Yelp Inc. (YELP) Q4 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

Despite some declines in RR&O revenue and paying advertising locations, Yelp's strategic focus on AI, partnerships like OpenAI, and cross-sell opportunities with Hatch show promising growth potential. The Q&A reveals optimism about AI-driven initiatives and revenue diversification, suggesting positive sentiment. The share repurchase plan and reduced SBC also support a positive outlook.

Key Financial Performance

Net Revenue (2025) Net revenue increased by 4% year-over-year to $1.46 billion. The increase was driven by a focus on services and an accelerated pace of product innovation.

Net Income (2025) Net income grew by 10% year-over-year to $146 million, representing a 10% net income margin. This growth was attributed to strong profitability and disciplined expense management.

Diluted Earnings Per Share (2025) Diluted earnings per share increased by 19% year-over-year to $2.24. This was driven by profitability and a reduction in the fully diluted share count.

Adjusted EBITDA (2025) Adjusted EBITDA increased by 3% year-over-year to $369 million, representing a 25% adjusted EBITDA margin. This reflects the company's ability to deliver profitable growth.

RR&O Revenue (2025) Revenue from RR&O categories declined 6% year-over-year to $444 million. The decline was due to a challenging operating environment for these categories.

Advertising Revenue from Services (2025) Advertising revenue from services increased by 8% year-over-year to a record $948 million. This was driven by strong advertising demand and record revenue per location.

Request-A-Quote Projects (2025) Request-A-Quote projects increased approximately 15% year-over-year, excluding projects acquired through paid search. This growth was driven by improvements to the flow and increased adoption of Yelp Assistant.

Total Ad Clicks (2025) Total ad clicks decreased 7% year-over-year, primarily due to macro pressures and reduced spend on paid project acquisition compared to 2024.

Average Cost Per Click (2025) Average cost per click increased 10% year-over-year, reflecting growth in advertiser demand in services categories and fewer clicks overall.

Total Paying Advertising Locations (2025) Total paying advertising locations decreased 3% year-over-year, as softness in RR&O offset growth in services.

Other Revenue (2025) Other revenue accelerated significantly, up 17% year-over-year, driven by growth in transaction, subscription, and data licensing revenue.

App Unique Devices (2025) App unique devices were down 2% year-over-year, as consumers visited restaurants with reduced frequency.

Net Revenue (Q4 2025) Net revenue decreased by 1% year-over-year to $360 million. This was attributed to pressures in restaurants and retailers (RR&O) categories.

Net Income (Q4 2025) Net income decreased by 10% year-over-year to $38 million, representing a 10% margin. The decline was due to pressures in RR&O categories.

Adjusted EBITDA (Q4 2025) Adjusted EBITDA decreased by 15% year-over-year to $86 million, representing a 24% margin. This was attributed to pressures in RR&O categories.

Advertising Revenue from Services (Q4 2025) Advertising revenue from services increased by 3% year-over-year to $231 million. This growth was driven by performance in services categories.

RR&O Revenue (Q4 2025) RR&O revenue declined 12% year-over-year to $107 million. This was due to a decrease in RR&O locations.

Paying Advertising Locations (Q4 2025) Paying advertising locations declined 5% year-over-year to 496,000, driven by a decrease in RR&O locations and flat services locations.

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Operating Highlights

New Products and Features: Introduced over 55 new products and features, many powered by AI, transforming consumer and business experiences.

AI Chatbot: Request-A-Quote project submissions through Yelp Assistant increased by over 400% year-over-year, representing 5% of all Request-A-Quote projects.

Yelp Host: Launched AI-powered call answering service for restaurants, answering over 190,000 calls and handling thousands of reservations.

Advertising Revenue: Advertising revenue from services categories increased by 8% year-over-year to a record $948 million.

Data Licensing: Strong demand for data licensing products, including a new agreement with OpenAI.

Operational Efficiency: Kept headcount flat year-over-year in 2025, demonstrating disciplined expense management.

Stock-Based Compensation: Reduced stock-based compensation expense as a percentage of revenue by 2 percentage points year-over-year.

AI Transformation: Focused on transforming Yelp with AI, including natural language search, AI-powered business highlights, and expanded Yelp Assistant.

Acquisition of Hatch: Acquired Hatch, an AI lead management platform, to support growth in lead management.

