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    Yelp Inc (YELP)

    Q3 2024 Earnings Summary

    Reported on Feb 18, 2025 (After Market Close)
    Pre-Earnings Price$36.37Last close (Nov 7, 2024)
    Post-Earnings Price$35.75Open (Nov 8, 2024)
    Price Change
    $-0.62(-1.70%)

    What went well

    • Yelp's Services revenue increased by 11% year-over-year in the third quarter, and the company continues to see strength in this segment.
    • The acquisition of RepairPal brings deep expertise in the auto services vertical, a top category for Yelp with a $90 million annual run rate, potentially accelerating growth in this significant market.
    • Despite macroeconomic headwinds in the restaurant, retail, and other categories, Yelp has demonstrated strong expense discipline, improving margins, and increasing adjusted EBITDA guidance through efficient resource allocation and focus on profitable growth.

    What went wrong

    • Continued Weakness in the RR&O Category: Yelp's Restaurant, Retail, and Other (RR&O) businesses are experiencing ongoing macroeconomic headwinds, including elevated input costs like labor and food, compounded by inflation. This has led to a 6% year-over-year decline in RR&O revenue for the third quarter of 2024. The company no longer expects the typical seasonal increase in RR&O advertiser spending in the fourth quarter, leading to a reduction in full-year revenue outlook.
    • Underperformance of SEM Investments: Yelp's investment in Search Engine Marketing (SEM) has not delivered the expected returns. While they achieved a 25% year-over-year increase in Request-A-Quote projects, the impact on advertiser behavior, such as better retention and higher ad budgets, was insufficient. As a result, Yelp is reducing its SEM spend and acknowledges that there is work to do to unlock this opportunity.
    • Decline in Paying Advertising Locations: The total number of paying advertising locations declined by 7% year-over-year to 524,000 in the third quarter of 2024. This decrease was driven by a reduction in RR&O locations, offsetting growth in services locations, indicating challenges in retaining advertisers in certain categories.

    Q&A Summary

    1. Auto Services Acquisition
      Q: Why invest now in auto services?
      A: Yelp is pushing further into auto services by acquiring RepairPal, a company with over $30 million in revenue. Auto is one of Yelp's top service categories with a $90 million annual run rate. The acquisition brings deep industry expertise and enhances products like Request-A-Quote and Yelp Assistant. Yelp views this as a strategic fit and an opportunity to leverage its audience reach, SEO, and SEM capabilities.

    2. Guidance and Expense Discipline
      Q: What's affecting your revenue guidance?
      A: Yelp narrowed its revenue guidance due to lower expected seasonal spending in the restaurant, retail, and other (RR&O) categories. They pulled back on paid search spending and maintained strong expense discipline, allowing them to increase adjusted EBITDA guidance. They've held headcount flat in 2024 and are focused on driving profitable growth.

    3. SEM Investment Pullback
      Q: Why didn't SEM investments yield expected results?
      A: While Yelp increased top-of-funnel project volume through SEM, advertisers didn't adjust their behavior enough to drive the desired returns. Challenges included the need for better advertiser retention and higher ad budgets. As a result, Yelp is reducing SEM spend and will continue iterating to unlock the opportunity.

    4. RR&O Headwinds
      Q: What's causing weakness in RR&O?
      A: Consistent macro headwinds in 2024 are impacting businesses in RR&O. Elevated input costs like labor and food, along with inflation affecting consumers, are pressuring restaurants and retail businesses. Yelp believes this is a cyclical moment and is well-positioned for future improvements.

    5. Ad Clicks and CPC Trends
      Q: Will reduced SEM spend affect ad clicks?
      A: Despite halving SEM spend, Yelp grew project volume by 25% through product-led strategies like Yelp Assistant. They expect to maintain ad click growth by improving ad matching and leveraging existing traffic. CPCs have increased due to strong demand from service advertisers and a mix shift toward higher-paying categories.

    6. Generative Search Opportunities
      Q: Thoughts on generative search and partnerships?
      A: Yelp is excited about new entrants in general search and is partnering with companies like Perplexity. They see opportunities as large language models require trustworthy content, which Yelp provides. Their rich local content is valuable for grounding AI models and enhancing search experiences.

    7. RepairPal Integration Impact
      Q: How will RepairPal affect margins?
      A: RepairPal operates at breakeven with $30 million in revenue. Yelp aims to leverage its SEO and SEM expertise to drive traffic and revenue growth for RepairPal. They believe the integration can positively impact both revenue and margins, with more details to come after closing.

    8. SEM Spend Effects on Advertisers
      Q: How has SEM spend affected services?
      A: Yelp found that while they could generate significant project volume via SEM, advertisers needed to improve retention and increase ad budgets to drive returns. They've reduced SEM spend and are focusing on product improvements to deliver value to advertisers.

    9. TCPA Regulation Impact
      Q: Will TCPA changes benefit Yelp?
      A: Changes in TCPA consent regulations are not significantly relevant to Yelp compared to other advertisers.

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