All right, we can kick it off. Well, thanks to the team from Yelp for being here. I think this has become an annual tradition. We appreciate the partnership. Jeremy Stoppelman, CEO, David Schwarzbach, CFO. David, I think you have a safe harbor to read quickly.
Thanks, Alex, for having us at the conference. We will be making some forward-looking statements during the conversation today that are subject to risks and uncertainties. Please refer to our SEC filings for more information on the risk factors that may affect our results.
Great. Jeremy, I want to start with you. Sort of a big-picture table-setting question. The platform has been under a lot of evolution over the last couple of years. You guys have really leaned into what you call the product-led growth strategy. Maybe frame for us some of the key product developments that you are most excited about and how you see them driving growth going forward.
Sure. Yeah, if you go back the early history of Yelp, we were really go-to-market led for a number of years. Then we entered into a, probably around 2018 or so, a product-led era, where we made a great bit of progress on the business, have taken Yelp ads business to greater heights, something in the order of $1.5 billion-ish a year. Now we are at the point that really is, it is the AI era. Obviously, a huge technological shift. We have had to rapidly adapt that technology, both internally, in terms of how we work, but then especially modernize the product, bring AI elements into it, like Yelp Assistant, which we have launched in the past year. We also saw opportunity. We did not just want to necessarily focus on how can we transform only Yelp and what we have done historically.
We also started looking for greenfield opportunities where we can ride the AI wave. That has led to some really exciting AI tool capabilities that we now have, starting with Yelp Host, which was homegrown. That is answering the phones for restaurants. It is not just picking up the phone and giving directions, but it is integration with front of house, like our Guest Manager product, like OpenTable. It is also even taking food orders over the phone, and that is commission-less, going straight into their POS systems. They do not have to pay the DoorDash tax necessarily, which businesses love.
The feedback we have gotten on that product has been really strong. It even speaks, I think it is 17, 18 languages now. Really impressive the capabilities that the team has built out. We also started working on a product for services, a voice product for services called Yelp Receptionist.
But as we were bringing that product to market, we also had the opportunity to partner and bring in-house Hatch, which was years ahead in the digital lead management space. Great brand, great praise coming from their customers. Basically, leads come in to services businesses from all sources, so it is not just Yelp. They make sure to follow up on those leads, drive those leads to a booked appointment all through AI. We took our voice effort and merged it with their voice effort, and so now we have a voice product as well as part of their suite. That has been really exciting. It is farther along the host business, which was really a zero to one kind of endeavor. Hatch has been in the market for a number of years and has more substantial revenue.
That is great. I definitely want to dig into all those products in more detail, but maybe to take a step back and start off, just as you view the competitive landscape and changes to the broader search and internet behavior, there has been a lot of updates to the search distribution landscape with AI. We have seen a number of announcements recently around agentic commerce and consumer agents and things like that.
How do you view Yelp's positioning against that broader landscape, and the value of the platform, both your installed user base and distribution footprint, but also the data and content that you can bring as well?
Yeah. I think something that's become increasingly clear is that Yelp has a very unique data asset. I'd put it right up there with Reddit as another example, or maybe Wikipedia. But if you want to answer local questions, if you want to know who's trustworthy, if you want to know what to order, all of those things are housed and grounded by Yelp data. If you're not Google, you don't have access to Google's data, you probably want to be talking to Yelp. I think that's been borne out in the quality of conversations our business development team has been having and some of the deals that we've now announced. Probably the most noteworthy being our work with OpenAI, and you're now seeing Yelp content integrated within ChatGPT experience as people dive into local.
Just recently, also there was a quote button, a Request a Quote button that taps into our Request a Quote system, showing up on relevant results within ChatGPT. That's part of our philosophy, isn't just to have great content and hoard it inside the walls of Yelp. Certainly, we want lots of people coming to Yelp, but we've also always found that there's opportunity to bring our content to where the consumer may be, and that helps bring new people back to the platform. The deals often take the shape of, there's obviously licensing revenue associated, there's typically traffic elements as well, and you can find our content on a whole variety of different properties, not just ChatGPT, whether it's Apple or Bing or on the AI side with Meta. You can find our content there as well as Alexa. The list goes on and on.
