Q3 2022 Yelp Inc Earnings Call
Record levels in the third quarter.
In summary.
Our performance in the third quarter underscores the strength of our strategy and our team's ability to execute.
In an uncertain macro environment, we believe our mission of connecting people with great local businesses is even more relevant.
As we look to the fourth quarter and year ahead, our portfolio of initiatives is robust and we remain committed to driving long term shareholder value.
With that I'd like to turn it over to David.
Thanks, Jeremy.
Third quarter net revenue increased by 15% year over year to $309 million at the high end of our outlook range.
Underlying the strong performance, we achieved record average revenue per location and grew paying advertising locations by 7% year over year to a record 572000.
As Jeremy mentioned, we also drove growth across our broad set of categories in the quarter.
AD revenue from services businesses grew.
<unk> grew 15% year over year to a record $181 million.
With records in paying advertising locations and average revenue per location and these categories restaurant retail and other AD revenue increased by 13% year over year to $113 million largely driven by a 10% year over year increase in our arnaud paying advertising locations third quarter Ad clicks.
Remained consistent with the second quarter, but decreased by 15% from the prior year period, which had benefited from reopening tailwind and elevated consumer spending at the same time, we saw strong advertiser demand for our performance based AD products, resulting in a 36% year over year increase in average CPC.
Our retention rate for non term advertisers budgets remained solid in the third quarter due to the value we continue to deliver to advertisers, but declined modestly from the second quarter.
Turning to expenses in 2022, we have invested in our growth initiatives, which are designed to drive profitable growth over the long term.
For example investments in product as well as performance marketing drove record self serve customer acquisition in the quarter.
Even with these investments we delivered positive net income of $9 million, which includes an impairment charge of $10 million related to sublease a portion of our New York Office in July .
We also delivered record adjusted EBITDA of $74 million at the high end of our outlook range and representing a 24% adjusted EBITDA margin. As we look ahead, we believe that we can drive leverage through our product and engineering driven growth strategy and reduced workplace operating costs as we continue to embrace.
A fully remote workplace.
We're also evolving our approach to compensation, which we believe will help to reduce stock based compensation as a percentage of revenue overtime.
Returning capital to shareholders through share repurchases remains an important element of our overall capital allocation strategy.
In the third quarter, we repurchased $50 million worth of shares at an average purchase price of $31.25.
To support these ongoing repurchase plans in November our board of directors authorized us to repurchase an additional $250 million worth of shares, bringing our total remaining authorization to $332 million.
Turning to our outlook in any given year. There are commonly a number of competing seasonal dynamics that affect our performance in the fourth quarter.
In services, we expect our typical seasonality, while continuing our year over year strength.
And restaurant retail and other evidence of increased caution among some multi location advertisers emerged late in the third quarter as they responded to heightened macro uncertainties.
As a result, we expect to see a more muted holiday season with less incremental spend from these advertisers and we have seen in the past.
We anticipate fourth quarter net revenue will be in the range of approximately 300 million to $310 million and net revenue for the full year will be in the range of 1.1 85 billion to 1.1 95 billion.
At the midpoint. This full year range is $20 million above the initial outlook range. We provided in February and remains in line with the raised range we provided in August .
Turning to margins, we expect a modest decrease in expense compared to the third quarter driven by sales and marketing.
At the same time, we are very pleased with the performance of our business the macro volatility and have continued to invest in our initiatives.
Drive profitable growth over the long term.
We expect adjusted EBITDA will be in the range of approximately 75 million to $85 million for the fourth quarter.
265 million to $275 million for the full year.
In closing yelps broad set of categories performance AD products and sophisticated AD Tech stack have provided us with a durable foundation at the same time, our teams have consistently executed against our strategic initiatives. Among continued macro uncertainties, which has led our business to new heights.
As we work through our plans for next year, we're excited by our strong portfolio of opportunities and remain confident in our ability to drive long term comparable.
With that operator, please open up the line for questions.
Thank you.
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Our first question comes from the line of Colin Sebastian with Baird. Please go ahead.
Great. Thanks, very much couple of questions. If I can I guess first off how sustainable are you guys thinking that the growth in both the paying advertising accounts.
