Yelp Inc.

Good day and welcome to the Yelp fourth quarter 2020 earnings conference call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, you may press star then two. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. Please note this event is being recorded. I would now like to turn the conference over to James Milne, Senior Vice President, Finance and Investor Relations at Yelp. Please go ahead.

Good afternoon, everyone, and thanks for joining us on Yelp's fourth quarter and full year 2020 earnings conference call. Joining me today are Yelp's Chief Executive Officer, Jeremy Stoppelman, Chief Financial Officer, David Schwarzbach, and Chief Operating Officer Jed Knockman. 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'll discuss adjusted EBITDA and adjusted EBITDA margin, 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 is posted on our website, You will find additional disclosures regarding these non-GAAP financial measures, as well as historical reconciliations of GAAP net income to both adjusted EBITDA and adjusted EBITDA margin. And with that, I will turn the call over to Jeremy.

Thanks, James, and welcome everyone. While 2020 was a challenging year for Yelp, our mission of connecting people to great local businesses has never been more relevant. In addition to helping local businesses stay connected to their customers during the pandemic, we completed a business transformation. I am proud of the significant progress made on our long-term strategic initiatives by all of our teams under extremely difficult circumstances. We achieved this progress through an elevated pace of product innovation, delivering more functionality and value to both consumers and businesses in our local communities. Yelp continued to demonstrate its relevance to consumers as a source of trusted reviews and content. In 2020, Yelp reviews maintained solid year-over-year growth as our users contributed nearly 19 million reviews. As a complement to our valuable review content, our product teams rolled out a series of COVID-19 features that enable local businesses to communicate up-to-date information to their customers, highlighting updated hours and health and safety measures. While our consumer traffic remained below 2019 levels at the end of the fourth quarter, and we saw a slight decrease in activity during the winter, the positive trends we observed over the summer as COVID cases declined gives us confidence that engagement will return organically as more people are inoculated and restrictions eased. While it's still quite early, COVID case counts nationally are once again falling, and in early February we have seen signs of more consumer activity. For businesses navigating the restrictions of the pandemic, we launched multiple offerings to drive more value in new ways. We launched a new profile product, Yelp Logo, and scaled Yelp Connect, a quick and easy way to share updates with customers to approximately 75,000 locations by the end of the year as part of a bundled offering for multi-location customers. We continued to differentiate the home and local services experience and further enhanced our request-to-quote flows in advertising matching technology. This helped increase the percentage of monetized leads in the home and local services category, driving a mid-single digit percentage increase in category revenue year over year for both the fourth quarter and full year 2020. For those businesses in categories particularly hard hit by the pandemic, we extended approximately $37 million of COVID-19 reliefs in the form of waived advertising fees and free products and services in 2020. Despite the difficulties that local economies faced over the last year, we are pleased that our efforts resulted in strong improvements in the retention rate for non-term advertiser budgets. This increased by 13% year-over-year in 2020 and ended the year up approximately 25% year-over-year in the third and fourth quarters. Operationally, we accelerated our go-to-market mix shift towards multi-location and self-serve. Both channels have historically exhibited superior revenue retention characteristics compared to local sales, and as a result, we believe overall revenue retention and profitability will continue to improve as they make up a greater portion of our advertising revenue. After making the difficult decision to reduce the size of our local sales force by half in April, we continued investing in business facing products to drive more of our revenue through our self-serve channel. Self-serve revenue returned to year over year growth in the third quarter as a result. Then accelerated to nearly 25% year-over-year growth in the fourth quarter, ending the year as a mid-teens percentage of advertising revenue overall. As we look to the year ahead, we are first and foremost focused on building on our recovery in the second half of 2020 to establish sustainable growth momentum and capture more of the large opportunity in local advertising.