Q4 2022 Yelp Inc Earnings Call
As a result, we plan to expand upon each of our initiatives to drive profitable growth in 2023 and over the long term by continuing to invest in growing quality leads and monetization and services driving sales through the most efficient channels delivering more value to advertisers and enhancing the consumer experience at <unk>.
Quarter. These initiatives aim to continue to differentiate yelp from peers and bring increased value to local consumers and advertisers.
We believe that our consistent execution in these areas in 2022 is positioned better than ever to drive long term profitable growth with that I'd like to turn it over to David.
Thanks for the recap of our strong 2022 performance Xiaomi I will now turn to our fourth quarter results.
Fourth quarter net revenue increased by 13% year over year to $309 million.
High end of our outlook range.
Net income decreased by 13% year over year to $20 million largely due to a significant increase in our effective GAAP tax rate.
Adjusted EBITDA grew by 18% year over year to $80 million, which is at the midpoint of our outlook range.
Advertising locations increased by 3% year over year to 545000 in the fourth quarter, while average revenue per location reached a quarterly record.
Advertising revenue from services businesses increased by 13% year over year to $178 million in the fourth quarter.
Our efforts to drive high quality leads to service pros have clearly resonated with advertisers in these categories average revenue per location and services reached a record and increased for the 10th quarter in a row.
Advertising revenue from restaurants retail and other businesses increased by 11% year over year to $116 million.
As anticipated in our fourth quarter business outlook Advertiser demand was more muted in the 2022 holiday season than in prior years, particularly among multi location advertisers.
This contributed to softer year over year growth in paying advertising locations in these categories.
Turning to expenses since significantly decreasing our head count in 2020, we have made prudent investments in our product led strategy to drive profitable growth over the long term.
We have increased the size of our product development and Multilocation sales organizations, while holding local sales head count relatively flat.
As a result, we ended the year with a total head count of approximately 4900 people, representing an increase of 11% year over year, but still 18% below 2019, while full year net revenue increased by 16% and 18% over the same periods.
We are pleased with this progress and currently plan to maintain approximately the same total head count in 2023.
We believe our sales channel mix shift product led strategy.
<unk> real estate footprint will be sources of leverage and margin improvement over the long term.
In addition, we are committed to reducing stock based compensation as a percentage of revenue.
In 2022, we decreased this percentage by approximately two percentage points and expect to drive an additional decrease of one percentage point in 2023.
Looking ahead, we believe we can lower stock based compensation to less than 8% of revenue by the end of 2025.
Driven by revenue growth as well as by continuing to optimize our location in compensation mix, particularly within product development.
Returning capital to shareholders through share repurchases remains an important element of our overall capital allocation strategy.
2022, we repurchased $200 million worth of shares at an average purchase price of $32 28.
At the end of the year, we had $282 million remaining under our existing repurchase authorization.
Plan to continue repurchasing shares in 2023 subject to market and economic conditions.
Turning to our outlook as we enter 2023, we continue to believe in a significant long term opportunities ahead, and our team's ability to capture them. However, the macro environment remains challenging we expect net revenue will be in the range of 300 million to $310 million for the first quarter.
Collecting typical seasonality.
For the full year, we expect net revenue will be in the range of $1. Two 9 billion to $1 three 1 billion.
As our initiatives continue to drive growth against the backdrop of ongoing macro uncertainties.
Turning to margin, we expect expenses to increase from the fourth quarter to the first quarter.
Collecting our hiring efforts in 2022 as well as the seasonal increase in expense, primarily driven by payroll taxes. As a result, we anticipate first quarter adjusted EBITDA to be in the range of $40 million to $50 million.
For the full year, we expect expenses to increase modestly year over year as we maintain approximately the same total head count compared to the end of 2022.
As such we anticipate adjusted EBITDA to be in the range of $290 million to $310 million for the full year.
We also currently expect our effective GAAP tax rate for 2023 to be in the range of 32% to 38%.
