Yelp Inc Q4 FY2025 Earnings Call

Thank you for your patience. I would like to welcome everyone to the Q4 2025 Yelp Inc. Earnings Conference Call. I will now hand the call over to Josh Willis, Investor Relations Manager. Josh?

Good afternoon, everyone, and thank you for joining us on Yelp's Fourth Quarter and Full Year 2025 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 results 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 from 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 has been 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 or loss to both adjusted EBITDA and adjusted EBITDA margin and a historical reconciliation of GAAP cash flows from operating activities to free cash flow. And with that, I will turn the call over to Jeremy.

Thanks, Josh, and welcome, everyone. Yelp delivered record net revenue and strong profitability in 2025, driven by our focus on services and accelerated pace of product innovation. We introduced more than 55 new products and features, many powered by AI as we continue to transform the experience for consumers and businesses. Overall, in 2025, net revenue increased by 4% year-over-year to $1.46 billion. We grew net income by 10% year-over-year to $146 million, representing a 10% net income margin. This resulted in 19% year-over-year growth in diluted earnings per share to $2.24. Adjusted EBITDA increased by 3% year-over-year to $369 million, representing a 25% adjusted EBITDA margin. Underlying our results, the operating environment for RR&O categories remains challenging, with revenue from these businesses declining 6% year-over-year to $444 million. At the same time, services drove our business performance with advertising revenue from businesses in these categories up 8% year-over-year to a record $948 million due to the strength in advertising demand and reflecting record revenue per location. Excluding projects acquired through our paid search initiative, Request-A-Quote projects increased approximately 15% year-over-year, driven by improvements to the flow and increased adoption of Yelp Assistant. Our AI chatbot continued to resonate with consumers in 2025 with Request-A-Quote project submissions through Yelp Assistant up more than 400% year-over-year, representing approximately 5% of all Request-A-Quote projects during the year. Total ad clicks decreased 7% year-over-year, driven primarily by macro pressures and, to a lesser extent, reduced spend on paid project acquisition in 2025 compared to 2024. Average cost per click increased 10% year-over-year, reflecting growth in advertiser demand in our services categories and fewer clicks overall. Total paying advertising locations decreased 3% year-over-year as softness in RR&O offset growth in services, while average revenue per location reached an annual record. Other revenue accelerated significantly, up 17% year-over-year, driven by growth in transaction, subscription and data licensing revenue. We also continued to grow our review content in 2025. Yelp users contributed 22 million new reviews, bringing cumulative reviews to 330 million. App unique devices were down 2% year-over-year as consumers visited restaurants with reduced frequency. Over the past year, we meaningfully increased our focus on transforming Yelp with AI. We believe combining our authentic human-generated content with advanced AI presents a significant opportunity to redefine how people connect with local businesses. We plan to build on our progress by investing in three strategic initiatives in 2026. First, we are reconceiving the Yelp experience to focus on delivering answers and actions. We set the stage for this in 2025 by introducing natural language search, launching AI-powered business highlights and expanding Yelp Assistant to RR&O business pages. We plan to further expand Yelp Assistant in 2026 to function across categories and entry points with the goal of making local discovery and task completion seamless. We began testing this comprehensive experience in the fourth quarter and expect to fully roll it out by the end of the first quarter. To further close the loop between discovery and action, we expanded our food ordering network by adding hundreds of thousands of new restaurants through our DoorDash partnership and integrated RepairPal's booking system into Yelp. Second, we are delivering AI tools that help service professionals and other local businesses grow, operate and succeed. Building on years of investment in delivering value to our advertisers, our focus is shifting toward becoming an even more valuable partner for businesses by helping them operate more efficiently through AI-powered tools. In 2025, we introduced Yelp Host, our AI-powered call answering service for restaurants, which has answered more than 190,000 calls and handled thousands of reservations since launch. In 2026, we plan to roll out further upgrades, including the ability to take food orders over the phone. To accelerate our broader strategy, we recently closed our acquisition of Hatch, a leading AI lead management platform for service pros. With this acquisition, we've now shifted our focus in lead management from Yelp Receptionist to supporting the rapid growth of Hatch. Lastly, we are further extending our reach to power local discovery across the AI ecosystem. As search evolves towards AI, we believe the value of our first-party data, including 330 million reviews, nearly 500 million photos and more than 8 million business listings is becoming increasingly clear. In 2025, we saw strong demand for our data licensing products, and we recently signed an agreement with OpenAI. We believe we are well positioned to be the essential partner providing trusted local content and enabling actions whenever consumers are making local decisions. In summary, our focus on product innovation and a differentiated services experience once again drove our results in 2025. Looking ahead, we are confident in our ability to transform Yelp with AI in ways that play to the strengths of our business. We plan to increase our investments in 2026, inclusive of our recent acquisition of Hatch to capitalize on this opportunity and deliver long-term sustainable growth. With that, I'll turn it over to David.

