Good afternoon. Thank you for attending today's Yelp fourth quarter and full year 2022 earnings conference call. My name is Megan, and I'll be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star one on your telephone keypad. I would now like to pass the conference over to James Miln, Senior Vice President of Finance and Investor Relations. James, please go ahead.
Good afternoon, everyone, thanks for joining us on Yelp's fourth quarter and full year 2022 earnings conference call. Joining me today are Yelp's Chief Executive Officer, Jeremy Stoppelman, 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 then turn to your questions. 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, 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 that may 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'll discuss Adjusted EBITDA and Adjusted EBITDA margin, 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 website, you will find additional disclosures regarding these non-GAAP financial measures, as well as historical reconciliations of GAAP net income to both Adjusted EBITDA and Adjusted EBITDA margin. With that, I will turn the call over to Jeremy.
Thanks, James. Welcome everyone. Yelp delivered one of the strongest revenue growth performances among our advertising and marketplace peers in 2022. Our performance ad products and high-intent audience generated robust advertiser demand across a broad range of categories, both on and off Yelp. Net revenue increased by 16% year-over-year to a record $1.2 billion in 2022. We delivered this performance with net income of $36 million and Adjusted EBITDA of $270 million. These results demonstrate the strength and durability of Yelp's ad platform and the ability of our team to execute under a range of difficult conditions to deliver excellent results. Underlying our record top line, our product-led strategy drove a number of other record results in 2022. We achieved record paying advertising locations and average revenue per location for the year.
In services, we succeeded in differentiating the product experience and increasing monetization and lead quality, resulting in greater value to service pros. We believe Yelp gained market share in 2022 as advertising revenue from services businesses grew 14% year-over-year to a record $694 million. The home services category was particularly strong, with year-over-year growth of approximately 20%. Since 2019, revenue from this category has compounded at an annual growth rate of nearly 20%. Advertising revenue from restaurants, retail, and other businesses increased by 17% year-over-year to $441 million, driven by growth in paying advertising locations. We continue to deliver value to advertisers in these categories by enhancing our suite of ad products designed to deliver high-intent clicks both up and down the funnel and on and off Yelp.
On the consumer side of our business, traffic remained below pre-pandemic levels as the macro environment contributed to softer consumer demand. App unique devices of 33 million were flat compared to 2021. Despite this backdrop, we made early progress on the consumer-focused initiative we announced at the beginning of 2022. We reduced friction from the review writing process, which helped our trustworthy content grow by 21 million new reviews in 2022. This resulted in more than 265 million cumulative reviews as of December 31st, up 9% from 2021. In addition, our early work with large language models suggests there are a number of near-term applications that we can leverage to enhance the consumer experience on Yelp. We deliver value to our advertisers through our sophisticated ad system.
This best-in-class technology is able to respond dynamically to changes in supply and demand to efficiently match consumers with advertisers. While ad clicks for the year declined by 8% from 2021, a year that had benefited from reopening tailwind and elevated consumer spending, advertiser demand remained robust as we executed against our roadmap of ad system improvements and average CPC increased by 27% year-over-year. We also made progress on our initiative to drive sales through the most efficient channels. Self-serve and multi-location channels each grew approximately 25% year-over-year to record levels in 2022. Together, these channels represented approximately 48% of advertising revenue in 2022, up four percentage points from 2021. Looking back over the last year, the Yelp team has made tremendous progress across all of our strategic initiatives.
Our investments in product have not only delivered record revenue, but also strengthened Yelp's position as a leader in local with trusted content and sophisticated ad tech. 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 in services, driving sales through the most efficient channels, delivering more value to advertisers, and enhancing the consumer experience. At their core, these initiatives aim to continue to differentiate Yelp from peers in bringing increased value to local consumers and advertisers. We believe that our consistent execution in these areas in 2022 has positioned Yelp 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, Jeremy. I will now turn to our fourth quarter results. Fourth quarter net revenue increased by 13% year-over-year to $309 million, near the 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. Paying advertising locations increased by 3% year-over-year to 545,000 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 in 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 headcount 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 multi-location sales organizations while holding local sales headcount relatively flat.
We ended the year with a total headcount of approximately 4,900 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 headcount in 2023. We believe our sales channel mix shift, product-led strategy, and reduced 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 and compensation mix, particularly within product development. Returning capital to shareholders through share repurchases remains an important element of our overall capital allocation strategy. In 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. We 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 the significant long-term opportunities ahead and our team's ability to capture them. The macro environment remains challenging.
We expect net revenue will be in the range of $300 million-$310 million for the first quarter, reflecting typical seasonality. For the full year, we expect net revenue will be in the range of $1.29 billion-$1.31 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, reflecting our hiring efforts in 2022, as well as a 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-$50 million.