Largely due to the requirement to amortize certain research and development expenses under the 2017 U S tax cuts and jobs Act <unk>.
In closing we also delivered one of the strongest revenue growth performance is among our advertising the marketplace peers in 2022, our broad base local health platform has proven its durability and our team has continued to execute against our initiatives driving excellent results, while the macro environment remains uncertain, we felt a strong foundation for the future and.
Our confident in yelps path to delivering profitable growth along with shareholder value over the long term.
With that operator, please open up the line for questions.
Thank you.
I'd like to ask a question. Please press star followed by one on your telephone keypad. If for any reason you would like Germany has a question. Please press star followed by two again to ask a question press Star one.
If you have any follow up questions you are more than welcome to rejoin the queue.
As a reminder, if youre using a speakerphone. Please remember to pick up your handset before asking your question. We will pause here briefly ask questions are registered.
Our first question comes from the line of Colin Sebastian with Baird. Your line is now open.
Great. Thanks. Good afternoon. Thanks for taking my questions I guess two for me first regarding some of the expense outlook.
Keeping product development, roughly flattish, adding head count the sales.
Just curious about the thought process behind that.
Sounds like you have what you need from a product development or product developer standpoint, but just a little more detail on our sales strategy and then secondly, I mean, given given the strength you saw during the year.
Just curious in terms of how we should think about you talked about the roadmap, but continuing growth beyond this year.
Pricing is pricing is still going up.
Alex maybe maybe there is a flip there where it shifts more to more to more click growth.
Just curious on some of the metrics how you see that playing out thank you.
Thanks for the question Colin.
With regard to <unk>.
Head count on the expense side just to clarify in.
In 2022, we added two product and engineering, we have also added to our Multilocation sales team.
And.
Our local sales head count, which is still down substantially from.
2020 or from 2019.
<unk> was modestly higher but in line with what we shared with you in the past about being in the range of about half of what it had previously been.
That's really around 2022 for 2023.
We plan to keep head count overall.
Approximately flat.
And that's true across all of the functional areas, whether it's product and engineering sales and marketing or general and administrative so no shift in mix expected in terms of head count in 2023.
And Colin this is Jeremy I'll take the second question, there thinking about the roadmap for the year and beyond.
We feel really great.
It's Mike.
Macro uncertainty the team's execution on the product and engineering side rest of the company to but specifically on the product and engineering side, it's been really clean.
We continue to have a deep portfolio.
Ah projects, leading into continuing to improve our ex Tac better matching request a quote.
Driving up.
Both the number of projects as well as the quality of leads obviously makes a difference with turning towards more towards the consumer recently in 'twenty. Two we started that pivot we're starting to see some benefits. There you may have noticed reviews grew 3% year over year.
So starting to see some of those when stack up.
Then from a go to market perspective, we've been leaning into self serving Multilocation continues to go well.
We continue to see really great progress there.
And then for further afield, we've started to try and share a little bit more color about why we have conviction that we can grow.
Considerable amount of time into the future.
One example that we cite on the ladder is looking at.
For services traffic, there's a big pool of quality leads out there and we currently don't participate in that area really at all.
And so if you go and you look back.
What we've built with request a quote nearby jobs matching technology like we have been slowly assembling the pieces necessary to play uniquely in that space and I think if you look at the strength.
Yelps brand.
And then also its value to consumers beyond the single job I think that gives you some sense of why we think we can take.
We will share in that space over time, we haven't baked anything into this year. It's really this year is about product development and experimentation in that area, but I think in the out years. That's a really interesting area and then I would just point you to off Yelp.
As just another area of investment and opportunity for us it wasn't that long ago that yelp syndication and yelp audiences didn't really exist.
That's been the innovation that we've built in house.
And now it's a rapidly growing considerable business for us it is taking a very unique down.
Down funnel intent that we see from consumers on Yelp, and then it's reaching out to those consumers as they travel across the web providing EBIT more value to our advertisers.
If you look across the whole host of portfolio, you've got as we do high confidence that theres growth opportunities in the future and over the long term.