Thanks for that full year review, Jeremy. Before I discuss our fourth quarter results, I'd like to take a moment to highlight the progress we've made transforming Yelp's business over the last five years through our product-led growth strategy and disciplined expense management. Through our commitment to share repurchases, we reduced our fully diluted share count, which includes outstanding stock options, RSUs and PRSUs from 86 million to 67 million, a 22% reduction between December 31, 2021, and December 31, 2025. Combined with our demonstrated profitability, this drove earnings per diluted share of $2.24 in 2025, a more than fourfold increase from 2021. In short, Yelp enters 2026 from a position of greater financial strength with net income of $146 million in 2025, adjusted EBITDA of $369 million, cash flow from operations of $372 million and record free cash flow of $324 million. Turning to our fourth quarter results. Net revenue decreased by 1% year-over-year to $360 million, $2 million above the midpoint of our outlook range. Net income decreased by 10% year-over-year to $38 million, representing a 10% margin. Adjusted EBITDA decreased by 15% year-over-year to $86 million, $7 million above the midpoint of our outlook range, representing a 24% margin. As Jeremy mentioned, top line growth was driven by performance in our services categories throughout the year. Advertising revenue and services increased by 3% year-over-year in the fourth quarter to $231 million. Conversely, restaurants and retailers remained pressured in the quarter, resulting in a 12% year-over-year decline in RR&O revenue to $107 million. A decrease in RR&O locations, combined with flat services locations in the fourth quarter resulted in an overall decline of 5% year-over-year in paying advertising locations to 496,000. Turning to expenses for the year. Our 2025 results highlight both our ability to deliver profitable growth and the margin potential of our product-led strategy with a net income margin of 10% and an adjusted EBITDA margin of 25%. We again kept headcount approximately flat year-over-year in 2025, demonstrating our continued commitment to disciplined expense management. We see a significant opportunity to drive growth in other revenue through our AI transformation and plan to increase our investments to capitalize on this opportunity in 2026. Excluding the recently integrated Hatch team, we expect headcount growth to again remain approximately flat year-over-year in 2026, reflecting both our commitment to driving leverage in the business through our product-led strategy and our team's ability to deliver operational efficiency using AI. We also remain focused on increasing the quality of our adjusted EBITDA. In recent years, we have taken significant action to shift our compensation mix between stock and cash. While we expect the full impact of these efforts to stack over time, in 2025, we were able to reduce stock-based compensation expense as a percentage of revenue by 2 percentage points from the previous year. In line with our target set in 2023, SBC as a percentage of revenue in the month of December 2025 declined to below 8%. We continue to expect that we will reduce SBC expense to less than 6% of revenue by the end of 2027. In 2026, we are deploying capital to support our growth initiatives through investments in our AI transformation, our acquisition of Hatch and incremental investment in paid search. We intend to continue evaluating potential strategic acquisitions and repurchasing shares subject to market and economic conditions. In 2025, we repurchased $292 million worth of shares at an average purchase price of $33.29 per share, including $88.5 million worth of shares repurchased in the fourth quarter. As of December 31, 2025, we had $38.8 million remaining under our existing repurchase authorization. To support our ongoing repurchase plans in February 2026, our Board of Directors authorized an additional $500 million for share repurchases. Turning to our outlook. We continue to believe in the significant long-term growth opportunities ahead as we focus our investments on high-return areas. We expect many of the same trends that characterized 2025 to persist into 2026, continuing to negatively impact advertising revenue for the year. We anticipate the opportunity in other revenue and services to continue to drive our business performance while our RR&O remains pressured. As a result, for the first quarter of 2026, we expect net revenue will be in the range of $350 million to $355 million. For the full year, we expect net revenue will be in the range of $1.455 billion to $1.475 billion. Turning to margin. We anticipate expenses will increase seasonally from the fourth quarter of 2025 to the first quarter of 2026, primarily driven by payroll taxes and benefits. As a result, we expect first quarter adjusted EBITDA will be in the range of $58 million to $63 million. For the full year, we expect expenses to increase, driven primarily by investments in our AI transformation and paid traffic acquisition and in Hatch operations. As a result, we expect adjusted EBITDA for the full year to be in the range of $310 million to $330 million. In closing, Yelp's 2025 results reflect both disciplined execution and the margin potential of our product-led strategy. We continue to believe in the opportunities ahead to create shareholder value over the long term as we invest in our AI transformation to drive sustainable business performance. With that, operator, please open up the line for questions.

It looks like our first question today comes from Robert Coolbrith with Evercore ISI.