And revenue per advertiser will be I guess in particular, given the macro issues and some of the change in retention rates.
That you've noticed or noted from Q2 and then secondly, we just hoping you could talk about some of the initiatives to enhance the consumer facing parts of the business and how that might translate into engagement trends going forward. Thank you.
Hi, Colin this is Jed I can take the first question on pals paying advertising locations.
We're really pleased with that performance.
It was a record 572000 as well as our record revenue on a per location basis.
On the power side its important to understand that they.
They can move up and down on a quarter to quarter basis, depending on a multitude of factors, particularly spending on seasonal campaigns by our national advertisers still it's a it's a really large tam for us to pursue pursue.
And there are a lot of possible paying advertising locations out there and we also believe that there is an opportunity to drive revenue growth within our existing business acquisition has been strong in both on the SMB side as well as on the multi multilocation side.
And our post sales team has a really large opportunity to upsell within our existing book of business overall, we hope to drive a balance between growing revenue per location, increasing power given the large Tam and we believe theres a lot of headroom there.
Okay.
God I can take the second part here this is Jeremy.
Jeremy talking about as you mentioned consumer initiatives and what are we doing on that side.
For the past few quarters, you may have seen and then I was talking about some of the Android improvements we've been making.
If you go back a few years.
Our focus admittedly has been on monetization, creating a portfolio of initiatives around that and particularly adds an ad matching.
Frankly, that's worked really well for us and we still have a deep portfolio. There. So we're going to keep leaning in that direction, but we've also taken the opportunity to direct more of our attention and resources towards the consumer experience Android being kind of a simple to understand first step where it's lagging behind the iOS experience we've made.
Some improvements unlocked some inventory there and I think there is a lot more that we can do but beyond Android across all platforms Theres now a series of initiatives a whole portfolio approach and we've begun executing against that and we're seeing early signs of success. It just started this year and we'll keep you updated as we turned the corner into 'twenty.
But given our execution and success with this approach on the outside I think we're feeling confident that we'll continue to make strides there. Despite of course, all the macro uncertainties that everyone knows about.
Alright Thats helpful. Thank you guys.
Thank you Colin.
Our next question comes from the line of.
Justin Patterson with Keybanc. Please proceed.
Yeah.
Good afternoon, and thank you for taking the questions. Two if I can first David just wanted to unpack a little bit more about the guidance commentary around retail restaurant and other can you talk about some of that softness you observed.
Exiting the quarter, how that's played out.
Into early October and I did notice that tal's for that category dipped a little bit sequentially is that what we are observing there and then I'll have a follow up after that.
Okay.
So maybe just to answer in reverse that the slight dip there that you saw does reflect that increased caution, particularly for restaurant and retail.
And this is in our multi location channel, which as you know consists of both national advertisers as well as mid market.
And what we.
Historically seen is an increase in AD spend for holiday.
That's the part that we don't think we're going to see here in 2022. So the guidance we provided reflects that.
Movement by these national and mid market advertisers to be more cautious through the fourth quarter I would still underscore though for you.
We are pleased overall with the performance obviously record Q3.
Particularly happy about the acceleration on the home services front from about 20% growth in the second quarter due.
About 25% growth in the third quarter, and I think broadly as a theme for us and one worth underscoring is we do think that this portfolio of categories on Yelp really helps us to manage overall performance.
<unk> is the foundation for long term profitable growth.
Got it that's helpful and then for the follow up when I think about your pls entering the pandemic and then where they are at today. It looks like there was just a much more durable base within there so as we.
Heading to whatever 2023 brings on the macro side you look at the P&L.
Oh composition, if you look at the product portfolio and go to market strategy, how should we think about the business as being different from the churn perspective than say in the past. Thank you.
Okay.
Sure.
Thanks, a lot Justin this is Jed I can talk about that yes, we feel like we are really durable and diversified customer base.
It's made up of a broad set of categories as well as a broad set of customer size.
We have experienced periods of volatility in the past.
Not the least which is COVID-19 and.