Okay.
Great. Thanks, guys I appreciate that.
Sure.
Thank you.
Our next question comes from the line of Schweda could urea with Evercore ISI. Your line is now open.
Thank you for taking my questions I have a couple please.
So you talked about services revenue and gain share.
In the industry versus peers. It sounds like you wanted to maintain the 25% and monetize based on a shareholder letter.
Specifically double click on what your plans are for the year in terms of driving quality of leads and improving the experience to drive service revenue growth.
That's question one and the second question is David if you could please talk about the cadence of EBITDA sequentially.
Had some comments in the prepared remarks, but as far as into like how should we think about cadence of EBITDA for the rest of the year to get to your full year guide. Thank you.
Hi, This is Jeremy I can touch on maybe the first one within services and monetize leads.
Happy to see the growth there, particularly the growth in home services when that was 20% year over year.
Great great to see all of that activity happening on the.
We have a whole host of continued improvements within request a quote.
One project in particular launching soon will really leverage yelps brand to help give consumers confidence too.
Engage with request a quote in particular so.
So we do see really healthy a really healthy portfolio within our product development fee are there on the monetize leads question and 25% on type of things that has come up a lot over the years.
Do think obviously, there's considerable headroom to key.
Making improvements there, but there is tradeoffs like we could certainly move that number up but if the quality isn't there from a lead perspective, then that value isn't itself on the advertiser side and given the really high demand from advertisers right now we want to make sure that they're getting a lead that is actionable that works for them, where they feel like there is an opportunity to drive ROI.
So we're not rushing to drive that.
<unk> immediately we're focused on quality as we were last year, but we do believe that over time that will continue to go up.
Yeah.
Sweater just addressing your question on the cadence of EBITDA through the year once again in the first quarter, we do see.
Significantly higher expense due to payroll taxes. There is also a bit of lay.
Layering in the additional expense of head count.
That we hired in the first half of 2022, so we would expect.
EBITDA to increase over the course of the year.
For expenses to moderate down from the first quarter as we.
Also move through the year, so that's the <unk>.
File that we expect from in order to deliver 300 to 310 firm.
Yes.
$290 to $3 10 for 2023.
Okay. Thanks, David Thanks, Jeremy just a quick follow up though so David.
Any help with just for modeling for.
Hmm.
Mining purposes.
In terms of seasonality should we follow a particular year.
It's more representative of 2019 versus perhaps 2022 any thoughts there.
Sweat I don't off the top of my head.
A thought in terms of that seasonality for a year or two compared to so.
We will go back and take a look at that.
What I can say again is tier one.
<unk> meaningfully higher because of this payroll tax and that we do actually expect or.
Expenses to moderate down as we move through the year in order to deliver that.
Overall, adjusted EBITDA for the year, but let us let us take a look and see what we think is a comparable year.
In terms of profile as you know things have changed considerably through 19, 2020, and what it makes it a little harder to do.
Do comparisons and the other thing I would just point out is.
We're not seeing large movements in head count in 'twenty, three or we don't anticipate large movements in head count and 23. So that's also just a very different profile compared to prior years.
Okay I appreciate it thanks David.
Thank you.
Our next question comes from the line of Eric Sheridan with Goldman Sachs. Your line is now open.
Thanks, so much for taking the questions maybe two if I can come back to the comments on the macro we'd love to get as much details youre willing to give them out what sort of headwind that might have created to Q4 at the beginning of Q1, just so we could better size out.
Ex the macro how are you thinking about the underlying performance of the business of things within your control versus outside of your control and then coming back to the mix shift towards self serve and multi location are there any elements you can give us in terms of targets or frameworks of thinking about mix shift towards those elements of the AD business as we move.
<unk> through 'twenty, three and think about an exit philosophy into 'twenty 'twenty four thanks, so much.
Okay.
Hi, Eric this is Jed.
I can take both questions.
In terms of.
Of the Q4 revenue.
And macro visibility, we remain really pleased with the overall resilience of the business thus far we've.
