Yelp Inc. (YELP) Q1 2026 Earnings Call Transcript

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

Overview

Yelp's earnings call presents a mixed outlook. While there are positive signs such as AI transformation, new partnerships, and strong growth in 'other revenue' segments, these are offset by declining net income, adjusted EBITDA, and ad revenue. The Q&A reveals concerns about macroeconomic uncertainties and the impact of geopolitical events, which are expected to persist. Despite strong growth in certain areas, the unchanged full-year guidance and management's cautious tone suggest a neutral stock price movement. With a market cap of $2.49 billion, the stock is likely to see minimal short-term volatility.

Key Financial Performance

Net Revenue $361 million, increased by 1% year-over-year. The increase was attributed to the company's AI transformation and new partnerships, despite a challenging economic environment for local businesses.

Net Income $18 million, decreased by 27% year-over-year, representing a 5% margin. The decline was due to the challenging operating environment for local businesses.

Adjusted EBITDA $79 million, decreased by 7% year-over-year, representing a 22% margin. The decrease was attributed to lower consumer demand in certain categories and increased investments in AI transformation.

Services Ad Revenue $234 million, increased by 1% year-over-year. The slight increase was due to a focus on AI-driven revenue streams.

RR&O Ad Revenue $99 million, decreased by 11% year-over-year. The decline was due to lower consumer demand in RR&O categories.

Other Revenue $29 million, increased by 75% year-over-year. The growth was driven by revenue from Hatch, data licensing, and food ordering.

Ad Clicks Declined by 10% year-over-year. The decline was driven by lower consumer demand in RR&O categories, partially offset by a slight increase in services categories.

Average CPC Increased by 8% year-over-year. The increase was due to advertiser demand outpacing consumer demand.

Hatch Annual Run Rate Revenue Exceeded $34 million in March, up 92% year-over-year. The growth was attributed to the acquisition of Hatch and its integration into Yelp's offerings.

Food Ordering Revenue Increased by 88% year-over-year. The growth was driven by the partnership with DoorDash.

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Operating Highlights

AI Transformation: Yelp introduced over 35 new features, including a new Yelp Assistant that works across all categories, enhancing local discovery and engagement.

Yelp Host: The AI-powered call answering service for restaurants surpassed an annual run rate of 1.5 million calls handled in April, doubling since January. Plans include adding functionality for food orders over the phone.

Hatch Acquisition: Acquired Hatch in February, with its annual run rate revenue reaching $34 million in March, up 92% year-over-year.

Partnerships: Expanded partnerships with DoorDash, Vagaro, and Zocdoc, enabling food ordering and booking appointments for beauty, wellness, fitness, and healthcare.

Data Licensing: Secured new licensing agreements with OpenAI and expanded integrations with platforms like Amazon Alexa, Apple Maps, and Microsoft Bing.

Revenue Growth: Net revenue increased by 1% year-over-year to $361 million. Other revenue grew by 75% year-over-year to $29 million, driven by Hatch, data licensing, and food ordering.

Cost Management: Reduced stock-based compensation expense as a percentage of revenue by 2 percentage points year-over-year to 8%.

AI-Driven Revenue Streams: Focused on AI-driven offerings like Yelp Host, Hatch, and data licensing, targeting an annual run rate of $250 million in other revenue by 2028.

Share Repurchases: Repurchased $125 million worth of shares in Q1 2026, contributing to a 12% year-over-year decline in diluted shares outstanding.

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Risk or Challenges

Challenging Economic Environment for Local Businesses: Local businesses are facing a challenging economic environment, which is impacting advertising revenue and consumer demand in certain categories.

Decline in Advertising Metrics: There was a 6% year-over-year decline in paying advertising locations and a 10% decline in ad clicks, driven by lower consumer demand in RR&O categories.

Decrease in RR&O Ad Revenue: RR&O ad revenue decreased by 11% year-over-year, reflecting reduced consumer demand in these categories.

Increased Average Cost Per Click (CPC): Average CPC increased by 8% as advertiser demand outpaced consumer demand, potentially impacting advertiser satisfaction and ROI.

Stock-Based Compensation Expense: Stock-based compensation expense remains a significant cost, though efforts are being made to reduce it as a percentage of revenue.

Economic Uncertainty Impacting Advertising Revenue: The challenging economic environment is expected to persist, continuing to impact advertising revenue across categories.