Just wanted to ask about the environment for services, both on the consumer and the service provider side. You saw some deceleration in Q4 in revenue and a little bit steeper sequential decline in services sales this year versus last. Just wondering if you could maybe comment on that a bit and what you're looking for from the services business in '26. And then I'll just have a quick follow-up on OpenAI.

Sure, I can start here, Robert. Thanks for your question. I think we've seen a slight softening in services demand. The impact on the consumer and the overall macro environment has been particularly noticeable in RR&O, and while it's also affected services, it's not to the same degree. In response, we are focusing on Yelp Assistant, which is our primary investment in this area. We have been developing it for a while, especially for services, and we launched it last year. We look forward to expanding it across different categories. We see a significant opportunity in transforming the consumer experience through AI, which is a major disruptive factor for many companies. We're excited to ride this trend, as consumers will likely expect a chat-like interface for services like Yelp. We are eager to offer this to enhance user engagement, especially in high-frequency categories like restaurants, which could eventually lead to increased interest in services sectors too. When users interact with Yelp Assistant, they will engage in a fully monetized experience with Request-a-Quote. We plan to launch this towards the end of Q1, and that's just our initial step. We intend to keep investing in it to enable additional functionalities, such as making reservations or booking appointments, and arranging for service providers to come to your home. These features are part of our roadmap, and we're excited to implement them. Additionally, we are focusing on multi-location services, where we see a significant opportunity, having historically been underrepresented. We have made considerable progress and also discovered ways to drive additional traffic for these customers, which can create extra revenue. We are making several strategic investments this year aimed at improving services, and we look forward to updating you on our progress.

Great. And then just on OpenAI, anything you could tell us maybe about the general outline of the deal if that could be a positive factor for traffic, exposure to younger user cohorts and so forth in addition to whatever monetization opportunity there might be?

Sure. Yes, I'll take this one as well on OpenAI. Great to have an agreement there. A couple of quarters ago, we flagged for investors that, hey, we were seeing really high-quality conversations in that area. Deals were being signed. It was still early days. And I think this is an important milestone on that journey. Yelp has really great content, millions of human written reviews, really critical content, critical information. If you want to deliver an experience, a general search experience, eventually, those consumers are going to be asking questions with local intent. That's historically with Google has reported that something like 50% of queries on traditional search have local intent. And if you're trying to compete with Google, like many of these folks are, you really need that high-quality content and Yelp has it. And so we're seeing that reflected both in this agreement as well as others. And the conversations are continuing. This isn't the last one we expect to do. I guess I would finish with where does that show up on the revenue side? Other revenue is where data licensing lives. It's up 17% year-over-year. And actually, in the fourth quarter, that accelerated. It was up 30% or 33%.

And our next question comes from the line of Jason Kreyer with Craig-Hallum.

So you talked about this AI transition. Just wondering if you can talk about what that looks like through the lens of the consumer. Like how does this evolve in terms of consumers interacting with Yelp and consumers interacting with your customers over time?

Yes, I'm happy to answer that. AI is undoubtedly a disruptive force that's reshaping consumer expectations. Our approach primarily focuses on enhancing the consumer experience by leveraging AI as much as possible. We have introduced many AI-powered features, starting with improvements to our search functionality, which now allows users to input natural language queries and receive far better answers than before. One significant initiative is Yelp Assistant, which we've developed with a focus on the services experience and has driven numerous incremental projects. Since its rollout, we've observed remarkable adoption, with a 400% increase in projects processed through Yelp Assistant. As we progressed, we expanded its capabilities to business pages, catering to consumers who prefer quick access to specific information rather than sifting through extensive details. Now, users can ask questions about a business, and the system retrieves relevant data from photos and reviews. This marks a significant milestone as we approach the launch of cross-category Yelp Assistant, which is exciting because it allows users to inquire about any local business or service requirement and receive guidance. A standout feature is our ability to substantiate user queries with accurate data, including images that exemplify their needs and precise snippets from reviews. We believe this will enhance consumer satisfaction, which is our ultimate goal. As the search landscape evolves, with some share shifting toward generative AI and ChatGPT-like experiences, consumer expectations are changing, and they're seeking more than traditional search results. Thus, we have made substantial investments in transforming the Yelp experience and are excited to debut Yelp Assistant at the end of Q1. Additionally, we see significant opportunities in AI-powered SaaS tools. Last year, we launched Yelp Post and Yelp Receptionist, both of which are performing well, particularly Yelp Posts, which has exceeded our sales expectations and facilitated over 190,000 calls. We’re also thrilled about our partnership with Hatch, which accelerates our roadmap by a few years. Both ventures are targeting substantial market potentials, and we're extremely enthusiastic about the future AI SaaS opportunities.

