Q2 2022 Yelp Inc Earnings Call

Outlook to a range of $1 8 billion to $1 2 billion.

At a fundamental level, we believe both our strategy and execution are working well we.

We are acquiring more customers and delivering value to them in the second quarter and through July we continued to see strong demand by advertisers at the same time, we recognize that the U S. Economic environment continues to be challenging increasing the uncertainty of any forecast.

We believe our current outlook balances. The continued strength, we have seen an advertiser demand with the macro outlook that assumes a modestly recessionary environment in the second half of the year.

Turning to margins, we expect adjusted EBITDA to increase from the second quarter to be in the range of $65 million to $75 million for the third quarter.

This range reflects a small increase in total expense compared to the second quarter, primarily driven by sales and marketing.

As we have shared previously we operate with a focus on ROI. We are currently seeing an attractive performance marketing rates to the extent that we can increase our investment productively in these channels. We may do so over the course of the quarter as potential investments may increase our marketing expenses further in Q3 overall, we continue to.

Margin improvements in the second half of the year with adjusted EBITDA expected to fall between $265 million and $285 million for 2022 and.

In closing <unk> second quarter results reflect the consistent execution of our team with our product led initiatives again, delivering new highs against the backdrop of a volatile macro environment. We believe our broad base local AD platform positions us well as we enter the second half of the year, providing us with continued conviction in our ability to drive.

Long term shareholder value with that operator, please open up the line for questions.

Thank you if you would like to ask a question. Please press star followed by one on your telephone keypad now if you do change your mind. Please press star followed by team.

So ask your question. Please ensure your line is underneath that.

Our first question comes from Sean <unk> from Evercore ISI. Your line is now 18. Please go ahead.

Okay. Thanks, a lot let me try two please.

Services revenue was up 14% year over year.

Request, a quote where we're.

We're down 10% year over year. So could you. Please help us think about the dynamic there.

Consumers are maybe out in about traveling et cetera, but you're still continuing to drive. This AD revenue in this segment could you. Please help us tie that together and then the second question is audiences revenues growing very nicely, how should we think about that opportunity and Andy.

The road to that revenue being more meaningful for the overall business. Thank you.

Hi.

This is Jeremy I'll take the first one here. So as you noted our services revenue was up to the tune of 14% year over year and I think that really speaks to the very strong demand that exists from services providers, especially.

Especially within home services, we see that.

Looking out at the macro environment, obviously consumer dollars are shifting around.

And some of these services businesses, especially in 2021.

They were really busy.

And so I think I'd say it came into 2022, they were looking for higher ROI channels to invest.

Keep the trucks rolling so to speak and so that demand showed up.

On the request a quote side.

We continue to innovate there.

Got request a call with you.

I've noticed we added into the mix, which continues to reduce friction.

When a consumer is calling that's considered by a business owner to be a super high value lead. It allows the consumer also to communicate very complex projects, which we think is important in some of the highest value.

So we can drive businesses were also up.

Noteworthy from Q1.

So sequentially the same volume up and we remain above 2019 levels and so maybe for the second part of your question around audiences Jud you can hop up until that one sure thing.

We.

To be really pleased with the adoption of our yelp audiences.

<unk>.

Continued strong performance in Q2 up more than 100% year over year, and reaching a $30 million run rate that said it still represents a very small percentage of our total ad revenue.

Ultimately, we're striving to provide products to national advertisers that are up and down the funnel on and off of Yelp and.

And Yelp audiences allows us to do that.

Ultimately, we can tap into budgets off of Yelp that we hadn't been able to before Yelp audience is also opens up the opportunity for brand and non location based advertisers such as <unk>.

CPG and direct to consumer companies.

To reach our intent driven audiences. It also allows brands to market to our audience in their own voice with different creative et cetera. So ultimately we're focused on building it out as a valuable product for our customers and plan to continue to scale that offering.

Okay. Thank you Jeremy Thank you Chad.

Thank you.

Question comes from Justin Patterson from Keybanc. Your line is now <unk>. Please go ahead.

Great. Thank you.

Jeremy and David both political and macro environment a bit I'm curious what you think makes yelp more immune from just a lot of that SMB pressures, we've seen going on out there today versus say in prior years and how should we think about just the persistence of products sort of growth going forward. Thank you.

Hi, Justin Thank I can take the lead on that one our business has shown a really great durability.

