Q1 2024 Earnings Summary
- Yelp's investment in paid project acquisition is showing strong early results, including a 20% year-over-year increase in Request-a-Quote projects and significant growth in ad clicks, particularly in key categories like movers. This demonstrates the effectiveness of their strategy and provides confidence in their ability to drive future revenue growth. ,
- Innovative AI-driven products like Yelp Assistant are enhancing user experience and engagement. By leveraging conversational AI, Yelp is improving the Request-a-Quote experience, which can lead to increased consumer interactions and monetization opportunities. This focus on product innovation positions Yelp well in the competitive landscape. ,
- Improvements in ad-matching technology are increasing the efficiency of Yelp's advertising platform, resulting in increased ad clicks and a decrease in average cost-per-click (CPC), particularly in Services categories. Delivering more value to advertisers may encourage them to increase their spending over time, supporting future revenue growth for Yelp. ,
- Yelp is facing continued weakness in its Restaurants, Retail, and Other (RR&O) categories, with businesses in these sectors remaining cautious due to macroeconomic factors, including labor and inflationary pressures. Yelp is uncertain about the timing of recovery in RR&O, which could impact revenue growth.
- Increased investment in paid project acquisition may not immediately translate into revenue, potentially impacting near-term profitability. Yelp has increased spending on Services project acquisition to more than $40 million in 2024 but acknowledges a significant lag between spend and revenue realization. As a result, they have narrowed their 2024 adjusted EBITDA guidance to $315 million to $325 million.
- Competition for advertising dollars in the local space is intensifying, particularly from delivery platforms in the RR&O categories. Yelp believes some advertising dollars are shifting to these platforms, which could pressure Yelp's advertising revenue growth in these categories.
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EBITDA Guidance and Investment
Q: Why increase investment without revenue guidance uplift?
A: The company increased Q1 spend from $2 million to $7 million in paid projects, resulting in significant project and ad click increases, and meaningful declines in CPCs. Though revenue guidance remains unchanged, they are confident that these investments will drive future ad budget increases, acknowledging there's a time lag between spend and revenue recognition due to the auction-based system. The strong early results justify stepping up investments, absorbing some EBITDA into paid project acquisition. -
Paid Search Investment Impact
Q: What's the effect of ramping paid search budget?
A: Expanding the paid search budget led to a 20% year-over-year increase in project volume, higher ad clicks, and lower CPCs, particularly in categories with added budget. Early results are promising, indicating significant headroom for further optimization and budget increases. -
Competition in RR&O Advertising
Q: How is competition affecting RR&O ad revenue?
A: The restaurant, retail, and other (RR&O) categories face pressure due to cautious business spending amid macroeconomic factors like labor and input costs. There's a marginal impact from shifts to off-premise services, with some ad dollars moving to delivery platforms. While RR&O weakness continues, the company expects recovery when economic conditions improve. -
Cost Per Click Dynamics
Q: What's driving CPC changes in Services?
A: There are meaningful CPC reductions in subcategories where the company is purchasing projects. Overall, CPCs decreased by 1%, moving from a 4% growth in the previous quarter, driven by improved ad-matching technology and better consumer information. This leads to better cost per lead economics for service professionals. -
Capital Allocation and Buybacks
Q: Any changes to share buyback plans?
A: In Q1, the company repurchased $62.5 million of stock, up from their consistent $50 million in prior quarters. Despite increased investments, they remain committed to returning capital in excess of their target cash balance, with no change to their capital allocation strategy. -
Yelp Assistant and AI Investments
Q: How are AI investments affecting engagement?
A: The company launched Yelp Assistant, leveraging AI to guide consumers through projects, leading to reduced friction and increased conversion rates. Early results indicate it resonates with consumers, contributing to improved engagement. They continue to invest in streamlining Request-a-Quote functionality and enhancing business owner interactions. -
Perplexity Partnership and AI Licensing
Q: What's the significance of the Perplexity partnership?
A: The partnership with Perplexity.ai showcases Yelp's valuable local content in enhancing AI-driven search experiences. This validates Yelp's role as a key data provider, and they see potential for more AI licensing opportunities, with ongoing conversations and a recent release of Yelp Fusion AI API. -
SEM Return Profiles
Q: How do SEM efforts impact returns?
A: The company believes their unique approach to SEM, backed by Yelp's strong cross-category brand, will drive repeat consumer behavior essential for positive return profiles. While it's early in ramping paid projects, initial metrics are positive, and they expect that leveraging their product and engineering strengths will contribute to long-term revenue and profitability.