Yelp Stock

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, so 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'll 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 with 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. Yes. If you go back to the early history of Yelp, we were really go-to-market-led for a number of years. Then we entered into -- probably around 2018 or so -- a product-led era where we made a great bit of progress on the business, having taken the Yelp Ads business to greater heights, something on the order of $1.5 billion-ish a year. And then now we're at the point that really it's the AI era. Obviously, a huge technological shift. We've 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've launched in the past year.

And then we also saw an opportunity -- we didn't just want to necessarily focus on how we can transform only Yelp and what we've done historically. We also started looking for greenfield opportunities where we can ride the AI wave. And so that's led to some really exciting AI tool capabilities that we now have, starting with Yelp Host, which was homegrown. So that's answering the phones for restaurants. And it's not just picking up the phone and giving directions, but it's integration with front of house, like our Guest Manager product, like OpenTable. It's also even taking food orders over the phone. And so, that's commission-less, going straight into their POS systems. They don't have to pay the DoorDash tax necessarily, which businesses love. So the feedback we've gotten on that product has been really strong. It even speaks, I think, 17 or 18 languages now. Really impressive, the capabilities that the team has built out.

And then 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 the customers. Basically, leads come in to services businesses from all sources, so it's not just Yelp. And they make sure to follow up on those leads, drive those leads to a booked appointment, all through AI. And 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. And that's been really exciting. And it's farther along than the Host business, which was really a 0-to-1 endeavor. Hatch has been in the market for a number of years and has more substantial revenue.

That's great. I definitely want to dig into all of 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's been a lot of updates to the search distribution landscape with AI. We've 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 then distribution footprint, but also the data and content that you could bring as well?

Yes. 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. And if you're not Google, you don't have access to Google's data, you probably want to be talking to Yelp.

And 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 the ChatGPT experience as people dive into local. Just recently, also, there was a Request-a-Quote button that taps into our Request-a-Quote system, showing up on relevant results within ChatGPT.

And so that's part of our philosophy. It 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 an opportunity to bring our content to where the consumer may be, and that helps bring new people back to the platform.

The often deals 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 great content there as well as Alexa. The list goes on and on. Even 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?

Yes. So 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's searching across everything that we've got, which is phenomenal.

I think the biggest challenge is, at the end of the day, you're also competing against things like, frankly, ChatGPT, Claude, but even some of the new buzzy products. I know it's been going around at this conference about Instinct and what about Instinct? So it's a really exciting space, and the bar is constantly being raised in terms of how much you can push the capabilities.

And so that's been the challenge for our team. As soon as we get something, we're like, "Wow, this is great." Probably the next week, we're seeing something where it's like, "Well, we have to do even better. We have to add even more functionality." So it's 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're 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's 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 the return on some of these investments and against the broader monetization opportunity over time?

So obviously, we're applying AI to the externally facing products that we're selling, whether it's for advertisers or Yelp Assistant. So we care a lot about building those efficiently and using tokens in an efficient way. Internally, obviously, there's been tremendous advance in the coding capabilities. So obviously on the engineering side, we care a lot about that. And then we're also looking at how to apply AI across the rest of the business, whether it's sales and marketing or G&A.

And 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 don't want lines of code because it could be just inflated by writing more lines of code. Is it really better to have more PRs? Maybe, maybe not. You want the quality. But 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 engineering time would be an example of that, and that's pretty measurable.

Or you get a lot of velocity with new products. So 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 in 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. And then there are just some things that have become possible that just weren't possible before. So the ROI is just self-evident.

So 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. Like 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 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 -- is bringing in these open-weight, open-source models and then applying your differentiated first-party data and content to own some of those models. Is that an opportunity that you guys are undergoing as well?

Yes. I think fine-tuning you can apply across all these models, so that we're doing -- it's not limited to obviously open source. We're going to do that with other models as well.

So I think 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?"

And 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?

So I don't think it's actually a slam dunk that you're just going to shift to the open-source models. And at the same time, they obviously offer a significant cost advantage. So 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've 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 the outlook to reinvigorate that going forward?

Yes. 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. And then on the consumer side, that shows up also in lower frequency of dining out. So 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. And we want to make sure that we have the most compelling product and have a great share of the opportunity as that arrives.

So you'll 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 need to get better and better.

And at the end of the day, you're 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're losing portions of that attention to others as well.

And how has that 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?

Yes. 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. And so 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.

And then I also would look to the future like, "Hey, there are these emerging opportunities, things like ChatGPT." We're right there working with them to create a great experience on ChatGPT. But also there's an opportunity 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're then able to bring them quotes to solve their needs, and they've also then been introduced or reconnected with Yelp.