Partnerships: Expanded food ordering network through DoorDash partnership and integrated RepairPal's booking system into Yelp.

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Risk or Challenges

RR&O Revenue Decline: Revenue from restaurants, retailers, and other (RR&O) categories declined by 6% year-over-year in 2025 and 12% in Q4 2025, indicating ongoing challenges in these sectors.

Ad Clicks Decline: Total ad clicks decreased by 7% year-over-year in 2025, driven by macroeconomic pressures and reduced spending on paid project acquisition.

Paying Advertising Locations Decline: Total paying advertising locations decreased by 3% year-over-year in 2025 and 5% in Q4 2025, reflecting softness in RR&O categories and flat growth in services locations.

Macroeconomic Pressures: Macroeconomic conditions negatively impacted advertising demand and ad clicks, contributing to revenue challenges.

Increased Cost Per Click: Average cost per click increased by 10% year-over-year in 2025, which may deter advertisers and impact ad revenue growth.

App Unique Devices Decline: App unique devices were down 2% year-over-year in 2025, reflecting reduced consumer visits to restaurants and potentially impacting user engagement.

Stock-Based Compensation (SBC) Expense: While SBC expense as a percentage of revenue declined, it remains a focus area, with a target to reduce it further to below 6% of revenue by 2027.

AI Transformation Investment Risks: Significant investments in AI transformation, including the acquisition of Hatch and paid search initiatives, may increase expenses and pose execution risks.

RR&O Pressure in 2026: RR&O categories are expected to remain pressured in 2026, continuing to negatively impact advertising revenue.

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Guidance & Outlook

AI Transformation: Yelp plans to increase investments in AI transformation in 2026, including expanding Yelp Assistant to function across categories and entry points, aiming to make local discovery and task completion seamless. The company also plans to roll out upgrades to Yelp Host, including the ability to take food orders over the phone.

Acquisition of Hatch: Yelp recently acquired Hatch, an AI lead management platform, and plans to focus on supporting its growth in 2026 as part of its broader strategy to enhance lead management.

AI Ecosystem Integration: Yelp aims to extend its reach in the AI ecosystem by leveraging its first-party data, including reviews, photos, and business listings, to power local discovery and actions. The company signed an agreement with OpenAI to support this initiative.

Revenue Projections for 2026: Yelp expects net revenue for the full year 2026 to be in the range of $1.455 billion to $1.475 billion. For Q1 2026, net revenue is projected to be between $350 million and $355 million.

Adjusted EBITDA Projections for 2026: Yelp anticipates adjusted EBITDA for the full year 2026 to be in the range of $310 million to $330 million. For Q1 2026, adjusted EBITDA is expected to be between $58 million and $63 million.

Expense Projections for 2026: Expenses are expected to increase in 2026, driven by investments in AI transformation, paid traffic acquisition, and Hatch operations. Seasonal expense increases are anticipated from Q4 2025 to Q1 2026 due to payroll taxes and benefits.

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Shareholder Return Plan

Share Repurchase Program: Through our commitment to share repurchases, we reduced our fully diluted share count, which includes outstanding stock options, RSUs and PRSUs from 86 million to 67 million, a 22% reduction between December 31, 2021, and December 31, 2025. In 2025, we repurchased $292 million worth of shares at an average purchase price of $33.29 per share, including $88.5 million worth of shares repurchased in the fourth quarter. As of December 31, 2025, we had $38.8 million remaining under our existing repurchase authorization. To support our ongoing repurchase plans in February 2026, our Board of Directors authorized an additional $500 million for share repurchases.

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Key Q&A

Q:What is the current environment for services on both the consumer and service provider sides, and what are the expectations for the services business in 2026?

A:Services demand has softened somewhat, particularly in the consumer and macro environment, with RR&O being hit the hardest. Yelp is focusing on investments like Yelp Assistant, which was rolled out last year and is expected to transform the consumer experience through AI. The company plans to launch cross-category Yelp Assistant by the end of Q1 and continue investing in features like making reservations and booking appointments. Yelp is also leaning into multi-location services and acquiring traffic to generate incremental revenue.

Q:What is the general outline of the deal with OpenAI, and how could it impact traffic, exposure to younger user cohorts, and monetization opportunities?