In the past experience periods of uncertainty and the because the business has remained solid we have a diverse and really high quality revenue base by both channel and category.
Down funnel performance based ads are most efficient channels as you mentioned self serve and multi local both grew at a 25% rate year over year in 2022.
The edges, we did see some increased caution from the multi location advertisers in Q4, which resulted in a more muted holiday spend than in previous years.
These businesses have obviously been dealing with a number of macro issues from labor to supply to rising input costs, but our relationships with the multi wall business remain really really strong.
And we believe that multi location channel has room to run.
On the SMB side, our Advertiser base is comprised of really high quality local smbs, which has demonstrated that resilience in the past.
We're focused on what's in our control right now and executing against those initiatives and in terms of the mix between self serve and multi location.
We've increased four points year over year in terms of the total out of those two channels between self serving multilocation up to 48% of our revenue.
And you have over <unk>.
Approximately 50% of our revenue growing at 25% Calypso, all really pleased with those two channels. We've continued to make improvements on the multi location product portfolio spotlight ads Yelp audience is sponsoring collections, which are really resonating in the marketplace and on the <unk> side continue to make improvements in terms of.
Of.
What we're giving our local advertisers in terms of customer insights.
Improved message center.
And really matching the most important leads with with our advertisers so.
From a mix shift perspective, we're going to continue to lean into both of those channels and believe they both have had room to run.
Thanks, so much.
Thank you.
Our next question comes from the line of Cory Carpenter with Jpmorgan.
Your line is now open.
Hey, Thank you I had two questions one Martin macro just maybe more specifically have you seen improvement in our Multilocation Advertiser base coming out of the holiday season or would you characterize it as kind of staying steady perhaps it at those lower levels and then secondly on the consumer demand.
Jamie you mentioned that it remains below.
Below pre pandemic levels curious, what you attribute that to.
And then you called out App unique devices are lower but what about engagement per user and how thats trending. Thank you.
I can take another shot at the at the macro in terms of Multilocation trends.
Obviously, we saw that muted spending in the fourth quarter, but we were really pleased with the way we were able to kind of.
Continued conversations with all of those multi location advertisers and we feel like we're really well positioned going into 2023 ultimately in this type of environment, we have a really down funnel lead.
And our strong from in times of macro uncertainty folks want to spend their money in a place where they think they are yielding ROI.
<unk> base.
We have attribution solutions as an example that are able to really really prove that out and whether it's our <unk>, which is our first party data.
Derived from Yelp handle where third parties that we use in order to.
Kind of showcase that attribution.
And in a really good spot right now of course, there are macro uncertainties that are they are out of our control.
But we feel well positioned relative to the competition as we head into 2023 there.
And so that's what I would say on the multi location side.
Hi, good morning, everyone.
Talking about the consumer engagement and.
Looking at the App is kind of flat year over year, it's a big contributing factor obviously macro.
How much consumers are getting out there and and transacting, but we're.
We're not just kind of sitting around we have pivoted a lot of resources towards consumer.
We did see contributions.
<unk>, 3% year over year, So I think thats early signs of success from the efforts there we have a deep.
Roadmap that we'll be executing on in 'twenty. Three that's focused on you know some of these things you mentioned.
Improving the.
<unk> experienced improving engagement, we've got a new home fee that we're going to keep iterating on.
You may have also noticed there's new technology out there large language models, you've already booked our first win within search from leveraging <unk>.
There's a lot of opportunity, we're just gearing up.
Last year was kind of our first efforts starting to stack wins and so I think we'll see that continue also worth noting.
Mobile lab was up.
Well.
And so with the product and engineering investment that is now quite significant I think we feel confident and then also returned to marketing spend in one of the things we pulled back on especially during the tender early pandemic timeframe was installs and driving installs from a paid perspective and so that's something that we've returned to manage.
And so that provides some.
<unk> upside as well.
Maybe one more if I can just for Jay.
