Yelp Q2 Earnings Call Highlights

Yelp reported second-quarter revenue growth of 1% year over year as the company increased investment in artificial intelligence-driven products, data licensing and lead-management offerings while navigating what executives described as a challenging environment for local businesses. Second-quarter net revenue rose to $376 million, exceeding the high end of the company’s outlook range by $8 million. Net income declined 28% from a year earlier to $32 million, or an 8% net income margin. Adjusted EBITDA fell 9% to $91 million, representing a 24% margin and coming in $16 million above the high end of Yelp’s outlook range. Chief Executive Officer Jeremy Stoppelman said the company is advancing an AI transformation aimed at making local discovery more conversational, providing new tools for businesses and expanding Yelp’s content distribution through partnerships. Advertising trends remained pressured during the quarter. Services advertising revenue was flat year over year at $241 million, while restaurant, retail and other, or RR&O, advertising revenue declined 10% to $102 million. Paying advertising locations fell 1% year over year to 510,000, as services locations remained flat and RR&O locations declined. Ad clicks decreased 5%, driven by fewer clicks in RR&O categories, though services-category clicks increased slightly. Average cost per click rose 1%, which Chief Financial Officer David Schwarzbach attributed to services clicks comprising a larger portion of total clicks. Chief Operating Officer Jed Nachman said paying advertiser location trends showed improvement from the first quarter. Restaurant advertiser locations posted their strongest performance in several years, while services advertiser locations were flat. Still, Nachman said local businesses continue to contend with inflation, gas costs and other input-cost pressures, and the company does not expect a major turnaround in the broader local economy in the near term. Other revenue increased 98% year over year to a record $33 million. The growth reflected contributions from Hatch, Yelp’s lead-management business acquired in February, as well as growth in data licensing and food-order revenue. Hatch’s annual revenue run rate reached $35 million in June, up 59% year over year. Stoppelman said Yelp significantly expanded the Hatch team during the second quarter to accelerate the product roadmap, though the expansion created what he described as an adjustment period during the quarter. The company saw improved trends in July. Schwarzbach said Yelp is investing in Hatch across product, engineering and go-to-market functions as it seeks to scale what had been a startup operation. He said the company believes Hatch’s longer-term margin profile could resemble that of other subscription businesses, though Yelp intends to continue investing in the near term to pursue the market opportunity. Yelp is ta...