Yelp Inc. (NYSE:YELP) Q1 2024 Earnings Call Transcript May 9, 2024
Yelp Inc. beats earnings expectations. Reported EPS is $0.1959, expectations were $0.04. Yelp Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good afternoon. My name is Brianna, and I will be your conference operator today. At this time, I would like to welcome everyone to the Yelp, Inc. Q1 2024 Earnings Conference Call. Please note that this call is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions]. I will now turn today’s call over to Josh Willis, Yelp Investor Relations. Please go ahead.
Josh Willis: Good afternoon, everyone, and thank you for joining us on Yelp’s first quarter 2024 earnings conference call. Joining me today are Yelp’s Chief Executive Officer, Jeremy Stoppelman; Chief Financial Officer, David Schwarzbach; and Chief Operating Officer, Jed Nachman. We published a shareholder letter on our Investor Relations website and with the SEC and hope everyone had a chance to read it. We’ll provide some brief opening comments and then turn to your questions. Now, I’ll read our Safe Harbor statement. We’ll make certain statements today that are forward-looking and involve a number of risks and uncertainties that could cause actual results to differ materially. Please note that these forward-looking statements reflect our opinions only as of the date of this call and we undertake no obligation to revise or publicly release the result of any revision to these forward-looking statements in light of new information or future events.
In addition, we are subject to a number of risks that may significantly impact our business and financial results. Please refer to our SEC filings as well as our shareholder letter for a more detailed description of the risk factors that may affect our results. During our call today, we may discuss adjusted EBITDA, adjusted EBITDA margin and free cash flow, which are non-GAAP financial measures. These measures should not be considered in isolation firm or as a substitute for financial information prepared in accordance with generally accepted accounting principles. In our shareholder letter released this afternoon and our filings with the SEC, each of which is posted on our Investor Relations website, you will find additional disclosures regarding these non-GAAP financial measures, as well as historical reconciliations of GAAP net income loss to both adjusted EBITDA and adjusted EBITDA margin, and a historical reconciliation of GAAP cash flow from operating activities to free cash flow.
And with that, I will turn the call over to Jeremy.
Jeremy Stoppelman: Thanks, Josh, and welcome everyone. As we approach 20 years of helping people connect with great local businesses, I am proud of the impact Yelp has had on the many communities we serve. We continue to lean into our strategic focus on services categories, and we have already seen momentum in our efforts to deliver the best home services experience for consumers and pros. In the first quarter, net revenue increased by 7% year-over-year to $333,000. Net income was $14 million reflecting a 4% margin and adjusted EBITDA increased by 19% year-over-year to $64 million representing a 19% margin. These results reflect our efforts to improve profitability even as we continue to invest in our strategic growth initiatives.
While businesses in our restaurant, retail, and other categories continue to face a challenging operating environment in the first quarter, home services was again a standout performer with approximately 15% year-over-year revenue growth. Advertising revenue in our services categories grew 11% year-over-year. Request-a-Quote projects increased by approximately 20% year-over-year in the first quarter, reflecting early positive results from our acquisition of services projects through search engine marketing, as well as continued strength from organic consumer demand. In key categories like movers, we have seen significant increases in Request-a-Quote project and ad clicks as well as a meaningful decline in average CPC. These promising results were largely driven by our paid project acquisition efforts and as a result, we plan to continue investing to capture more of the large market opportunity and services.
As we continue to execute against our robust product roadmap, we introduced more than 15 new features and updates in April. One standout in services is our new LOM powered Yelp assistant. This conversational AI can more accurately interpret a consumer’s needs, collect relevant project information in a user friendly way, and deliver an even more targeted lead to service pros. We also see a broad set of opportunities to bring our trusted content to consumers in new ways. This includes our Yelp Fusion AI API, a new LLM powered solution enabling partners to tap into Yelp’s trusted content. This tool enhances discovery on third party platforms through natural language search across our broad range of categories, including both services and RR&O, expanding Yelp’s reach and utility across the web.
We believe these new offerings, along with dozens of other AI powered initiatives on our roadmap, will transform how consumers and businesses connect on Yelp. In summary, Yelp’s first quarter results marked a solid start to the year, and I continue to be [Technical Difficulty] in services. Overall, we remain confident in our strategy to drive long term profitable growth and shareholder value. With that, I’ll turn it over to David.