I think why is that well I think it's the ROI that our customers are seeing.

We rely on primarily our own first party data.

When somebody is searching for a locksmith on yelp, they actually they need to transact they need to find a locksmith and so that's a great opportunity for advertisers to get in front of the consumer and make their pitch. So.

Down funnel.

High performance and the other thing I'd point to is the breadth of your ops, we have highly trusted content across a wide.

Array of categories and often in these tough macroeconomic environments certain categories may take a hit and then other categories performed better so that I think that speaks to our resilience as well and then stepping back even further you look over the last few years, especially 2020, we've been really pressure.

We'd been put through the rigor.

In 2020 revenue took a steep decline briefly and we came roaring back.

I think that speaks to the second part of your question, which is just the product execution.

Our team is really in my opinion never been better we've been executing on our strategy.

Leading into the areas of growth that are in front of us improving AD system driving more to self serve.

Leaning into multi location and I think the performance that you see in this quarter really reflects.

The extent of the execution, we've had over the last few years.

Thank you.

Thank you. Our next question comes from Colin Sebastian with some of that your line is now open. Please go ahead.

Thanks, Good afternoon everybody.

Maybe a big picture question to start when you see the compounding benefits of of increasing advertising locations with higher revenue per location.

Curious if that's the dynamics that youre expecting or you think continues.

Sort of in perpetuity or or will it sort of moderators shifts a bit as you add more locations.

I guess impact monetization per location that if you have any thoughts on that and I have a follow up.

Sure Collin I can take the first one or the only one thus far.

We saw <unk> grow beyond pre pandemic level of levels to a record of 569000 paying advertising locations.

While also achieving another record in average revenue per location as we continue to deliver more.

Value to our advertisers and long term we are ultimately focused on both we think that theres, a very large tam out there that we can go after in terms of new acquisition, but we also feel that we can continue to drive more value for our advertisers just thus driving up kind of <unk>.

Obviously, these metrics can fluctuate quarter to quarter, especially for our categories, but.

We believe that the opportunity lies in and kind of that land and expand driving a new new customers as well as driving that average revenue per location.

Okay.

Then I guess this is really more of a follow up but.

Jeremy mentioned request to call their.

There seems to be a lot of focus even with some of the larger platforms on click to call or messaging AD formats for local businesses.

And with your own I mean do you think these are incremental to your existing ads, maybe unlocking more paying locations for example, or are they potentially cannibalistic with things like request a quote.

Yes, I can take this thanks for the question.

Can you speak to some of the messaging aspects that are out there driving leads for small businesses and that was frankly the point that request a quote.

We designed it started as a very simple messaging service.

<unk> to be increasingly sophisticated asking the right questions reducing friction.

Trying to drive quality leads to.

Businesses, and it's been a really great channel for us.

The other piece that I think it is really helpful is that when you get a message is very clear for me. So you have that attribution built in.

And with request to call, we absolutely we're paying attention to some of the metrics you might imagine around hey is this going to take away from request a quote and what we found is we were able to implement it where it's really additive it's driving additional value it's reducing friction.

And we know that calls are some of the most highly valued leads for our smbs and so we're able to bring it into the ecosystem in a way that.

It really worked for us and create a kind of a one plus one equals three.

Okay.

Okay. Thank you.

Thank you as a reminder, if you would like to ask a question. Please press star followed by one I'm just kind of think he popular.

And the next question comes from Trevor Young from Barclays. Please go ahead. Your line is now open.

Yeah.

Great. Thanks.

The gross margin side can appreciate that the de leverages coming from infrastructure investments as well as add fulfillment costs associated with audiences can you help size the impact of each of those relative to the two point compression year on year, and then bigger picture how far along are we in both the infrastructure investments as well as the rollout of audiences because I.

Maybe expect gross margin stability at some point.

Thanks, Robert Thanks, electrical questions just in terms of the two points that you're focused on to begin with.

A significant portion of that is coming from why a syndication costs b or C.

Modestly higher expenses on the infrastructure side for simply delivering as you know we have very strong.

Margin there in the first place and I think it's important though to look at yelp audiences in the broader context of.

The way that we look at is the overall profitability of a given national Advertiser and this is a national advertiser.

Audiences.

One yelp audience enables us to have.

