Q4 2023 Earnings Summary
- Yelp sees significant opportunity to further increase monetization in its Services category, having grown monetized connections from 25% to 30% year-over-year, with plans to continue enhancing the consumer experience and advertising technology to capture additional growth.
- The company's new search engine marketing (SEM) initiatives in Home Services are tapping into a greenfield opportunity to acquire valuable leads and introduce new users to Yelp's platform, which could accelerate growth in Services revenue.
- Yelp is gaining market share in the Services category due to its continued investment and innovation in product offerings, such as enhancements to Request-A-Quote and SMS intermediation, positioning the company for continued growth in 2024.
- Yelp is experiencing weakness in its Restaurants, Retail, and Other (RR&O) categories, with softness beginning in December and continuing into January. This is attributed to high input costs for restaurants and inflationary pressures affecting consumer dining habits, leading to conservatism in marketing spend by businesses.
- Uncertainty about further increasing the percentage of monetized leads in Services beyond the current 30%. Executives admit they don't know exactly what the ceiling is, which may limit future growth in this area.
- Shift from equity to cash compensation is expected to increase cash expenses, potentially impacting GAAP profitability and adjusted EBITDA margins in the near term. The company expects that the benefit from reducing stock-based compensation will be largely offset by cash compensation increases in 2024.
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RR&O Weakness
Q: What's causing RR&O weakness and recovery expectations?
A: The company observed weakness in the RR&O categories in December and January due to high input costs for restaurants and inflationary pressures on consumers, leading to reduced marketing spend. Management believes this is not permanent and remains bullish on RR&O over the long term, focusing on trusted content and customer experience improvements. The full-year guidance reflects these uncertainties and expected performance. -
Services Growth
Q: How is the Services segment performing and future plans?
A: The Services segment showed strong performance with revenue up 14% year-over-year and Request-a-Quote requests up 5% in Q4. Home Services requests were up 20% year-over-year. The company increased monetized connections from 25% to 30%. Management is investing in product improvements like enhanced projects tab, phone and SMS intermediation, and sees significant opportunity in SEM, increasing spend by $5 million in Q1. They are excited about opening up the SEM opportunity and are seeing early positive signs. -
Monetized Leads Potential
Q: Is there more potential to increase monetized leads in Services?
A: Management is pleased with increasing monetized connections to 30%, up from 25% the previous year. They believe there is significant headroom and are continuing to invest in Request-a-Quote and ad matching technology. They have a deep portfolio of improvements planned for this year and are confident about their product-led strategy. -
Stock-Based Compensation
Q: How should we model stock-based compensation changes?
A: The company reduced employee grants in the 2024 compensation cycle by about 65%, expecting a steep reduction in employee stock vesting over the next several years. Grants issued in the past vest over four years and will roll off quarterly. They have shifted compensation from equity to cash in the near term, and stock-based comp expense is expected to be relatively linear throughout the year. -
SEM Spend Guidance
Q: Can you quantify SEM spend for 2024?
A: While not ready to quantify the spend, the company increased SEM spend by $5 million from Q4 to Q1. They are encouraged by early results and intend to remain financially disciplined, with the adjusted EBITDA guidance reflecting some portion of increased SEM spend. -
Cookie Deprecation Impact
Q: Any impact from Chrome's cookie deprecation on Yelp Audiences?
A: The revenue requiring cookies is not very material in the grand scheme. The company is working on post-cookie solutions and collaborating with clients who rely on cookies for advertising. As cookie deprecation approaches, clients are more motivated, and management feels confident about their solutions to maintain revenue.