Even in most autos have our data as well. So there is a lot of demand, I think, for trustworthy, high-quality content about local businesses, and Yelp, I think, is the critical resource.
That's great. I want to dig into some of the products that you mentioned at the top, especially Yelp Assistant. I think that's the furthest along and probably most prominent across multiple of your services, RR&O and services as well. What have been some of the biggest learnings from rolling out and developing that product, some of the use cases, and how that's trended over time?
Yeah. Yelp Assistant is essentially a chat interface to Yelp, so it taps into all of our great content. You can literally find a needle in a haystack now because it is searching across everything that we have got, which is phenomenal. I think the biggest challenge is at the end of the day, you are also competing against things like, frankly, ChatGPT, Claude, but even some of the new buzzy products. I know it has been going around at this conference about Instinct, and what about Instinct? It is a really exciting space in that the bar is constantly being raised in terms of how much can you push the capabilities.
That has been the challenge for our team is as soon as we get something, we are like, "Wow, this is great." Probably the next week, we are seeing something where it is like, well, we have to do even better.
We have to add even more functionality. It is a very dynamic, fast-moving space. But again, we have the trusted content, we have the critical resource to answer those questions, which means both we can continue to create a compelling experience right on Yelp, but we are also happy to partner and work with other players, be it Instinct or anyone else, and find ways that are creating value for both companies.
That is great. David, this might be a chance to bring you into the conversation around some of the investments that you guys are making to facilitate that AI development and growth. How do you measure sort of the return on some of these investments and against the broader sort of monetization opportunity over time?
Obviously, we are applying AI to the externally facing products that we are selling, whether it is for advertisers or the Yelp Assistant. So we care a lot about building those efficiently and using tokens in an efficient way. Internally, obviously, there has been tremendous advance in the coding capabilities. So obviously on the engineering side, we care a lot about that. Then we are also looking at how to apply AI across the rest of the business, whether it is sales and marketing or G&A. The way that we think about it, of course, is first to look at some of the core metrics that we measure productivity around.
I think everybody is still wrestling with that. You do not want lines of code because it can be just inflated by writing more lines of code. Is it really better to have more PRs? Maybe, maybe not. You want the quality.
I think the most tangible is looking at avoided cost for the core and existing product, and that could be doing a migration more effectively, and so saving time, engineering time would be an example of that, and that's pretty measurable. Or you get a lot of velocity with new products. When you look at something like Yelp Host, we were able to build that very quickly, and then we decided we could really increase the opportunity size if we added food ordering over the phone. We were able to build that very quickly, get it to market, and start generating revenue. There, the ROI is very clear. You have the team, that's the expense, and then you've got the selling effort, and then you have the revenue and the expected revenue in the future. So that feels pretty straightforward.
Then there are just some things that have become possible that just weren't possible before. So the ROI is just self-evident. On the G&A side, a recent example for us was, hey, we want to make sure that people have all the right permissions for a particular piece of the code. You just send a bot through, and you look at all those endpoints, and you're able to identify where maybe all the permissions are not correct, and then you can correct it. What's the value of that of an avoided problem? But it's clear, and that was a few hundred dollars to do. So we're looking at it in a variety of ways and triangulating around it, but what I think we can confidently say is that we are seeing significant ROI from our application of these capabilities within the way that we operate Yelp.
Is there an opportunity for you to adopt more sort of open source, open weight technologies as well? I would imagine what's valuable, and a lot of companies have talked about Pinterest, for example, as well earlier today, bringing in these open weight, open source models and then applying your differentiated first-party data and content to hone some of those models. Is that sort of an opportunity that you guys are undergoing as well?
Yeah, I think fine-tuning, you can apply across all these models so that it's not limited to obviously open source.
We're going to do that with other models as well. I would really distinguish those, and I think that we are very effective at applying this great data set that we have to this question of, hey, how do we find local businesses or really make local advertising efficient? That's different than, hey, from a coding perspective, should we be using these open weight models? How can we apply them? When does the trade-off make sense? I would just say broadly, there's a real focus on how effective is a model. It's not just whether the model scores better on a benchmark, it's do you have a lot of rework with that model? Does it actually code effectively when you give the prompt, and do you introduce more bugs that you have to fix later?
