Yelp Q2 Earnings Call Highlights

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Yelp (NYSE:Yelp) reported second-quarter revenue growth of 1% year over year as the company increased investment in artificial intelligence-driven products, data licensing and lead-management offerings while navigating what executives described as a challenging environment for local businesses.

Second-quarter net revenue rose to $376 million, exceeding the high end of the company’s outlook range by $8 million. Net income declined 28% from a year earlier to $32 million, or an 8% net income margin. Adjusted EBITDA fell 9% to $91 million, representing a 24% margin and coming in $16 million above the high end of Yelp’s outlook range.

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Chief Executive Officer Jeremy Stoppelman said the company is advancing an AI transformation aimed at making local discovery more conversational, providing new tools for businesses and expanding Yelp’s content distribution through partnerships.

Advertising Revenue Reflects Local-Business Pressures

Advertising trends remained pressured during the quarter. Services advertising revenue was flat year over year at $241 million, while restaurant, retail and other, or RR, advertising revenue declined 10% to $102 million.

Paying advertising locations fell 1% year over year to 510,000, as services locations remained flat and RR locations declined. Ad clicks decreased 5%, driven by fewer clicks in RR categories, though services-category clicks increased slightly. Average cost per click rose 1%, which Chief Financial Officer David Schwarzbach attributed to services clicks comprising a larger portion of total clicks.

Chief Operating Officer Jed Nachman said paying advertiser location trends showed improvement from the first quarter. Restaurant advertiser locations posted their strongest performance in several years, while services advertiser locations were flat. Still, Nachman said local businesses continue to contend with inflation, gas costs and other input-cost pressures, and the company does not expect a major turnaround in the broader local economy in the near term.

Other Revenue Nearly Doubles on AI Offerings

Other revenue increased 98% year over year to a record $33 million. The growth reflected contributions from Hatch, Yelp’s lead-management business acquired in February, as well as growth in data licensing and food-order revenue.

Hatch’s annual revenue run rate reached $35 million in June, up 59% year over year. Stoppelman said Yelp significantly expanded the Hatch team during the second quarter to accelerate the product roadmap, though the expansion created what he described as an adjustment period during the quarter. The company saw improved trends in July.

Schwarzbach said Yelp is investing in Hatch across product, engineering and go-to-market functions as it seeks to scale what had been a startup operation. He said the company believes Hatch’s longer-term margin profile could resemble that of other subscription businesses, though Yelp intends to continue investing in the near term to pursue the market opportunity.

Yelp is targeting an annual run rate of $250 million in other revenue by the end of 2028. Schwarzbach said the company views AI-driven offerings, including Yelp Host, Hatch and data licensing, as important contributors to that objective.

Yelp Host, OpenAI Partnership Expand Product Reach

Yelp Host, the company’s AI-powered call-answering service for restaurants, reached an annual run rate of 2.4 million calls handled in July, more than tripling from January. The company added support for 16 new languages and introduced an OpenTable integration that allows callers to book and manage reservations automatically through Yelp Host.

Yelp also added food-ordering functionality with point-of-sale integration, enabling restaurants to take pickup orders by phone without added fees. Stoppelman said the product has created positive synergies with Yelp’s restaurant sales efforts, which include Yelp Ads and Yelp Guest Manager, although he said it remains early and Yelp Host has not materially changed the company’s restaurant advertising business.

On the consumer side, Stoppelman said Yelp saw improvements in app installs and page views. Yelp Assistant, its conversational product across local categories, showed early positive engagement trends. In services, the assistant contributed to approximately 10% year-over-year growth in project submissions, according to the company.

Yelp also said its ratings and reviews began powering ChatGPT’s local experience in relevant categories through its OpenAI partnership. A Request a Quote integration with ChatGPT is expected to launch soon. Stoppelman said the relationship could become a meaningful distribution channel over time, though he characterized traffic and conversion data from the integration as too early to assess.

He said Yelp has also benefited from product work on search engine optimization, higher app downloads, partner-network traffic and what he described as positive Google algorithmic changes favoring user-generated content. Yelp’s paid traffic activity is relatively limited compared with its overall organic traffic, he said.

Outlook Calls for Continued Investment

Yelp expects the difficult environment for local businesses to continue through the remainder of the year, weighing on advertising revenue across categories. For the third quarter, the company forecast net revenue of $365 million to $370 million and adjusted EBITDA of $70 million to $75 million.

For the full year, Yelp narrowed its revenue outlook to $1.460 billion to $1.470 billion and its adjusted EBITDA outlook to $315 million to $325 million. The company expects expenses to increase sequentially in the third quarter as it invests in its AI strategy, Hatch and consumer marketing.

Yelp repurchased $15 million of stock in the second quarter at an average price of $24.92 per share and approximately $25 million more in the third quarter, bringing year-to-date repurchases to about $200 million. The company said it has paused repurchases to pay down its revolving credit facility and expects to resume buybacks in 2027. Yelp had $339 million remaining under its existing repurchase authorization.

About Yelp (NYSE:Yelp)

Yelp is a digital platform that connects consumers with local businesses through user-generated reviews, ratings and multimedia content. The company's flagship offerings include the Yelp website and mobile applications for iOS and Android, where users can search for and discover restaurants, shops, service providers and other points of interest. In addition to crowd-sourced reviews and photographs, Yelp provides business profile pages featuring hours, contact information, menus and direct messaging capabilities.

Yelp generates revenue primarily through advertising services sold to small and medium-sized enterprises.

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