If I wasn't sure you call that local John's comments Hamid I think you said new customer acquisition is the best you've seen in two years curious what you attribute that to and if there's something specifically that change and that you're doing that you would call out is working well. Thank you.
Yes. Thanks for the question, we have been really pleased with our.
Local channel, which both includes which includes both kind of the self serve as well as our rep sold business.
From a.
From a salesforce perspective, certainly we feel there are benefits in our remote posture and being able to retain our top performing reps.
Who are now distributed across the country and that's been.
A real boom for us in terms of making sure that we have the right people in the seats.
And as that Salesforce ages, youre going to get more productivity out of them.
And and ultimately we're also giving them more product to sell to which is really really important as you've watched the product portfolio evolve over the past few years and the confidence level.
With which they can talk to local businesses, where we know we're delivering more value than we ever have and.
And that's been really an important part of the success on the on the local sales team.
Thank you Bob.
Okay.
Thank you.
Our next question comes from the line of John Cola.
Colon to honey with Jefferies. Your line is now open.
Hi, This is Chris to Trekkie on for John Thanks for taking the question. So we think we picked up on an uptick in AD loads across the Yelp App, particularly in the services category was this just some testing we picked up on or are you able to talk about if you've made a permanent adjustments the services AD load and then maybe just some comments on.
On how youre thinking about greater AD load could impact consumer experience and then lead monetization. Thank you.
Hi, Chris This is Jeremy.
We're constantly running experiments.
That are bearing the search experience and so.
Nothing to report there as far as something massively different than historical.
A lot of the activity within services, it's important to note.
With labor.
And so a lot of what's happening within the request is fully or near fully monetized.
And it's a great consumer experience because youre, telling us more about your project and then Youre hearing from people that can actually fulfill that and ideally within a reasonable timeframe, we see it as kind of a win all around.
And that probably gets valuable leads and opportunities to engage with the consumer the consumer gets responsive businesses and to help facilitate that and gets paid.
So that's where a lot of the focus there isn't a lot of the value is within services.
Got it thanks, so much.
Okay.
Thank you.
Our next question comes from the line of Brian Fitzgerald with Wells Fargo. Your line is now open.
Hey, guys. Thanks for taking the questions.
Last quarter, you guys called out some interesting almost counter cyclical trends in services.
Roofers, maybe increasing AD spend even as the solid demand pool.
So you noted home services was up 20%.
Year over year this quarter, so maybe it looks like that trend has continued.
Was there anything else you'd call out there.
Or any other services categories, especially weak or strong.
Hi, Brian This is Jeremy I don't remember that specific on.
First I'm not sure about that but yeah. We did we have seen.
Services demand from advertisers remain robust.
In home services, even more so.
What's going on there I think hard to fully unpack given the.
Range call it macro environment, but I think.
Part of it is as business has slowed down a great boom boom time year of 'twenty. One businesses did have continue to have cash to spend on keeping their trucks rolling in keeping themselves busy and so they are looking for reliable channels.
In which to invest and get a return on their investment from a lease perspective.
And I think that's that's why so many have turned to yelp is because we're a reliable source of high quality leads.
And it's also very convenient they can turn it on and off they can test it out and see for themselves whether we're delivering.
From our perspective, we just we've been working really hard on making request a quote work for these businesses driving quality leads and quality over quantity was a big theme last year, we weren't as focused on driving up the percentage of monetize leads we're really focused on that lead quality and I think that's coming through and then if you look at the opportunity off Yelp, we're taking that can.
Sumer demand when someone comes to us with one of these longer tail and frequent service requests we're able to reach them when they hit maybe the New York times Theres somewhere else on the web.
Yes indication and so thats a powerful tool as well so I think everything is coming together to deliver valuable leads.
Through these local businesses and they are continuing to spend with us.
Right.
Awesome. Thank you.
Thank you.
There are no additional questions waiting at this time, so I will now conclude the fourth quarter and full year 2022 earnings conference call. Thank you for your participation you have a wonderful day.
You have been removed from the comp.
Goodbye.
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