I don't think it's actually a slam dunk that you're just going to shift to the open source models. At the same time, they obviously offer a significant cost advantage. You've got to balance them, and we're certainly looking at them just like everybody else.
That's helpful. Shifting gears a little bit to the core business and especially the RR&O side of things. You talked about some persistent macro headwinds, mostly outside of your control. How would you frame the current advertising environment, especially for those core advertisers, and what's sort of the outlook to sort of reinvigorate that going forward?
Yeah, I would say on the restaurant, retail, and other side, it has been a tough period. Unfortunately, I don't see macro suddenly getting better. There's a lot of countervailing forces, inflation being one of them, the conflict in the Middle East, all the input costs for restaurant operators going up, labor costs, et cetera. On the consumer side, that shows up also in lower frequency of dining out. It is difficult, but our focus is on continuing to keep that connection to the consumer, continuing to create the best product that we can, surprise and delight through things like Yelp Assistant, and how can we keep raising the bar on ourselves, on our team, on our product, to try and make sure that eventually, things are cyclical. Eventually, I think restaurants will thrive again.
We want to make sure that we have the most compelling product and have a great share of the opportunity as that arrives. You will see us continue to make significant investments both in things like Yelp Assistant, but then also the core experience of how do we gather interesting types of content. What are new content types that are compelling to people? We have question and answer features that have started showing up on the site that people seem to be really engaged with. We have, obviously, lots of photos, video. All those things needs to get better and better. At the end of the day, you are competing for people's attention, and so the product has to stay compelling, and you have to keep raising the bar on yourself, or you are losing portions of that attention to others as well.
How has that sort of direct traffic engagement trended over time as well? That seems to be the North Star for you guys, and then once the macro advertising environment gets better more broadly, you guys have that direct traffic to be able to serve. How has that trended over time?
Yeah. In the last quarter, we did highlight some positivity on the consumer traffic side. We attribute it to a number of different sources, certain partners sending us more traffic and downloads. We saw some positivity out of the SEO side of the business. I think that just shows that we continue to be really relevant. Our team continues to work hard to optimize the distribution opportunities that exist. Then I also would look to the future of like, hey, there are these emerging opportunities, things like ChatGPT. We are right there working with them to create a great experience on ChatGPT. There is also opportunities to bring people into the Yelp ecosystem. Things like the Request a Quote button that opens up an MCP widget that we are powering, and all that information on the user comes into the Yelp ecosystem.
We are then able to bring them quotes to solve their need. They have also then been introduced or reconnected with Yelp. That is a bit of a template of how additional distribution opportunities can emerge through the AI players. I think that is just the tip of the iceberg.
We're very early days. I think the market share of these agentic search players is still relatively modest compared to the classic Google market share, which remains at something like 85%, for better or for worse.
Yeah. Shifting gears a little bit to the services side of things as well. You guys have done a ton of product development work and improvements of that product, both external consumer-facing with Request a Quote and integration of Yelp Assistant and things like that. Then on the back end as well on your matching engine and onboarding new service pros. Maybe just frame for us what inning you're in or some of the key developments of that services business right now, and then what the opportunity is going forward.
Yeah. Request a Quote has been great for us, driven a lot of growth over the years. It's digital leads that are passed on to local businesses. I think the most elegant thing about Request a Quote, especially in the AI era, is its monetization that's built right in. So to the extent we're putting something like Yelp Assistant front and center, one might ask, "Well, okay, great, you have a chat interface, but how do you even have ads in a chat interface that are compelling? How do you make that work?" I think there's experimentation going on, but it's very unclear what ad format might replicate what Google has done, for instance, within Search.
But for Yelp Assistant, and especially because we derive the majority of our revenue through services, when you're talking to Yelp Assistant, you might be talking about restaurants or where to go this weekend or what have you, but when you come to a services need, you're then in a conversational Request a Quote flow, essentially. You're creating a project. Ultimately, it gathers the information necessary from the conversation. It says, "Okay, I'm going to send this out to get multiple quotes." That moment is a very elegant monetization moment built right into a chat interface. So I think that's great for Yelp. It also could provide a template for others that want to work with us and tap into the Yelp business network and be able to deliver these quote requests to their users.
I think it's a very elegant solve to a portion of the how do you monetize chat problem, and it just happened to be kind of naturally built into what we were doing.
