of all, can you update us on the engagement trends across mobile and web? And were there any notable changes on platform usage in 1Q? And secondly, can you share some details on monetization trends for RepairPal and how that is tracking against your internal expectations?

Jeremy Stoppelman
Jeremy Stoppelman
Co-Founder, CEO & Director at Yelp

Thanks for the question, Nitin. On the consumer engagement traffic side, we did see some macro pressure show up in restaurant retail and other. But on the services side, really pleased with 14% revenue growth there as well as request a quote. Project volume was 15% year over year if you take out the paid activity that we had last year. And of course with Yelp Assistant there's a lot of runway there.

Jeremy Stoppelman
Jeremy Stoppelman
Co-Founder, CEO & Director at Yelp

We're excited to continue to roll that out as well as expand it to other categories and reinvent really the search experience. So there's a lot coming on the consumer engagement side. On to RepairPal. RepairPal, obviously, the integration is happening, going smoothly. We're pleased with the acquisition.

Jeremy Stoppelman
Jeremy Stoppelman
Co-Founder, CEO & Director at Yelp

We see a lot of low hanging fruit, things like bringing RepairPal just to the Yelp site so that you can schedule an auto repair right from a businesses page, very obvious things like that. Those will be coming in the coming months and we think that will have a nice positive upside that we will realize as well.

Sergio Segura
Sergio Segura
Vice President at KeyBanc Capital Markets

Thank you.

Executives
Analysts

Key Takeaways

  • Yelp delivered 8% year-over-year revenue growth to $359 million in Q1, driven by a 14% increase in its services business while restaurant, retail & other (RRNO) categories declined 3%.
  • The company expanded its net income margin by 3 percentage points to 7% and its adjusted EBITDA margin by 4 points to 24%, generating $24 million in net income and $85 million in adjusted EBITDA.
  • Yelp rolled out 15 new features and major AI enhancements—including AI-powered photo recognition, response quality badges, and upcoming AI call-answering services—to improve consumer engagement and lead quality.
  • Q2 revenue is guided to $362 million–$367 million and full-year revenue to $1,465 million–$1,485 million, with adjusted EBITDA of $84 million–$89 million in Q2 and $345 million–$365 million for the year, reflecting heightened macroeconomic uncertainty.
  • Yelp repurchased $62.5 million of shares in Q1, maintains $268 million remaining under its buyback authorization, and continues to prioritize healthy cash balances, M&A optionality, and shareholder returns.
AI Generated. May Contain Errors.
Earnings Conference Call
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