Maybe just sticking with Hatch on a follow-up. Just curious what that cross-sell looks like for Hatch services. And then if there's any hatch functionality that will kind of accelerate the roadmap on host as well.

Yes. I mean we're already talking to a lot of the same customers, and there's plenty of contacts that we have that we can introduce Hatch to. So I think that's a really exciting opportunity. They're a relatively small team. We have thousands of sales reps. There's also a benefit, too, in that if you get more efficient at managing leads by leveraging AI, your return on advertising is better. So that's kind of an extra win-win in there. So very excited about Hatch going after a big TAM, and they're growing rapidly, 70% year-over-year growth. So exciting times there.

And our next question comes from the line of Nitin Bansal with Bank of America.

So AI innovation is accelerating at a very rapid pace, particularly as large platforms disrupt traditional advertising and software models. As you expand your SaaS offerings with Hatch, what gives you confidence that your product innovation can keep up with the leading players and you will be able to achieve the adoption level that you're targeting for?

Thank you for the question. Maintaining a strong pace of innovation to stay ahead of larger competitors is something we are well-acquainted with. Over the years, we have successfully competed with major tech companies like Google. Our success stems from our focused approach. Hatch operates in the early stage of AI lead management for service professionals, where they maintain a sharp focus on their customers and understand the ecosystem. They have crucial partnerships that are key to their success. The level of detail and concentration Hatch exhibits can be challenging for larger companies with multiple opportunities to manage. We are optimistic about the potential in this space, as Hatch is experiencing significant growth. Their 70% year-over-year growth is impressive, and we aim to accelerate that further by leveraging our resources and distribution channels. Hatch's expertise in the field makes it difficult for larger players, with their diverse opportunities, to replicate their success.

If I can ask one more. Looking out five years from now, how do you envision Yelp's revenue mix to evolve between like recurring subscription revenue versus variable ad revenue? And what would it mean for your overall top line growth and margin profile like three to five years down the line?

Thank you for the question. We see a chance to diversify our revenue by increasing other revenue sources. To clarify, other revenue includes licensing revenue, transaction revenue, and our performance with DoorDash, which we are pleased with. Additionally, there is subscription revenue. With significant potential in the CaaS landscape, particularly due to our distribution, we believe we can diversify our total revenue mix, which currently relies heavily on advertising. This presents a good opportunity for us. There are also different margin profiles between SaaS models and ad-driven models. However, over time, the margin trajectory for SaaS businesses is quite appealing. I expect our ability to improve SaaS margins will align with or exceed our ad revenue margins. It's important to note that licensing and transaction revenue is almost entirely profitable, which creates a favorable mix for us. Overall, other revenue currently has a better margin profile than our ad business.

And our next question comes from Kishan Patel with Raymond James.

This is Kishan Patel on for Josh Beck. In restaurants and retail, what do you think needs to change for that advertiser base to stabilize and then improve? And how would you prioritize these changes over the next few quarters?

Yes, I can address that question. This is Jed speaking. Clearly, there have been challenges in the restaurant and retail sectors. We experienced this throughout 2025. Many restaurants are facing a weakened consumer base, along with the added pressure of high input costs, which has made conditions difficult in the local economy. However, we believe that in-restaurant dining will eventually rebound, and we are well equipped to handle that shift. The transformation of Yelp, which includes the introduction of Yelp Assistant, will offer consumers a new way to engage with our data. We believe that investing in this project will prepare us for a positive turnaround in the market. We're also actively developing Yelp Host, and we are pleased with our progress there. We see a significant total addressable market in front of us. As mentioned in our letter, we will soon launch food ordering on the Yelp Post product. We are well positioned to tap into this opportunity from a voice standpoint, and it represents a large potential market for us to explore using our existing infrastructure. Overall, we will keep investing in enhancing the consumer experience and explore other opportunities related to AI-based SaaS tools.

Got it. And regarding Hatch, can you provide more color on the margin trajectory goals for Hatch after closing given the cash flow disclosure and how that impacts the full year EBITDA outlook versus the core business?

Thank you for your question. It's David. Since Hatch is experiencing rapid growth, our primary focus is on driving that top line growth. Improving our margins is not our immediate priority. Our goal is to maximize the opportunity by offering our solution to as many service professionals as possible. I believe that over time, the margin profile will align more closely with a typical SaaS margin profile, but that isn't our current focus. This is reflected in the adjusted EBITDA guidance we've provided for the year concerning operating expenses. As a note, the retention amounts we are paying out are being added back to EBITDA, and you can find those figures in the shareholder letter for reference. Our main objective right now is significant growth and capitalizing on the opportunity from the acquisition.

All right. Thanks, Kishan. And that does conclude our Q&A session today as well as our call. So thank you so much for joining us today, and you may now disconnect. Have a great day, everyone.

Have a great day, everyone.