Yelp Inc. (YELP) Q1 2026 Earnings Report, Transcript and Summary

Ladies and gentlemen, once again, I do really appreciate your patience. Good afternoon, and welcome. My name is Aaron. I will be our conference operator for today, and I would again like to welcome you to the Q1 2026 Yelp Inc. Earnings Conference Call. [Operator Instructions] And with that, let's go ahead and begin our call. It's my pleasure to turn our call over to Kate Krieger, Director of Investor Relations. Kate, with that, you can go ahead. Thank you.

Good afternoon, everyone, and thanks for joining us on Yelp's First Quarter 2026 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 and then turn to your questions. Now 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, and 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 may discuss adjusted EBITDA, adjusted EBITDA margin and free cash flow, 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 Investor Relations website, you will find additional disclosures regarding these non-GAAP financial measures as well as historical reconciliations of GAAP net income or loss to both adjusted EBITDA and adjusted EBITDA margin and a historical reconciliation of GAAP cash flows from operating activities to free cash flow. And with that, I will turn the call over to Jeremy.

Thanks, Kate, and welcome, everyone. Yelp continued to accelerate its AI transformation in the first quarter. We are making local discovery increasingly conversational, delivering tools to help businesses succeed and expanding the reach of our trusted content through new partnerships. Our progress in the quarter resulted in the recent rollout of more than 35 new features and updates, including a new Yelp Assistant that now works across all categories. At the same time, local businesses have continued to face a challenging economic environment. First quarter net revenue increased by 1% year-over-year to $361 million with a net income margin of 5% and an adjusted EBITDA margin of 22%. Underlying our top line results, Services Ad revenue increased by 1% year-over-year and RR&O ad revenue decreased by 11% year-over-year. We've increased our focus on growing a number of AI-driven revenue streams this year and other revenue grew 75% year-over-year as a result. Moving to our product initiatives. We are reconceiving how consumers and businesses connect on Yelp through a conversational experience that provides answers and enables actions. In the first quarter, Yelp Assistant connected more consumers and service pros than ever before, with its growing adoption accounting for approximately 15% of Request-A-Quote projects. We recently rolled out a new Yelp Assistant that supports local discovery across every business category on Yelp, delivering trusted recommendations while surfacing relevant reviews, star ratings and other helpful details. While still early, we are seeing positive signals and believe Yelp Assistant can ultimately drive deeper engagement. In addition to evolving our product offerings, we are expanding our partner ecosystem to help consumers complete tasks like initiating a reservation or booking an appointment. In the first quarter, consumers took advantage of the hundreds of thousands of new restaurants available for food ordering and delivery through our DoorDash partnership with food ordering revenue up 88% year-over-year. More recently, we announced new integrations with Vagaro and Zocdoc to enable users to book beauty, wellness, fitness and health care appointments. We are delivering AI tools that help service pros and other local businesses grow, operate and succeed. For advertisers, this showed up in the form of improvements to the ad experience and business owner platform, where we've introduced a new AI-powered support chatbot that streamlines administrative activities. Our team continued to scale Yelp Host, our AI-powered call answering service for restaurants, which surpassed an annual run rate of 1.5 million calls handled in April, more than doubling from January. We plan to roll out new improvements and functionality, including the ability to place food orders over the phone. Overall, we estimate there is a market opportunity of over $1 billion in the United States for Yelp Host. With our best-in-class offering and expansive distribution, we believe we are well positioned to capture meaningful market share. We also accelerated our strategy in this area for Services businesses through the acquisition of Hatch in February and have been pleased with the team's early progress. Notably, Hatch's annual run rate revenue exceeded $34 million in March, up 92% year-over-year. Looking ahead, we see considerable opportunity for significant growth, and we have added Yelp go-to-market and engineering resources to advance Hatch's growth initiatives. Lastly, we are extending our reach to power local discovery across the AI ecosystem through data licensing. In the first quarter, we secured new licensing agreements, including with OpenAI and expanded our integrations with existing partners. Consumers can now find licensed Yelp content on Amazon Alexa, Apple Maps, Microsoft Bing, Meta.ai and Yahoo, among many other platforms. We expect the operating environment for local businesses to remain challenging this year. As such, we have allocated meaningful resources to drive growth in other revenue through AI-driven offerings such as Yelp Host, Hatch and data licensing. As these accretive revenue streams continue to gain traction, we are targeting an annual run rate of $250 million in other revenue by the end of 2028, more than double the run rate delivered in the first quarter of this year. In summary, we continue to make significant progress transforming Yelp with AI in the first quarter as we focus on deepening the connection between consumers and businesses. We're confident in our plan for the year and believe that our initiatives will position us to drive profitable growth over the long term. With that, I'll turn it over to David.