For the full year, we expect expenses to increase modestly year-over-year as we maintain approximately the same total headcount compared to the end of 2022. As such, we anticipate Adjusted EBITDA to be in the range of $290 million-$310 million for the full year. We also currently expect our effective GAAP tax rate for 2023 to be in the range of 32%-38%, largely due to the requirement to amortize certain research and development expenses under the 2017 US Tax Cuts and Jobs Act. In closing, Yelp delivered one of the strongest revenue growth performances among our advertising and marketplace peers in 2022.
Our broad-based local ad platform has proven its durability, and our team has continued to execute against our initiative, driving excellent results. While the macro environment remains uncertain, we've built a strong foundation for the future and are confident in Yelp's 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. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that 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 you're using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly as 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, I think keeping product development roughly flattish, adding headcount to 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 the sales strategy. Then secondly, given the strength you saw during the year, just curious in terms of how we should think about... You talked about the roadmap, but, you know, continuing growth beyond this year, you know, the ad pricing is still going up, you know, clicks down. Maybe there's a flip there where it shifts more to more ad 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 headcount on the expense side, just to clarify, in 2022, we added to product and engineering. We also added to our multi-location sales team. Our local sales headcount, which is still down substantially from 2020 or from 2019, was modestly higher, but in line with what we've shared with you in the past about being, you know, in the range of about half of what it had previously been. That's really around 2022. For 2023, we plan to keep headcount 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. No shift in mix expected in terms of headcount in 2023.
Colin, this is Jeremy. I'll take the second question there, you know, thinking about the roadmap for the year and beyond. We feel really great. You know, despite all of the macro uncertainty, you know, the team's execution on the product and engineering side, rest of the company too. You know, specifically on the product and engineering side, it's been, you know, really clean. You know, we continue to have a deep portfolio of projects, you know, leaning into ads, continuing to improve our ad tech stack that are matching Request a Quote, you know, driving up both the number of projects as well as, you know, the quality of leads, obviously makes a difference. We turn more towards the consumer. Recently in 2022, we started that pivot. We're starting to see some benefits there.
You may have noticed reviews grew 3% year-over-year. Starting to see some of those wins stack up. From a, you know, go-to-market perspective, we've been leaning into self-serve and multi-location continues to go well. We continue to see really great progress there. For, you know, farther afield, we've started, you know, to try and share a little bit more color about why, you know, we have conviction that we can grow, you know, for a considerable amount of time into the future. You know, one example that we cite in the letter is looking at SEM for services traffic. There's a big pool of quality leads out there, we currently don't participate in that area really at all.
If you go and you look back at what we've built, you know, with Request a Quote, Nearby Jobs, matching technology, like, we've been slowly assembling the pieces necessary to play uniquely in that space. I think if you look at the strength of Yelp's brand, and then also its value to consumers beyond a single job, I think that gives you some sense of, like, why we think we can take, you know, considerable share in that space over time. We haven't baked anything, you know, into this year. It's really, this year is about product development and experimentation in that area. I think in the out years, that's a really interesting area. 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. you know, that's been innovation that we've built in-house. you know, and now it's a rapidly growing, considerable business for us. It's taking a very unique, you know, 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 even more value to our advertisers. you know, if you look across the whole host of portfolio, you get, as we do, high confidence that there's growth opportunities in the future and over the long term.
Great. Thanks, guys. Appreciate that.
Sure.
Thank you. Our next question comes from the line of Shweta Khajuria with Evercore ISI. Your line is now open.
Thank you for taking my questions. I have a couple, please. You talked about services revenue and you gained share in the industry versus peers. It sounds like you wanna maintain the 25% monetized fees based on the shareholder letter. Would you specifically double-click on what your plans are for the year in terms of driving quality of leads and improving the experience to drive services revenue growth? That's question one. The second question is, David, if you could please talk about the cadence of EBITDA. Sequentially, you had some comments in the prepared remarks as well, as well as in the letter, but how should we think about cadence of EBITDA for the rest of the year to get to your full year guide? Thank you.
Hi, Shweta. This is Jeremy. I can touch on maybe the first one within services and monetized leads. Really happy to see the growth there, particularly the growth in home services. Believe that was 20% year-over-year. You know, great to see all that activity happening on Yelp. We have a whole host of continued improvements within Request a Quote. You know, one project in particular launching soon will really leverage Yelp's brand to help give consumers the confidence to engage with Request a Quote in particular. We do see, you know, a really healthy portfolio within our product development sphere there. On the monetized leads question, 25% monetized leads, that has come up a lot over the years.
We do think obviously there's considerable headroom to keep making improvements there. You know, there's trade-offs. Like, we could certainly move that number up, but if the quality isn't there from a lead perspective, then that value isn't felt on the advertiser side. Given the really high demand from advertisers right now, we wanna make sure that they're getting a lead that is actionable, that works for them, where they feel like there's an opportunity to drive ROI. We're not rushing to drive that number up immediately. We're focused on quality as we were last year, but we do believe that over time, that will continue to go up.
