Yelp Inc.

Good afternoon, everyone, and thanks for joining us on Yelp's fourth quarter and full year 2024 earnings conference call. Joining me today are Yelp's Chief Executive Officer Jeremy Sappelman, 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, and they 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 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 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, Kate, and welcome, everyone. Help delivered record net revenue and strong profitability in 2024 as we executed against our product-led strategy. We accelerated our pace of innovation, introducing more than 80 new features and updates in the year. Services was the focus of our roadmap and the driver of our business performance. In the fourth quarter, we achieved our 15th consecutive quarter of double-digit year-over-year revenue growth in these categories. Overall, in 2024, net revenue increased by 6% year-over-year to $1.41 billion. With disciplined expense management, we grew net income by 34% year-over-year to $133 million and adjusted EBITDA by 8% year-over-year to $358 million. We also expanded net income margin by two percentage points and adjusted EBITDA margin by one percentage point from 2023. Underlying our top-line results, we saw a divergence in performance across categories. Businesses in our restaurant, retail, and other categories faced a challenging operating environment, and RRO revenue declined by 3% year-over-year to $470 million as a result. At the same time, services was consistently strong, with revenue up 11% year-over-year to a record $879 million. The home services category was a standout in 2024, with annual revenue growth of approximately 15% year over year. We launched a number of new products and features to facilitate even better connections between consumers and service pros. Our new AI chatbot, Yelp Assistant, has particularly resonated with consumers, with project submissions through this feature up by more than 50% from the third to fourth quarter. We also experimented with acquiring services projects off Yelp through paid search and saw a strong top of funnel results. That said, we ultimately reduced our spend on this initiative as it did not provide our desired return, reflecting our disciplined approach to investment. Overall, engagement with request to quote was robust in 2024. Consumer projects increased by approximately 25% year over year, primarily as a result of organic improvements. This includes growth of approximately 30% year over year in the fourth quarter, despite minimal spending on paid search during the period. Improved matching and ad formats delivered value to advertisers in the form of more compelling prices in 2024. We introduced Smart Selection, an AI-powered feature for advertisers that optimizes their ads, automatically selecting the best reviews and photos to showcase. These efforts contributed to a 6% year-over-year increase in ad clicks and flat average CPCs for the year. On the consumer side of our business, we rolled out a number of new features and updates to enhance the Yelp experience and drive user engagement. These include AI-powered search features, review insights leveraging LLMs, and enhanced user-generated videos on the home feed. We also made a number of backend and user experience improvements to our mobile and desktop websites that led to a combined year-over-year increase in paid views on these platforms. While our overall traffic levels were relatively flat compared to 2023, we continued to grow our large set of trusted review content. Yelp users contributed 21 million new reviews in 2024 to reach a total of 308 million cumulative reviews, up 7% from the prior year. Looking to 2025, we plan to build on our position as a trusted platform for consumers to discover and connect with great local businesses. To achieve this, we plan to invest in three strategic initiatives, lead in services, drive advertiser value, and transform the consumer experience. Underlying each investment area, we plan to accelerate our strategy with AI, which we believe we are well positioned to leverage based on our high quality, trusted content, and deep technical capabilities. Services categories will be the major focus of our product-led strategy in 2025. While we have historically focused our efforts on the home services category, which has been our largest driver of growth in services for the past decade, we see an additional opportunity to drive growth among other top services categories. In particular, following our acquisition of RepairPal in November, we expect to accelerate growth in the auto services category this year. We also believe that our increased product focus and sales efforts for multi-location services businesses position us well to capture more demand from these advertisers in 2025. Overall, our 2025 services roadmap aims to create a best in class experience for consumers and service pros. We're excited by the opportunities ahead as we expand Yelp Assistant and leverage AI more broadly to reduce friction throughout the hiring journey. In addition to raising the bar in services, we have a portfolio of product and marketing initiatives designed to deliver value to both advertisers and consumers. We plan to further develop our advertising technology and products to match consumers and advertisers even more efficiently. This includes providing advertisers with additional AI-powered controls and recommendations to help further refine ad targeting. We also plan to continue leveraging AI to transform the consumer experience including creating a more dynamic and personalized home feed, as well as an even more seamless search experience. In summary, our focus on services continues to strengthen our business, and we are excited by the opportunities ahead to drive profitable growth and shareholder value over the long term. With that, I'll turn it over to David.