Thanks, Jeremy. Turning to our first quarter results. Net revenue increased by 1% year-over-year to $361 million, $6 million above the high end of our outlook range. Net income decreased by 27% year-over-year to $18 million, representing a 5% margin. Adjusted EBITDA decreased by 7% year-over-year to $79 million, $15 million above the high end of our outlook range, representing a 22% margin. As Jeremy mentioned, local businesses have faced a challenging operating environment, which is reflected in our advertising metrics for the quarter. Services ad revenue increased by 1% year-over-year to $234 million, while RR&O ad revenue decreased by 11% year-over-year to $99 million. A decrease in both services and RR&O locations resulted in an overall decline of 6% year-over-year in paying advertising locations to 485,000. Ad clicks declined by 10% year-over-year in the quarter, driven by lower consumer demand in RR&O categories, partially offset by a slight increase in services categories. Average CPC increased by 8% as advertiser demand outpaced consumer demand. Moving to other revenue. Other revenue increased by 75% year-over-year to a record $29 million. This strong growth was driven by the inclusion of revenue generated by Hatch as well as significant growth in revenue from data licensing and food ordering. Turning to expenses. In 2026, we're investing behind high-return areas that we believe will transform Yelp and reaccelerate growth. As Jeremy mentioned, we believe we can drive significant growth in other revenue, and we have reallocated resources behind these high-growth areas to better capture the opportunities ahead. At the same time, we see substantial opportunities to unlock operational efficiencies and increase employee productivity with AI, giving us increased confidence in the margin potential for our business. As a result of these top and bottom line efforts, we believe we can drive strong growth in adjusted EBITDA margin over the next several years. We reduced stock-based compensation expense as a percentage of revenue by 2 percentage points year-over-year to 8% in the first quarter. We expect the impact of this effort, combined with continued share repurchases to stack over time and benefit GAAP profitability in the years to come. We also continue to expect that we will reduce stock-based compensation expense to less than 6% of revenue by the end of 2027. Our approach to capital allocation remains focused on three priorities: investing in strategic transactions, driving traffic acquisition and returning excess capital to shareholders through share repurchases. In the first quarter, we repurchased $125 million worth of shares at an average price of $24.58 per share, reflecting our disciplined approach and contributing to a 12% year-over-year decline in diluted shares outstanding. As of March 31, 2026, we had $414 million remaining under our existing repurchase authorization. We plan to continue repurchasing shares in 2026, subject to market and economic conditions. Turning to our outlook. We anticipate that the challenging economic environment for local businesses will persist into the second quarter and continue impacting advertising revenue across categories. At the same time, we expect our investments in our strategic initiatives to drive strong growth in other revenue. As a result, we anticipate second quarter net revenue will be in the range of $363 million to $368 million. For the full year, we continue to expect net revenue will be in the range of $1.455 billion to $1.475 billion. Turning to margin. We expect expenses will increase sequentially as we invest in our AI transformation and increase marketing spend. As a result, we anticipate second quarter adjusted EBITDA will be in the range of $70 million to $75 million. For the full year, we continue to expect adjusted EBITDA will be in the range of $310 million to $330 million. For the second quarter and full year, our expected adjusted EBITDA ranges exclude accrued acquisition and integration-related payments for continuing Hatch employees of approximately $4 million and $13 million, respectively, which we do not believe are indicative of our ongoing operating performance. In closing, Yelp's first quarter results reflect continued product momentum as we invest in our AI transformation. We continue to believe in the opportunities ahead and our ability to create long-term shareholder value. With that, operator, please open up the line for questions.