Shweta, just addressing your question on the cadence of EBITDA through the year. In the first quarter, we do see significantly higher expense due to payroll taxes. There's also a bit of layering in the additional expense of headcount that we hired in the first half of 2022. We would expect EBITDA to increase over the course of the year and for expenses to moderate down from the first quarter as we also move through the year. That's the profile that we expect in order to deliver the $290 million-$310 million for 2023.
Okay. Thanks, David. Thanks, Jeremy. Just a quick follow-up, though. David, any help with just for modeling purposes, in terms of seasonality, should we follow this particular year? Is it more representative of 2019 versus perhaps 2022? Any thoughts there?
Shweta, I don't off the top of my head have a thought in terms of that seasonality for a year to compare to. We'll go back and take a look at that. What I can say again is Q1 is meaningfully higher because of this payroll tax, and that we do actually expect for expenses to moderate down as we move through the year in order to deliver the overall Adjusted EBITDA for the year. 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 2019, 2020 and 2021. It makes it a little harder to do comparisons.
The other thing I would just point out is we're not seeing large movements in headcount in 2023, or we don't anticipate large movements in headcount in 2023. That's also just a very different profile compared to prior years.
Okay. 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. Coming back to the comments on the macro, would love to get as much detail as you're willing to give about what sort of headwind that might have created to Q4, the beginning of Q1, just so we can better size out, x the macro, how are you thinking about the underlying performance of the business of things within your control versus outside of your control? 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 through 23 and think about an exit velocity into 2024? Thanks so much.
Hi, Eric. This is Jed. I can take both questions. You know, in terms of Q4 revenue and macro visibility, you know, we remain really pleased with the overall resilience of the business thus far. We've, you know, in the past, experienced, you know, periods of uncertainty, and the business has remained solid. We have a diverse and really high quality revenue base by both channel and category. You know, with down funnel performance-based ads. Our most efficient channels, as you mentioned, self-serve and Multi-loc both grew at a 25% rate year-over-year in 2022. You know, at 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 supply to rising input costs. Our relationships with the Multi-loc businesses remain really strong. We believe that Multi-location channel has room to run. You know, on the SMB side, our advertiser base is comprised of really high-quality local SMBs, which has demonstrated that resilience in the past. You know, we're focused on what's in our control right now and executing against those initiatives. In terms of the mix between self-serve and Multi-location, you know, we've increased four points year-over-year in terms of the total out of those two channels between self-serve and Multi-location, up to 48% of our revenue.
And, you know, you have, over approximately 50% of our revenue growing at a, at a 25% clip. We're really pleased with those two channels. We've continued to make improvements on the Multi-location product portfolio, Spotlight Ads, Yelp Audiences, Sponsored Collections, which are really resonating in the marketplace. On the self-serve side, you know, continuing to make improvements in terms of, you know, what we're giving our local advertisers in terms of, you know, customer insights, and an improved message center, and really matching the most important leads with our advertisers. You know, from a mix shift perspective, we're gonna 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 J.P. Morgan. Your line is now open.
Hey, thank you. I have two. wanna try one more on macro, just maybe more specifically, you know, have you seen improvement in the Multi-location advertiser base coming out of the holiday season, or would you characterize it as kind of staying steady, perhaps at those lower levels? Secondly, on the consumer demand, you know, I think Jeremy, you mentioned that it remains a little below pre-pandemic levels. Curious what you attribute that to. Then, you know, you called out app unique devices are lower, but, you know, what about engagement per user, and how that's trending? Thank you.
I can take another shot at the macro in terms of Multi-location trends. You know, obviously we saw that muted spend in the fourth quarter, but we were really pleased with the way we were able to kind of, continue conversations with all those Multi-location advertisers, and we feel like we're really well positioned going into 2023. Ultimately, in this type of environment, you know, we have a really down funnel lead, you know, and are strong. You know, in times of macro uncertainty, folks wanna spend their money in a place where they think they're yielding ROI. You know, based. We have attribution solutions as an example, that are able to really prove that out.
Whether it's our YSV, which is our per-first party data, you know, derived from Yelp and/or third parties that we use in order to kinda showcase that attribution, that's in a really good spot right now. Of course, there are macro uncertainties that are out of our control, but we feel well positioned, relative to the competition as we head into 2023 there. So, yeah, that's what I would say on the Multi-location side.