Thanks for that full year overview, Jeremy. I will now turn to our fourth quarter results. Net revenue increased by 6% year over year to $362 million. $13 million above the midpoint of our outlook range. Driven by our disciplined approach, net income increased by 54% year-over-year to $42 million, representing a 12% margin. Adjusted EBITDA increased by 5% year-over-year to $101 million, $15 million above the midpoint of our outlook range, representing a 28% margin. As Jeremy mentioned, Top-line growth was driven by continued strength in services categories throughout the year. Advertising revenue in services increased by 11% year-over-year in the fourth quarter to $225 million. Conversely, restaurants and retailers remained pressured in the quarter, resulting in a 3% year-over-year decline in R&O revenue to $121 million. A decrease in RR&O locations, off-site growth and services locations in the fourth quarter. This resulted in an overall decline of 4% year-over-year in paying advertising locations to 521,000. We also focused on driving growth through our most efficient channels. Self-Serve was strong and grew approximately 15% year-over-year in the quarter. At the same time, multi-location revenue came in approximately flat year-over-year, reflecting continued softness in the RRO. Turning to expenses for the year, 2024 was a clear demonstration of our commitment to disciplined expense management. Excluding repair pal employees, we ended the year with approximately flat headcount compared to 2023. In addition, when our paid search spend did not meet our desired returns, the subsequent reduction in marketing expense flowed through to our bottom line. Ultimately, we increased net income margin by 2 percentage points and adjusted EBITDA margin by 1 percentage point from the prior year. As we look to 2025, we plan to continue our disciplined approach and hold headcount flat once again as we drive growth through our product-led strategy. We also remain focused on increasing the quality of adjusted EBITDA. In recent years, we have taken significant action to shift our compensation mix between stock and cash, including substantially reducing the number of shares granted to employees in 2024. While we expect the full impact of these efforts to stack over time, in 2024, we were able to reduce stock-based compensation expenses a percentage of revenue by 2 percentage points. Coupled with continued share repurchases throughout the year, we decreased our shares outstanding and increased diluted earnings per share by 40% year-over-year to $1.88. As we look ahead, We continue to expect that stock-based compensation expense will be reduced to less than 8% of revenue by the end of the year. In addition, we now plan to reduce stock-based compensation to less than 6% of revenue by the end of 2027. Our capital allocation strategy consists of three main elements. First, maintaining a healthy cash balance to fund our operations. Second, retaining capacity for potential acquisitions. And third, returning excess capital to shareholders through share repurchases. In 2024, we acquired Auto Services Platform Repair Pal for approximately $80 million in cash, demonstrating our ability to deploy balance sheet capital in support of our business strategy. We also repurchased $251 million worth of shares at an average purchase price of $37.52 per share, including $62.5 million worth of shares repurchased in the fourth quarter. As of December 31st, 2024, we had $331 million remaining under our existing repurchase authorization. We plan to continue repurchasing shares in 2025, subject to market and economic conditions. 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 that we believe will drive increased profitability. As we look to 2025, we expect the category of trends that characterize 2024 to persist. Specifically, we expect services will continue to drive our business performance, and our RNO will remain pressured. As a result, for the first quarter of 2025, we expect net revenue will be in the range of $350 million to $355 million, reflecting typical seasonality. For the full year, we expect net revenue will be in the range of $1.470 billion to $1.485 billion. Turning to margin, we expect expenses to increase seasonally from the fourth quarter of 2024 to the first quarter of 2025, primarily driven by payroll taxes and benefits. As a result, we expect first quarter adjusted EBITDA will be in the range of $65 million to $70 million. For the full year, we anticipate expenses will increase modestly, primarily as a result of higher costs of revenue driven in part by our RepairPal acquisition. We need to believe in the opportunities ahead to create shareholder value over the long term as we focus our investments in areas that we believe will drive business performance. With that, operator, please open up the line.