[Operator Instructions] Our first question for today comes from the line of Sergio Segura with KeyBanc.

Maybe just starting out on the quarterly performance and the full year guide. Congrats on achieving revenue and EBITDA above the high end of your guidance outlook for Q1. Just curious why the guide was maintained here? Was Q1 from a macroeconomic perspective, a little bit better and Q2 a little bit worse? Could you just explain the reasoning why Q1 came in better than expected, but you're maintaining your full year outlook?

Sergio, this is David. Thanks for the question. Q1, we were pleased with the performance in Q1. That being said, we did see a dynamic in the March month around the conflict in the Middle East, which had an impact on budgets from advertisers. And -- just as a reminder, the dynamics that we saw in 2025, they did persist into the first quarter, but we saw that further playing out in March. So while we've seen improvement in April, and it's more in line with our typical seasonal ramp, we are operating under the expectation that, again, these dynamics are going to continue to play out over the course of the year. And some of that March softness does persist into the second quarter. So it does carry through. So that's how we are thinking about the performance plus the continued uncertainty, which is reflected in the overall guidance for the year.

Understood. That makes sense. And then maybe a bigger picture one. I appreciate the $250 million run rate target you gave for other revenue by the end of 2028. Maybe if you could just elaborate on kind of the drivers and main components you see to achieving that target by that time frame.

Absolutely. So we see three components there, and I'll talk just a little bit about how they contribute and then turn it over to Jeremy to talk more strategically about the approach that we're taking. In the first quarter, as we mentioned or just to step back, as a quick reminder, other revenue consists of three components. One is transaction revenue. In the first quarter, we saw that grow 88%. As Jeremy already mentioned, that's around the DoorDash partnership. We continue to see momentum in the second component, licensing, which we're very pleased with and continue to see a large opportunity there. And then third, obviously, Hatch. So we see the opportunity for all three of those areas to contribute over the next several years.

Thanks, David. I'll hop in with a little bit more color. We're very excited about the opportunities we have to really ride this AI wave and take an offensive position here. With Hatch and with Host, those are really greenfield opportunities. Closed the transaction with Hatch in February. That's going really well, 92% annual run rate revenue growth year-over-year, $34 million run rate in March. So we're really pleased with that. And we've taken the opportunity to surge resources there, in particular, on the product and engineering side to support the business as well as the go-to-market side. It's a huge opportunity. There's a lot of share to be had, and we want to make sure to lean in there. We also have been developing the opportunity around our Host, which is our phone answering service for restaurants, really great response from customers, great go-to-market activity. And then we just talked about the progress we're making on the product side in the letter. And one of the major unlocks we've got coming very soon is food ordering over the phone. And so that allows us to take a market opportunity that was already exciting and makes it even more exciting, talk to lots of restaurants that maybe don't have front of house, don't need that integration that Host provides, but would love to take food orders. So we see tremendous opportunity there. And we've built out a lot of that experience. We're in live testing now. And so we'll keep you posted on that. And then finally, we've got the data licensing business, which obviously, we've been in that business for a long time, particularly with search, have had some great relationships there that have driven revenue as well as traffic. And really, our focus is to apply that playbook once again to this really exciting opportunity to power local search for AI players as well as, of course, our own products, but bringing the great high-quality human written content to all of these new large audiences, I think, is really exciting, both from a revenue standpoint from a marketing standpoint, having the Yelp brand and our great content out there. And then ultimately, there will be relevant links back where it makes sense for consumers, and that can drive meaningful traffic over the long term. So we see within that other area, just a lot of AI opportunities that are already growing really fast, and we have opportunities to go even faster.