Hi, Cory. Jeremy again. talking about consumer engagement and, you know, looking at the app, it was kinda flat year-over-year. I think a big contributing factor, you know, obviously macro, and, you know, how much consumers are getting out there and transacting. you know, we're not just kinda sitting around. We have, you know, pivoted a lot of resources towards consumer. you know, we did see contributions, you know, rise 3% year-over-year, so I think that's early signs of success from the efforts there. We have a deep, you know, roadmap that we'll be executing on in 2023 that's focused on, you know, some of these things you mentioned, you know, improving the Android experience, like improving engagement.
We've got a new home feed that we're gonna keep iterating on. You know, you may have also noticed there's new technology out there, you know, large language models who've already booked their first win within search from leveraging LLM. I think there's a lot of opportunity. We're just gearing up. You know, last year was kind of our first effort starting to stack wins, I think we'll see that continue. Also worth noting, you know, mobile web was up as well. With the product and engineering investment that is now quite significant, you know, I think we feel confident. Also return to marketing spend. You know, one of the things we pulled back on, especially during the early pandemic timeframe, was, you know, installs and driving installs from a paid perspective.
That's something that we've returned to, and so that provides some audience upside as well.
Maybe one more if I can just for Jed. If I was understanding, you called out local sales productivity. I think you said new customer acquisition was the best you've seen in two years. Curious what you attribute that to, and if there's something maybe specifically that you've changed or that you're doing that you would call out as working well. Thank you.
Yeah. Thanks for the question. We have been really pleased with our, you know, local channel, which includes both kind of the self-serve as well as our rep sold business. You know, from a, from a sales force perspective, certainly we feel there are benefits in our remote posture, and being able to retain, you know, our top performing reps
You know, who are now distributed across the country, and that's been a real boon for us in terms of making sure that we have the right people in the seats. You know, as that sales force ages, you're gonna get more productivity out of them. You know, ultimately, we're also giving them more product to sell too, which is really, really important as we've watched the product portfolio evolve over the past few years and the confidence level with which they can talk to local businesses. You know, we know we're delivering more value than we ever have, and that's been really an important part of the success on the local sales team.
Awesome. Thank you both.
Thank you. Our next question comes from the line of John Colantuoni with Jefferies. Your line is now open.
Hi, this is Christopher Suchecki on for John. Thanks to you for taking the question. 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 adjustment to the services ad load? Then maybe just some comments on how you're thinking about greater ad load could impact consumer experience and then lead monetization. Thank you.
Hi, Chris. This is Jeremy. You know, we're constantly running experiments that are varying the search experience. So, you know, nothing to report there as far as something, you know, massively different than historicals. You know, I do think a lot of the activity within services, it's important to note, is within Request a Quote. So a lot of what's happening within Request a Quote is, you know, fully or near fully monetized. It's a great consumer experience because you're telling us more about your project, and then you're hearing from people that can actually fulfill that, and ideally within a reasonable timeframe.
You know, we see it as kind of a win all around, in that, you know, the pro gets valuable leads and an opportunity to engage with the consumer, the consumer gets responsive businesses, and Yelp facilitates that and gets paid. That's where a lot of the focus is and a lot of the value is, within services.
Got it. Thanks so much.
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. I think it was roofers maybe increasing ad spend even as they, you know, saw demand cool. You noted home services was up 20% year-over-year this quarter. Maybe looks like that trend's continued. Curious if there's anything else you'd call out there or any other services categories, especially weak or strong.
Brian, this is Jeremy. Don't remember the specific on, you know, roofers. I'm not sure about that. You know, we have seen services demands from advertisers remain robust, and home services even more so. You know, what's going on there, I think, you know, hard to fully unpack given the, you know, strange, call it, macro environment. I think, you know, part of it is as business has slowed down from, say, a great, you know, boom time year of 2021, businesses did have, you know, and continue to have cash to spend on keeping their trucks rolling and keeping themselves busy. They're looking for reliable channels in which to invest and get a return on their investment from a leads perspective.
You know, I think that's why so many have turned to Yelp, is because, you know, we're a reliable source of high-quality leads. It's also very convenient. They can turn it on and off as needed. They can test it out, and see for themselves whether we're delivering. You know, from our perspective, we've been working really hard on making, you know, Request a Quote work for these businesses, driving quality leads. You know, quality over quantity was a big theme last year. We weren't as focused on driving up the percentage of monetized leads. We're really focused on that lead quality. I think that's coming through. Then if you look at the opportunity off Yelp, we're taking that consumer demand when someone comes to us with one of these longer tail infrequent service requests.
We're able to reach them when they hit, you know, maybe The New York Times or somewhere else on the web through Yelp Syndication. That's a powerful tool as well. I think everything's coming together to deliver valuable leads to these local businesses, and they're continuing to spend with us, which is great.
Awesome. Thank you.
Thank you. There are no additional questions waiting at this time, I will now conclude the Yelp fourth quarter and full year 2022 earnings conference call. Thank you for your participation. You have a wonderful day.