Q2 2024 Earnings Summary
- Yelp is leveraging AI technologies, including large language models and neural networks, to enhance user experience and advertising efficiency. The launch of features like Yelp Assistant and partnerships with AI search engines like Perplexity indicate potential for innovation and growth.
- The recent antitrust decision against Google is viewed positively by Yelp, as it could reduce Google's monopolistic practices and increase competition in the search space. This development is expected to create growth opportunities for Yelp and other companies in the industry.
- Yelp's investment in paid search is yielding promising results, with Request-a-Quote projects increasing by 35% year-over-year. This demonstrates effective acquisition of untapped leads and potential for driving growth in the Services categories.
- Yelp is experiencing declining revenue in its Restaurants, Retail & Other (RR&O) category, with this weakness expected to persist into the second half of the year. The company acknowledges that competition from food delivery platforms is contributing to this decline, raising concerns about its ability to stabilize this segment.
- Yelp is reducing its investment in paid project acquisition, lowering expected spend to approximately $35 million for the year from a previously expected $40 million, after spending $19 million in the first half. This reduction suggests that the return on investment from paid search initiatives may not be meeting expectations, potentially impacting future growth.
- Uncertainties in the evolving AI landscape pose potential challenges for Yelp. While the company explores partnerships with AI search engines, it admits that it's too early to determine the impact on user behavior and conversion rates. This uncertainty could affect Yelp's ability to capitalize on AI developments and maintain its market position.
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Outlook Revision and Paid Project Investment
Q: Why did Yelp revise its outlook and reduce paid project spending?
A: Yelp revised its outlook due to continued pressure in the Restaurant, Retail & Other (RR&O) category and decided to reduce investment in paid search for project acquisition. This decision was independent of overall profitability and based on focusing efforts on leads that generate the best return on investment. Despite the reduction in spending, Yelp raised its full-year EBITDA guidance by $10 million, citing increased efficiency and cost savings. -
Confidence in Raising EBITDA Guidance
Q: How can Yelp raise EBITDA guidance despite RR&O weakness?
A: Yelp is confident in raising its EBITDA guidance by $10 million due to increased efficiencies, particularly in marketing spend, and savings from reduced paid search investments. Continuous improvements and disciplined spending are expected to offset RR&O weakness and support profitability. -
EBITDA Outperformance in Q2
Q: What drove the EBITDA outperformance in the quarter?
A: The EBITDA outperformance was driven by increased efficiency in marketing spend, with Yelp improving results while spending less. Additional factors included more capitalized software projects and normal variances in forecasting items like healthcare. These efficiencies allowed Yelp to achieve an adjusted EBITDA margin of 26% in Q2. -
RR&O Weakness and Competition
Q: Is competition from food delivery platforms impacting RR&O more significantly?
A: Yelp acknowledges marginal pressure from food delivery ad platforms but believes RR&O weakness is largely due to macroeconomic factors. Large RR&O customers face declining transactions and cannot implement price increases as before, impacting their marketing budgets. Yelp maintains strong relationships with these customers and expects to benefit when consumer spending returns. -
Paid Search Performance and Budget Adjustments
Q: What is happening with paid search investment and performance?
A: Yelp is pulling back on its paid search budget, focusing on driving leads to businesses most responsive to them, particularly those with fewer reviews. While they've found untapped leads through paid search, they aim to optimize ROI by honing lead distribution. They spent $12 million on paid search in Q2 and revised their full-year estimate to $35 million, down $5 million from prior expectations. -
AI Landscape and Impact on Yelp
Q: How does the AI landscape affect Yelp's future?
A: Yelp sees the AI landscape as very exciting and has already integrated Large Language Models (LLMs) into search and ad tech, and launched Yelp Assistant. They are exploring data licensing opportunities with AI companies, citing an early partnership with Perplexity AI. Yelp believes AI can create opportunities for innovation and partnerships, benefiting from their trusted local data. -
Ad Pricing Trends and Ad Tech Improvements
Q: Are ad pricing trends improving due to ad tech enhancements?
A: Yelp's auction system aims to find market-clearing prices and match consumers with advertisers effectively. In recent quarters, click growth was 9% while cost-per-click (CPC) remained flat. They expect CPCs to increase slightly in the coming quarters and click growth to moderate. Continuous improvements in the ad tech stack are expected to deliver value and potentially offset macro pressures. -
EBITDA Margin Expectations
Q: Will Yelp maintain EBITDA margins amid macroeconomic scenarios?
A: Yelp expects to continue delivering long-term profitable growth, balancing top-line performance with EBITDA. They have historically increased margins while investing in the business and will evaluate trade-offs between growth and profitability. Specific guidance for future years will be provided later. -
Antitrust Decision Impact
Q: How does the antitrust decision against Google affect Yelp?
A: Yelp views the Department of Justice's antitrust decision against Google as a positive development that could create opportunities for startups and smaller companies like Yelp. They believe it may breathe new life into the search space, fostering innovation and reducing Google's monopolistic practices. -
AI Search Traffic and Conversion
Q: Does AI search traffic have better conversion or higher intent for Yelp?
A: It's too early to determine the characteristics of AI search traffic. While Yelp sees AI search as an exciting opportunity and has partnered with companies like Perplexity, the overall search industry remains dominated by Google. The impact on traffic and conversion rates from AI search engines is yet to be seen.