David Schwarzbach: Thanks, Jeremy. In the first quarter of 2024, we saw net revenue increase by 7% year-over-year to $333 million. Our net income for the quarter was $14 million or $0.20 per share, improving from a net loss of $1 million in the first quarter of 2023 and reflecting a 4% margin. Adjusted EBITDA increased by 19% year-over-year to $64 million, which was $12 million above the high end of our outlook range, representing a 19% margin. This growth was driven by solid performance in our services categories. Advertising revenue and services increased by 11% year-over-year to $203 million led by strength in Home Services where revenue grew by approximately 15% year-over-year. Investments in Request-a-Quote drove an approximately 20% year-over-year increase in Request-a-Quote projects, underscoring the effectiveness of our product led strategy and early progress in our efforts to acquire projects through paid search.
Advertisers also responded positively to our improved matching services in the first quarter, as reflected by 6% year-over-year increase in paying advertising locations in these categories, even as our overall paying advertising locations decreased by 4% year-over-year. Advertising revenue from our restaurants, retail, and other categories grew a modest 1% year-over-year to $114 million in the quarter. This reflects the challenging operating environment facing businesses in these categories characterized by elevated input costs, inflationary pressures and an inability to pass along higher costs to consumers. Additionally, we may be seeing impacts from trends associated with off premise dining and delivery. Multi-location revenue increased by approximately 5% year-over-year in the first quarter, also attributable to softness in RR&O.
We are actively working on enhancing the Request-a-Quote experience to enable more multi-location services businesses to benefit from this valuable feature. For example, we are in the process of launching an API that aims to streamline the tracking of leads and enhance conversion rates for enterprise customers by connecting directly to their customer relationship software. Our ad system continue to deliver valuable clicks to advertisers in the first quarter. We saw an 8% year-over-year increase in ad clicks across all categories, while average cost per click declined by 1%, with more substantial decreases in services, reflecting the increased value we delivered to these advertisers in the quarter. We believe our improved ad formats and lower CPCs contributed to year-over-year increases in our retention rate for non-term advertisers budgets in the first quarter.
Improvements to the ad purchase flow, along with enhancements in our advertiser marketing, drove another record quarter for customer acquisition in our self-serve channel. Self-serve channel revenue has increased at a compound annual growth rate of approximately 25%, since the first quarter of 2021. We also continue to identify opportunities to work with other platforms like Facebook and Firefox to tap into searches with local intent that start off of Yelp with the goal of matching our advertisers with an even larger high-intent audience. Turning to expenses, in our first quarter, we continued to be disciplined in our allocation of resources, while focusing on opportunities that have the potential to drive incremental returns. This resulted in an improvement of our adjusted EBITDA margin by 2 percentage points year-over-year.
We also reduced stock-based compensation expense to 13% of revenue, a 2 percentage point decrease from last year and believe we are on track to reduce it below 8% by the end of 2025. We continue to expect the number of shares subject to employee equity awards granted in 2024 to be approximately 65% lower than in 2023. Returning capital to shareholders through share repurchases continues to be a key element of our capital allocation strategy. In the first quarter, we repurchased $62.5 million worth of shares at an average purchase price of $40.95 per share. As of March 31, 2024, we had $519 million remaining under our existing repurchase authorization. We plan to continue repurchasing shares in 2024, subject to market and economic conditions.
Turning to our outlook, as Jeremy shared, we are confident in our strong portfolio of initiatives to drive long-term growth. We expect net revenue will be in the range of $350 million to $355 million for the second quarter. For the full-year, we are reaffirming our guidance and expect net revenue to be in the range of $1.42 billion to $1.44 billion as our services initiatives gain traction. Turning to margin, we expect second quarter cash expenses to increase from the first quarter, largely driven by incremental marketing investments, particularly in paid project acquisition. The early positive results from our paid search program have given us the confidence to expand our investments in this area, which we believe can drive project growth over the long-term.
We now expect to spend $40 million or more on services project acquisition in 2024. As a result, we anticipate second quarter adjusted EBITDA will be in the range of $70 million to $75 million. We are also narrowing our 2024 adjusted EBITDA guidance to $315 million to $325 million to reflect this increased investment. Prices in our cost per click model are set through an auction as compared to the cost per lead model. In the past, we have found that when we deliver more clicks for a given amount of advertising budget, average CPCs decline. In turn, as advertisers see more value, they generally increase spend over time. However, there is typically a significant lag between a decline in CPC and an increase in ad budget. Given the dynamics of this interaction as well as the fact that we remain at an early stage in our paid project acquisition initiative, we have not reflected any potential related revenue in our guidance for 2024.
In closing, Yelp’s first quarter results reflect our multiyear focus on product innovation and the application of AI across our business. We are proud of our team’s ability to execute against our strategic initiatives, particularly the work being done to unlock even greater value for consumers and service pros. We have continuing confidence in our ability to innovate, grow, and drive shareholder value over the long-term. With that, operator, please open up the line for questions.
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