Integration and Acquisition Costs: Costs related to the acquisition and integration of Hatch employees are excluded from adjusted EBITDA, indicating ongoing financial commitments.

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Guidance & Outlook

Revenue Projections: Second quarter net revenue is anticipated to be in the range of $363 million to $368 million. Full-year net revenue is expected to be in the range of $1.455 billion to $1.475 billion.

Adjusted EBITDA Projections: Second quarter adjusted EBITDA is expected to be in the range of $70 million to $75 million. Full-year adjusted EBITDA is projected to be in the range of $310 million to $330 million.

AI-Driven Revenue Growth: The company is targeting an annual run rate of $250 million in other revenue by the end of 2028, driven by AI-driven offerings such as Yelp Host, Hatch, and data licensing.

Stock-Based Compensation Reduction: Stock-based compensation expense is expected to reduce to less than 6% of revenue by the end of 2027.

Share Repurchase Plans: The company plans to continue repurchasing shares in 2026, subject to market and economic conditions, with $414 million remaining under the existing repurchase authorization.

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Shareholder Return Plan

Share Repurchase Program: In the first quarter, Yelp repurchased $125 million worth of shares at an average price of $24.58 per share. This contributed to a 12% year-over-year decline in diluted shares outstanding. As of March 31, 2026, Yelp had $414 million remaining under its existing repurchase authorization. The company plans to continue repurchasing shares in 2026, subject to market and economic conditions.

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Key Q&A

Q:Why was the full-year guidance maintained despite Q1 revenue and EBITDA exceeding expectations?

A:The full-year guidance was maintained due to the impact of the conflict in the Middle East on advertiser budgets in March, which caused some softness that is expected to persist into Q2. Additionally, there is continued uncertainty in the macroeconomic environment.

Q:What are the drivers and main components for achieving the $250 million run rate target for other revenue by 2028?

A:The three components are transaction revenue (grew 88% in Q1, driven by the DoorDash partnership), licensing (showing large opportunities), and Hatch (92% annual run rate revenue growth in March). Investments are being made in product and engineering to support these areas, with additional opportunities in AI-driven initiatives like food ordering over the phone and data licensing for AI players.

Q:What is the expectation for EBITDA margin growth over the coming years?

A:Management expects strong growth in EBITDA margins due to revenue potential from accelerated product development and AI capabilities, as well as productivity improvements in product, engineering, sales, marketing, and G&A functions. The Q1 EBITDA beat was driven by incremental revenue flow-through, capitalized software development benefits, and other operating line item adjustments.

Q:How are Yelp Assistant and Request-A-Quote projects performing in terms of conversion and advertiser ROI?

A:Yelp Assistant has driven incremental projects, with 15% of Request-A-Quote projects now coming from it (up from 5% last year). The rollout of Yelp Assistant across all categories in April has shown promising early results, enhancing consumer experience by leveraging Yelp's extensive content.

Q:What is the scope and impact of Yelp's partnerships with AI players like OpenAI, Apple, and others?

A:Yelp has partnered with major AI players like OpenAI, Apple Maps, and Microsoft Bing to provide high-quality human-written content for local search. These partnerships are in early stages, with opportunities for branding, traffic, and monetization expected to grow as these players develop their local search experiences.

Q:What is the current scope of the OpenAI partnership and its impact on Yelp content visibility?

A:The partnership with OpenAI is still in its early stages, and details about how OpenAI plans to leverage Yelp's data are not fully disclosed. Yelp content visibility within AI services like ChatGPT is currently limited, but this may evolve as OpenAI develops its local search capabilities.

Q:What is the growth trajectory for the 'other revenue' segment over the next few quarters?

A:The 'other revenue' segment grew 75% in Q1, driven by transaction revenue (88% growth), Hatch (92% growth), and licensing agreements. However, the overall revenue guidance remains unchanged due to macroeconomic uncertainties and the impact of the Middle East conflict on local businesses.

Q:Review of Unclear Management Responses

A:Management avoided providing specific details about how OpenAI plans to leverage Yelp's data in their partnership, citing the early stage of the collaboration and the rapid evolution of OpenAI's plans. Additionally, they did not elaborate on the exact steps needed for Yelp to become a primary source within AI services like ChatGPT.

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Earnings Word Cloud

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

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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.

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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.

YELP Slides

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YELP Report

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