Yeah, that's helpful. David, maybe some of the revenue growth drivers of services going forward other than Request a Quote and improving that over time. You talked about multi-location advertisers and service pros and really onboarding some of these large national service pros. You've talked about improving the matching engine as well. Maybe frame for us what you see as the key building blocks and growth driver for services, specifically on the revenue side going forward.
In services, it's all about delivering the lead at the lowest possible cost and the highest quality. We look at a lot of ways in order to ensure that. To the extent that we can gather more information, that's first and foremost. That's why Yelp Assistant is such an advantage, whether you're going through a Request a Quote in it or it's asking you other questions to discern exactly what it is that you're seeking or what the exact nature of the request is or the problem that you're trying to solve. First, it's gather more information.
It's continue to refine the matching algorithm, and then interestingly, there have been some really useful applications of LLMs to the matching itself. For instance, synonyms matter a lot in finding more synonyms and more relevant synonyms end up improving matching. That's just, in essence, the beginning, because once you've gone through the matching, for instance, we bought Hatch, you want to work the lead more effectively, and then, of course, you want to be able to do the job and charge for it. To the extent that we are able to support those advertisers in closing at a higher rate and getting more valuable jobs, then we are able, obviously, to charge more Cost per Click. It's not one thing. You have to do everything on their behalf.
In general, I would just say we have invested heavily in that communication platform, Yelp Message Center, over the past several years to improve just how do I have that conversation? Can I interact with you over text? I think there is a big opportunity now with voice, which is, can I respond to you? Can I reach out to you after you have started a conversation with me? So we are going to work across all of those dimensions. Broadly for Yelp, we have also seen some mix shift as we are able to bring more categories in that deliver value at higher ASP. The CPCs for those are also higher.
We are always doing experimentation around all of that. So I think there is a variety of ways in which we can deliver more value to service pros, and then that leads to better monetization or higher CPCs for us.
You have talked a little bit about, in the past, experimenting with paid search and SEM to bring in those leads and making sure you have the effective monetization potential of those leads in place before you make those investments. How is that progressing?
Exactly. We have invested heavily in order to bring leads in through paid search and land them to the right advertiser who is willing to pay for that lead. So we have continued to make progress there. It is something that we engage with large national advertisers around. It is not limited to large national advertisers, but it does create that direct connection between, we purchased this lead, and we were able to monetize it.
That is great. I buried the lead a little bit, but on the other revenue side of things, that seems to be really also the exciting growth driver going forward.
You laid out your targets or outlook to reach $250 million annualized of revenues and other revenues by the end of 2028. I guess, what are some of the building blocks to getting to that target?
As a reminder, other revenue, probably not the best name. Probably need another name for that. We are going to have to come up with something better, but it is composed of three elements. One is our transaction revenue, that is largely DoorDash. There is our licensing revenue, which we have already touched on, which is with folks like OpenAI or Meta. Then there is the subscription revenue. On the licensing revenue, we have continued to make great progress. As Jeremy said, we think that this is an asset if you want to do local search, you need, especially around agentic search.
Then on the subscription side, we have the host business that we have added, and we are continuing to invest there. So those are the three components. If you just multiply our revenue in the second quarter and other by four, you are at about $133 million. That is already halfway to the $250 million, and we are going to continue to focus on that.
That is great. Maybe touching on or double-clicking on that Yelp Host opportunity. I know it is early, but how has that progressed, and how would you frame some of the growth drivers going forward, whether it is more restaurant adoption, consumer adoption, some of those use cases, things like that?
Obviously, it is also a subscription product. The 98% growth in the second quarter, we like subscription, clearly. The growth driver there, I think, is really being able to tackle more TAM.
I referenced earlier, we realized that we could really serve a larger market if we were able to offer the food ordering. There is a lot of runway to go on food ordering alone. It's obviously adding the additional locations for restaurants, and then it's volume. If we can deliver those, and we can deliver that both for your single restaurants, but also your restaurant chains, then we see a massive opportunity ahead for us. We were at a 2.4 million run rate in July, so we're excited about that growth. That's a dead start or from zero to one, to Jeremy's point, from last October, and that tripled just from January. Just the call volume itself, I think, is indicative of the speed of adoption.