Inevitably certain certain categories will do better than others right now we're seeing a lot of strength on the services side as David mentioned acceleration in home services quarter over quarter on overall, 50% growth there.
And.
Ultimately.
We believe we have a very high intent down funnel audience.
Performance based and so and volatile macro environment.
That is certainly something that.
Advertisers value.
And particularly when you look at services as an example, I think the value of leads has become more important in this type of <unk>.
Environment, where you may see a consumer pullback.
Those advertisers are certainly in need of driving valuable leads and we've seen that kind of show up in those home services numbers, but broadly speaking.
The breadth of our categories is really helpful and and that ultimately the performance based nature of our advertising really shine through in this type of environment.
I guess this is Jeremy I would just add I think our product and engineering execution helps out.
A bit as well just driving lead quality, improving matching streamlining things like self serve.
Adding additional tools in the Arsenal in our Multilocation side, I think all of that execution.
Contributes to being able to maintain growth even in a volatile macro environment.
Thank you.
Okay.
Thank you for your question Justin.
Our next question comes from Cory Carpenter with Jpmorgan. Please go ahead.
Hello, Thanks for the question, hoping you could expand a bit on what's working so well for you in the home services category.
Feels like Youre, taking share from some some of the other companies out there certainly had less exciting results in home services side. So it's working so well for you.
Sustainable do you think this is a request volume does continue to moderate going forward. Thank you.
Okay.
Hi, Cory this is Jeremy again.
Yes, we're really pleased with our 25% year over year growth in home services revenue.
And frankly, I think it speaks to our large organic audience that is on yelp to transact and Theyre doing research, they're trying to figure out how to solve a problem.
And it's clear if you're delivering valuable leads to advertisers, especially at a time, where maybe their trucks aren't rolling as frequently.
Like they're going to seek out higher ROI channels to advertise and it does seem like given the demand. They are finding yelp is really meeting the quality bar and so we're really encouraged by that and encouraged by our progress and momentum relative to other players on the field.
And so we're going to keep leaning into that improving the product experience streamlining.
Tumor experience, we talked about boosting engagement there.
Continuing to improve across all platforms. So feels like our approach on the product and engineering side. It was working we've got this broad portfolio of initiatives.
In various areas that we're going to keep executing against them and try to continue our momentum.
Great. Thank you.
Thank you for your question Corey.
Our next question comes from the line of John Culver, Tony with Jefferies. Please go ahead.
Hey, guys. This is Vincent Cardoso on for John .
Thanks for the question I'd be curious to hear a little bit about your outlook for small and medium sized businesses going into next year. So beyond beyond Q4.
So in an environment, where we're currently having declining consumer sentiment rising rates.
High inflation et cetera.
Uh huh.
Well, we won't we have a consumer recession into 'twenty three.
Do you see 23 shaken out for those small and medium businesses that you work with and you know looking back at comparable downturns, how do those businesses tend to adjust their AD spend in these sorts of climates.
<unk>.
Great I can start out with that one.
<unk>.
As I mentioned before we have a pretty varied customer base in terms of category.
And size and have gone through those.
Crow periods in the past.
Our our advertisers and services actually tend to skew more SMB, while on the advertisers in the in the restaurant retail and other category skew toward the multi location side.
In the quarter, obviously, you saw really strong growth on services.
Overall at about 15% year over year.
We believe that that is.
The SMT segment as durable.
<unk> seen strong acquisition.
And.
Solid performance on the retention side there.
And ultimately as we go through these macroeconomic periods, we've seen a lot of resilience out of our customer base in the past when we have gone through these.
Yeah, I guess I'll chime in it's Jeremy here I mean, we've been through a lot of ups and downs over the years I think this is my 18th year.
And the one thing that always comes into play is just the breadth across so many categories I mean, even in the worst of the pandemic. We saw home services pop up is particularly strong and we're continuing to see really great demand on the home services side from advertisers. So I think that is a strength in an uncertain environment that occurred.
T O.
Great.
Yeah.
Okay.
Thanks Scott.
Yeah.
Thank you for your question Sir.
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That concludes today's third quarter 2022 earnings conference call. Thank you for your participation you may now disconnect your lines.