Our next questions are from the line of Cory Carpenter with JPMorgan.

I had two related to EBITDA. David, I did think it was notable you mentioned your expectation for strong growth in EBITDA margins over the coming years. Could you just elaborate a bit on that comment? How much of that is due to some of these core business efficiencies you're seeing from AI? How much of that is due to maybe perhaps a higher-margin nature of some of these emerging revenue streams you have? And then more near term, the 1Q EBITDA beat was rather significant. So just any comments on what drove the upside in the quarter.

Thanks for the question, Cory. So in terms of the longer term, we're very encouraged both on the revenue potential as well as the opportunity to drive productivity. On the revenue potential side, and again, I think we'll ask Jeremy to add some comments here. We are seeing accelerated product development and time to ship. That was already emerging, as we've shared previously, really as we move through '24 and '25. And I'd just say that our product-led growth strategy has really been working and the capabilities that are now available with AI are further enhancing that. That's particularly true about for newer products where you have more freedom to drive that change compared to maybe some of the improvements that we're making on the experience that we've had where you have a larger code base. So that's certainly something that we're excited about that ability to really innovate and deliver features more quickly and drive revenue, also respond to customer feedback, consumer dynamics. That's a really positive feedback loop there. And then obviously, we made the acquisition of Hatch, which is an AI-driven product in order to enhance lead management. So lots of, lots of opportunity to continue to push forward on the revenue side. And then on the productivity side, I already touched on what's happening in product and engineering. That's a common theme, I think, across companies. But we're really also starting to see that play out in the sales and marketing side. And we're even able to take the capabilities that we're building for consumers like our voice product in Yelp Host and apply that on our customer success side and being able to answer calls. And then I think it's still emerging, but there's certainly opportunity for productivity in the G&A function. So when you combine those, we do feel optimistic on our ability to generate incremental margin over the next few years, and we think that could be quite substantial. And then before I turn it over, just to address your question on the first quarter, as you know, over the years, as we've been able to outperform our guidance, we've flowed through that incremental revenue to EBITDA that also took place once again in the first quarter. We also saw some benefits around capitalized software development, and then there's just the normal puts and takes across some of the other operating line items. Jeremy, perhaps you could expand a little bit on what we're seeing with product development and velocity.

Yes, happy to outline. We are adopting all of the modern tools, and we're starting to see signs of real productivity gains. Things like migrations come to mind where something that would maybe take three months has taken more like three weeks. So that's fantastic. I think a significant portion of our code at this point is AI generated like many others have reported. So we're very optimistic that we're going to see continued acceleration in terms of product development velocity in the coming months.

Our next question is from the line of Colin Sebastian with Baird.

I have a couple of questions. I guess, first, regarding some of the disclosures around Yelp Assistant and Request-A-Quote projects. I guess any more detail on how materially different those interactions are in terms of conversion into paid leads and book jobs and ultimately advertiser ROI? And then secondly, I guess, maybe as a follow-up in terms of what you've been saying and disclosing around your relationships with other surfaces like OpenAI and Apple and others. But are these partnerships generating mostly referral traffic, off-platform monetization? Any other takeaways, I think, could be useful as those relationships become more important over time.