I can imagine that would be more of a sticky revenue stream as well, up or down macro environments with your restaurant customers. If you're consistently providing that value, I think that could be a sticky revenue stream over time. Is that the right way to think about it?
Absolutely, because you get the immediate ROI. I didn't miss a call. I didn't miss an order. We've gotten terrific feedback on the product in terms of Jeremy mentioned 17 languages, including English. What we also find is a small item, but an important one is it's very good at taking kitchen notes. I don't want the sauce. I want it on the side. I don't want lettuce.
Whatever that is very accurate, so actually operationally it's a big advantage because it is able to convey to the kitchen staff what the customer expects, and I think we've all had that takeout order which wasn't exactly what we wanted. Interestingly, that's been a big positive proof point that the quality of our product is there. The other thing that we hear is that the product knows the menu as well as, if not better than anybody working at the restaurant, which is also, I think, quite impressive. So those kinds of things, when you have a product that's really good and it's creating revenue for you're not going to change.
Yeah. That's great. Maybe double-click on Hatch a little bit more and talk about what the product opportunity is, what early adoption trends have been, and what the outlook is going forward as well.
Yeah. As a recap, we started with Yelp Receptionist. We had built sort of an early voice product, got the opportunity in February to acquire Hatch, which we had some working relationship with them. We knew about their product, digital lead management, speed to lead, and they had a good track record in the space. They had been operating for a number of years. With the launch of ChatGPT, they really turbocharged their business, and powered everything by AI. It was really working. It felt like it was an acceleration of the space that we were excited to enter. We saw there's a big greenfield opportunity. It's very early, to help people better manage their leads, pick up the phone, everything within the services sector. Hatch had a head start. We're very excited.
Post-acquisition now, we've just about doubled the team from a product and engineering standpoint, as well as from a go-to-market standpoint. That's been a heavy lift, getting everyone oriented, getting all the people in the right place. We're very happy with where we're at, and we're starting to see the execution that we would expect to see, out of bringing in some of this great talent from Yelp. That was, I think another one of the positives is we have a lot of go-to-market experience. We had some specialists on the AI side that were working on voice. There was a lot of very complementary things that we were able to bring together in that acquisition.
Even on the go-to-market side within Yelp, we have the business owner account where all of our customers and people who have claimed their businesses are able to go in and buy services, make changes, et cetera. We're able to put up a shingle and say, "Hey, Hatch is available. Here's what's Hatch. Here's why you should learn about it. Here's how it can create more value for you because it makes all of your leads more efficient." Really compelling pitch. Now we have leads flowing in through from our business owner account, where we're advertising the Hatch product, going straight to the go-to-market team. That's another very simple synergistic thing that we've been able to unlock. We see this as a big greenfield opportunity. It's very early.
There's a number of players, all of which, as far as I'm aware of, are startups. It's kind of fun to be competing against startups in this space. Some of them have achieved billion-dollar-plus valuations. I think that's really compelling too, and that we're going head-to-head against companies that in theory, Silicon Valley is valuing north of a billion, and yet, you look at our market cap and you're like, "Well, that's interesting." If maybe our effort is worth anything like that, then either you're getting the AI tool side of the business free or you're getting the ads business free. One of them is on sale.
I think that's a really compelling thing for investors to think about.
You would frame it as still very much greenfield opportunity, not so much a competitive landscape. How have the conversations been with those service pros around the adoption curve?
It's both. There's people that we're able to talk to, and it depends on where you're talking within the market. There are some of these private equity roll-ups, and they know all the players. They're doing bake-offs with everyone. Then there's folks more on the commercial side. They have 10, 15 trucks or what have you, and maybe they've been thinking about it, maybe they've heard something, but you're calling them and they don't have the capabilities to even run a bake-off. They want to know about the product, and is the pitch compelling? Is the price compelling, et cetera? I think from an overall market share penetration standpoint, it's extremely early.
Yeah.
There's a lot of opportunity, and it's a really big space. We've sized it. It's significant. That's just home services. There's also other adjacent categories that aren't traditionally home services, but where the product clearly is going to work. That's another opportunity is additional category expansion into the broader services landscape rather than just home services.