A:Yelp has signed an agreement with OpenAI, leveraging its high-quality content, including millions of human-written reviews. This content is critical for local intent queries, which make up a significant portion of search queries. Data licensing revenue, where this deal is reflected, grew 17% year-over-year and accelerated to 30%-33% in Q4. Yelp expects continued growth in this area.

Q:How does the AI transition evolve in terms of consumers interacting with Yelp and its customers over time?

A:Yelp is leveraging AI to enhance the consumer experience, including natural language search queries and the Yelp Assistant. Yelp Assistant has driven a 400% increase in projects and allows consumers to ask questions about businesses, providing precise answers backed by data. Yelp is also investing in AI-powered SaaS tools like Yelp Post and Yelp Receptionist, which have shown strong adoption and growth. The company plans to launch cross-category Yelp Assistant by the end of Q1.

Q:What is the cross-sell opportunity for Hatch services, and how does it accelerate the roadmap for Yelp's other offerings?

A:Yelp sees significant cross-sell opportunities for Hatch services, leveraging its large sales team and existing customer contacts. Hatch's AI lead management improves advertising ROI and has shown 70% year-over-year growth. Yelp's acquisition of Hatch accelerates its roadmap for AI-powered tools like Yelp Post and Receptionist.

Q:How does Yelp plan to keep up with innovation in AI and achieve adoption levels for its SaaS offerings?

A:Yelp focuses on its expertise and partnerships in the AI lead management space, particularly with Hatch. Despite competition from larger players, Yelp's detailed focus and resources give it confidence in maintaining innovation and growth. Hatch has shown strong momentum with 70% year-over-year growth, and Yelp aims to accelerate this further.

Q:How does Yelp envision its revenue mix evolving over the next 3-5 years, and what does it mean for top-line growth and margins?

A:Yelp aims to diversify its revenue mix, which is currently ad-driven, by growing other revenue streams like licensing, transactions, and subscriptions. These streams have better margin profiles than ad revenue. SaaS margins are expected to converge with or exceed ad revenue margins over time, contributing to overall top-line growth and improved profitability.

Q:What needs to change for the restaurant and retail advertiser base to stabilize and improve, and what are Yelp's priorities in this area?

A:Restaurants and retail face challenges like weakened consumer demand and high input costs. Yelp is investing in AI tools like cross-category Yelp Assistant and Yelp Host to enhance consumer interaction and support advertisers. The company is also expanding food ordering capabilities and leveraging its infrastructure to target a large TAM.

Q:What are the margin trajectory goals for Hatch, and how does it impact Yelp's full-year EBITDA outlook?

A:Hatch is focused on top-line growth rather than immediate margin improvement. Over time, its margin profile is expected to align with typical SaaS margins. The impact on Yelp's EBITDA outlook is reflected in its guidance, with retention amounts being adjusted back to EBITDA.

Q:Review of Unclear Management Responses

A:Management avoided providing specific details on the expected revenue impact or precise timelines for the success of initiatives like Yelp Assistant and Hatch. Additionally, responses about the long-term revenue mix and margin profiles were general and lacked concrete projections.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

YELP Transcript

Yelp Inc. (YELP) Q4 2025 Earnings Call Transcript

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The earnings call reveals a mixed performance with record-high services revenue and strategic partnerships, such as with DoorDash, expected to drive future growth. Despite a slight EBITDA decline, disciplined expense management and reduced stock-based compensation are positives. The Q&A highlights strong demand for AI products and optimistic management sentiment. However, macroeconomic pressures and cautious advertising spend are concerns. Considering a market cap of approximately $2.5 billion, the stock is likely to react positively, within the 2% to 8% range, due to strategic growth initiatives and strong service revenue.

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Yelp's earnings call presents a mixed outlook. Financial performance shows modest growth, with a 4% revenue increase and strong EBITDA. However, challenges like declining ad locations, increased expenses, and stagnant revenue growth raise concerns. Positive elements include AI advancements and share repurchases. The Q&A highlights macroeconomic pressures and uncertainty in the restaurant segment, which tempers optimism. Given these factors, the stock price is likely to remain stable, resulting in a neutral prediction, especially considering the company's mid-cap status.

YELP Slides

Yelp Q4 2025 presentation slides: AI transformation amid slowing revenue growth

2026-02-12

YELP Report

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