Sure. Happy to answer that. This is Jeremy. So on the Yelp Assistant side, particularly with the services focus and Request-A-Quote, we have seen incremental projects as we've rolled out Yelp Assistant, particularly the services version that's been around now for a couple of years and seeing gains there. And in fact, we noted that of Request-A-Quote projects, 15% now are driven by Yelp Assistant, and that's up from about 5% last year. And so we feel really good about what our LLM-powered flow has been able to do to move the needle in terms of projects. And in fact, we're doubling down there and we've invested a lot more in bringing the power of Yelp Assistant across to all categories. We just launched that in April. The early signs are really good. So we're excited. Obviously, it's kind of the first inning of the rollout. We have a lot more to do in terms of weaving it into the overall product experience. But we're quite excited about it. We think it helps consumers ultimately find needles in the haystack and really get more out of the incredible depth of content that we've had. If you think about a consumer experience prior to the invention of LLMs, we might have 1,000 reviews on a particular place, but there is no possible way that a human could dig through that and really make sense of all the valuable information that's been submitted by users over the years. And now with Yelp Assistant, we can actually tap into that and provide the evidence back to the consumer of, hey, this is why it meets your needs, here's some quotes from users. I think that's really powerful. I think that our expectation and hope is that we can move the needle with that over time. And so we're just getting started there. On the partnership side, the data licensing side with some of the AI players, I think it speaks, number one, to the importance of Yelp and the overall AI ecosystem. If you want to provide a local search experience powered by AI, you really need to be grounded in reality and you need to have very high-quality human written content, and that's exactly what Yelp has. And so a while ago, maybe a year or two ago, we started highlighting that we believe that there was an opportunity here, and it's really played out along with our expectations. And we've signed with a number of big names. We talked about Amazon Alexa, Apple Maps, we've been able to see our content for quite some time, Microsoft Bing, Meta.ai, Yahoo and many others, and we've announced a deal with OpenAI. As far as the maturity of that sector, I think it's extremely early. Many of these players have not really built out their local experience yet. They're just realizing that they need high-quality human written content like Yelp. And so it's very early. But I do think there are certainly opportunities, one, for just Yelp exposure, branding, et cetera. But then there is also opportunities for traffic back where it's relevant and is helpful to the consumer. And so I think we will see that over time. But again, like some of these players haven't really even launched their experience yet. So we're even before the first inning, I would say, in this whole area.

Our next question is from the line of Nitin Bansal with Bank of America.

So just double pressing on the OpenAI partnership. So when I search for restaurants or local recommendation on ChatGPT today, Yelp content appears relatively limited versus sources like Reddit, OpenTable, Tripadvisor. Can you help us understand the scope of the partnership today, specifically like how OpenAI is leveraging your data and where Yelp content is surfacing? And what needs to happen for Yelp to become more visible or primary source within these AI services? And secondly, one for David. You shared guidance on the other revenue segment like the 2028 run rate. But how should we think about the trajectory of growth in this segment over the next few quarters? And what does it mean for your advertising given the overall revenue guide remains unchanged?

This is Jeremy. I'll hop in with the first question on the OpenAI partnership that we announced. At this point, we've announced the partnership. And as far as the experience that OpenAI is planning, like we can't really comment on that nor do we have all the details of their plans. Obviously, they're moving really fast and innovating quite quickly and things are changing within their own experience very rapidly. So I would just say, continue to watch that space, but I can't really comment on what they're up to.

Thanks for the question. So in terms of other revenue, again, we have the three components to it: transaction revenue in the first quarter growing 88%. Then we've shared with you the run rate revenue as of March for Hatch at 92% growth. And we do continue to sign up licensing agreements and entering into new partnerships, which contributed to the overall growth of 75%. So obviously, we've reflected that performance into our guidance for the year, and we're looking forward to continuing to execute against them. I would just say the overarching perspective on our guidance this year is the degree of uncertainty that we need to reflect given the variability that we've seen, particularly for local businesses in the United States and the dynamics that we saw, which I already mentioned playing out in March from the conflict in the Middle East. So we're combining both of those in the guidance that we're providing, and we look forward to giving you an update on the Q2 call.

Thank you for your questions. Ladies and gentlemen, that will conclude our questions for today, and it will also conclude today's Q1 2026 Yelp Earnings Conference Call. Thank you all for attending. We appreciate your time. Have a great rest of your day. Take care.