Yeah. Speaking of that category expansion, you have talked about that in the past as well as one of the drivers of services growth going forward. What is the progress on that outside of just pure home services, and how should we think about that going forward?
We are absolutely first focused on home services and landing Hatch and doubling the size of the team and being effective in scaling. First things first, but we do see, as Jeremy mentioned, this opportunity across verticals, and also there are other products that we will be able to build and deliver through the Hatch platform. We are excited about that opportunity. But first things first,
Yeah
land Hatch and run it well.
Yeah. Do not mean to get ahead of ourselves.
Yeah.
You touched on a little bit around your investment priorities and things like that, but you have done an excellent job of operating very efficiently and driving pretty steady margin expansion and EBITDA dollar growth as well. How do you think about that balance of organic reinvestments back in the business to drive that growth versus maybe being more in harvest mode and the progress for that going forward?
We are right in the middle of already, believe it or not, 2027 planning, and we are exactly having these conversations. I think it is a moment where you can conceive a product and prototype it and have it in your hands very quickly, and then you can have it in customers' hands very quickly. I think that is a really different era. So it unlocks a broader set of more speculative ideas. I think that we are really excited about that, and we want to be very disciplined in the way that we deploy capital. I think we have been disciplined in the past, and so we are always looking at that balance between investment in the core opportunity, returning capital to shareholders. But fundamentally, we want to deliver shareholder value over the long term, and so that is all going into this set of considerations.
It is probably one of the most exciting times from a product engineering perspective that maybe ever. So that part is really cool.
I know you just sort of made the Hatch acquisition and things like that. Not to get ahead of ourselves, but when you think about how M&A fits into that broader capital allocation framework, you guys have been ambitious in the past and been opportunistic around that.
Yeah.
How do you view that more broadly going forward?
We will definitely look at additional M&A opportunities, no question about that. I think if you consider the discipline that we applied in this particular acquisition, it was in home services, which is within services, which is our focus. It was a way to make our advertisers more successful, but also to make service pros broadly more successful. We saw an opportunity to generate leads for them, and we saw an opportunity for our customers to buy the product, and we thought that we could acquire it at a price that a premium but not outrageous. It was something that we could operate effectively. We are going to apply that set of criteria and discipline to any acquisition that we are going to do. We do see a broad set of opportunities, but valuations may be ahead of themselves.
I do not know, in private markets, but certainly, people have high expectations for the growth potential of those businesses. We are going to approach it in that same disciplined way, and if we can make the economics work and it is a good fit for Yelp, then absolutely we want to make the acquisition.
That's great. We only have a minute or two left here. Jeremy, I want to just give you the opportunity to sort of bring it all home. You helped found the company, and you've been at local services and search and building out the platform for a number of years. How do you view the landscape evolving going forward, how you're positioning Yelp to benefit from that landscape going forward, and what are you most excited about over the next few years?
Yeah, I think this is one of those moments, obviously, huge technological shift. We've seen a few of those. Yelp was born out of the shift towards the rise of Google and the SEO opportunity, Web 2.0. Then the iPhone was born, and that was another moment where we had to rise to the occasion. Built, obviously, the Yelp app, which was a lot of fun. Here we are with this incredible technology, the AI era, and so we have to reshape Yelp, a business that's now 20 + years old, leveraging all of the possibilities of AI. What's AI good at? It's sifting through great amounts of information, high-quality information. We have that in spades. So we have incredible resources at our disposal. We just need to put the parts together to create a really compelling experience on the core business side.
Then we have this new and exciting era of like, hey, we have great people with lots of deep expertise in AI, and we know that there's unmet needs by businesses that can be solved with AI. How can we create really compelling AI tools for them? Instead of rearranging an existing product and adapting it to AI, we can build greenfield, compete against startups, and create a lot of shareholder value that way. I'm really excited about it. I think the early signs with Yelp Host, completely homegrown, is very compelling. I think the opportunity that Hatch has is incredible. I think we've scaled the team, and we're in execution mode.
It's a transitional time for Yelp, but I think it's also an incredibly exciting time, both to be the CEO, but also to be working on these products and taking us into the AI era.
That's great. Thanks so much, Jeremy. David, thanks for being part of the conference this year. Appreciate it.
Thank you.
Thanks for having us.