Broader conversation with those advertisers enables us to go after more budget, that's not only captured by Yelp audience, but also in the other products that we offer them and enables us to talk to advertisers, who don't have a natural way to advertise on yelp today.

Say CPG financial services OEM automotive companies.

And we really like that opportunity as well and we think that that gives us a chance to further monetize the.

And the audience that we had.

So in terms of where things head from here U S essentially where are we in.

Maturity of both Yelp audiences as well as just the infrastructure at Yelp and cost of revenue and I would say that we do a tremendous amount already to drive efficiency from a cost or revenue perspective on the infrastructure side, we're actually really proud of the sophistication that that team applies.

We still have room to run so that's probably more middle.

Stream in terms of potential improvements.

And there is various underlying ways that we operate and manage particularly AWS, that's still give us an opportunity to continue to drive that on the yelp audience aside.

As Jed said, we still believe that Theres, a large opportunity ahead for yelp audiences. So we do intend to grow that product is going to be a lower margin product.

That being said, we do think that there are sort of in that sense. It's early.

But in terms of that cost of revenue component in the margin side. We think that there are significant ways that we can continue to drive efficiency and increase the sophistication in the way that we buy in place those ads in the first place. So I would say that that is also relatively early.

As we've talked about we scaled this product.

Just over $15 million run rate in the second quarter of last year to just over $30 million run rate.

During the second quarter of 2022, and so we're very much in the scaling phase of this product and we want to continue to drive that opportunity, obviously $30 million is still a fraction of our total revenue and certainly a fraction of the total budget available for our pilots.

That's really helpful. Thanks for all that color.

Our next question comes from Eric <unk> from Goldman Sachs. Please go ahead Erik Your line is now open.

Thanks, so much for taking the question, maybe if I could just have a bigger picture one I know we've been talking about sort of the bottom of the funnel and audiences closer to the top of the funnel, but when you see more local commerce moving into digital channels across a lot of different avenues as some of the lines blur between offline retailers and some of these digital platforms.

What are you most excited about in terms of the product roadmap going forward that could allow yelp with increasing levels of digital local commerce that would just be a big picture question. Thanks, So much.

Hi, Eric Yes, I mean, when I hear.

Digital Commerce I guess.

Are you talking about some of the DTC innovation, that's been happening there is that kind of what you're scratching at before I launch.

And my answer Youre seeing.

Elements of DTC innovation element of retailers tapping into local search and local intent being expressed so just how you see the roadmap evolving against some of those consumer change topics.

Yeah, definitely we're but we're paying close attention there and in fact.

This quarter, we pointed to a new AD unit, if you take out ads.

That's really highly valued by our multi location customers and allows businesses to highlight.

Digital purchasing and in this particular case, you'll go online go to their website and make a purchase I think also some of our newer product areas like Yelp audiences is a very natural way for us to gauge, especially the DTC.

Side of the equation.

So in that case, you can think about targeting a group like mattress and tenders you know people that have searched for mattresses on yelp that suddenly an audience that we can build up and we can offer up to say our casper.

Mattress seller, that's interested in driving digital orders. So we are really well positioned.

To participate as this area contributed to flush out and I would say in general when you have a broad portfolio.

On the consumer side in general to continue to drive the audience forward as well as innovate on that.

Maybe if I could just ask one follow up looking out beyond 'twenty two there's so much conversation in the advertising industry about getting measurement and attribution right and continuing to build out AD Tech stacks. How do you guys think about some of the key investments you want to make in your own tech stack to continue sort of refined measurement and attribution over them.

Term thanks.

Yes, Thanks again for the question.

<unk> is an area that has been very high on our list for investment.

<unk> of years, and it's frankly been one of the key drivers of our business.

Multilocation side attribution is absolutely critical we have our own first party data Yelp store visits and so that's our in house product that we're able to offer to multilocation folks to help them understand the lift that they're seeing from their AD spend and in general our AD Tech stack is in.

Area, where we keep extracting value we have a.

Very large team there we continue to have a deep and broad portfolio, we're going to we see no end in sight at the current time in terms of where we can drive out of that area of the business.

Thank you as a final reminder, if you would like to ask a question. Please press star followed by one and just kind of think he pipe now.

We have no further questions that concludes our Q&A session for today.

Ladies and gentlemen. This concludes today's call. Thank you for joining you may now disconnect your lines.

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