And so that's a bit of a template of how additional distribution opportunities can emerge through AI players. I think that's just the tip of the iceberg. We're in the very early days. And 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.

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 to that product, both external, consumer-facing, with Request-a-Quote and integration of Yelp Assistant and things like that, and 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.

Yes. 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 it's 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 gathers the information necessary from the conversation, 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. So 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 naturally built into what we're doing.

Yes, 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 multilocation 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. So 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 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.

So first, it's gather more information; then it's continuing 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, and finding more synonyms and more relevant synonyms ends up improving matching. And 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. So 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. So it's not one thing. You have to do everything on their behalf.

And in general, I'd just say we've invested heavily in that communication platform, Yelp Message Center, and over the past several years to improve just how do I have that conversation? Can I interact with you over text? And I think there's a big opportunity now with voice, which is: can I respond to you? Can I reach out to you after you've started a conversation with me? So we're going to work across all of those dimensions.

Broadly for Yelp, we've also seen some mix shift as we're able to bring more categories in that deliver value at higher ASP. The CPCs for those are also higher. And we're always doing experimentation around all of that. So I think there's 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.

And you've talked a little bit in the past about 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've invested heavily in order to bring leads in through paid search and to land them to the right advertiser who's willing to pay for that lead. And so we've continued to make progress there. It's something that we engage with large national advertisers around. It's not limited to large national advertisers, but it does create that direct connection between: we purchased this lead, and we are able to monetize it.

That's 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?

Yes. As a reminder, other revenue is probably not the best name. Probably need another name for that. We'll have to come up with something better. But it is composed of 3 elements. One is our transaction revenue, that's largely DoorDash. There is our licensing revenue, which we've already touched on, which is with folks like OpenAI or Meta. And then there's the subscription revenue.

And on the licensing revenue, we've 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. And then on the subscription side, we have the Host business that we've added, and we're continuing to invest there. So those are the 3 components. If you just multiply our revenue in the second quarter and other by 4, you're at about $133 million. That's already halfway to the $250 million, and we're going to continue to focus on that.

Great. Maybe touching on or double-clicking on that Yelp Host opportunity. I know it's early, but how has that progressed? And how would you frame some of the growth drivers going forward, whether it's more restaurant adoption, consumer adoption and some of those use cases, things like that?

Yes. Obviously, it's also a subscription product. The 98% growth in the second quarter -- we like subscription, clearly. And the growth driver there, I think, is really being able to tackle more TAM. And I referenced earlier, we realized that we could really serve a larger market if we were able to offer the food ordering. And there is a lot of runway to go on food ordering alone.

So it's obviously adding the additional locations for restaurants, and then it's volume. And 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. And we were at a $2.4 million run rate in July. And so we're excited about that growth. That's a start from 0 to 1, to Jeremy's point, from last October, and that tripled just from January. So 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, with the up or down macro environments with your restaurant customers. But 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. And we've gotten terrific feedback on the product in terms of -- Jeremy mentioned it's 17 languages, including English -- and 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, it is very accurate.

And 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. And 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, you're not going to change.

Yes, 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.

Yes. So as a recap, we started with Yelp Receptionist. We built a 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've been operating for a number of years. With the launch of ChatGPT, they really turbocharged their business and powered everything by AI, and it was really working. So 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 manage -- better manage their leads, pick up the phone, everything within the services sector.

Hatch had a headstart. So we are 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. So that's been a heavy lift, getting everyone oriented, getting all the people in the right place. But 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.

And 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. So there were a lot of very complementary things that we were able to bring together in that acquisition. And then 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.

And we're able to put up a shingle and say, "Hey, Hatch is available. Here's what Hatch is. 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. And so now we have leads flowing in through our business owner account. We're advertising the Hatch product, going straight to the go-to-market team. So 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, are startups. So it's kind of fun to be competing against startups in this space. And some of them have achieved $1 billion-plus valuations. So I think that's really compelling, too, in that we're going head-to-head against companies that, in theory, Silicon Valley is valuing north of $1 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 tools side of the business for free or you're getting the ads business for free. One of them is on sale." And so I think that's a really compelling thing for investors to think about.

And you would frame it as still very much a greenfield opportunity, not so much a competitive lens. How have the conversations been with those service pros that are on the adoption curve?

It's both. There's people that we're able to talk to. 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. And then there's folks more on the commercial side. They have 10 or 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.

But I think from an overall market share penetration standpoint, it's extremely early. So there's a lot of opportunity. And it's a really big space. We've sized it; it's significant. And that's just home services. There's also other adjacent categories that are traditionally home services, but where the product clearly is going to work. And so, that's another opportunity, additional category expansion into the broader services landscape rather than just home services.

Yes. So speaking of that category expansion, you've talked about that in the past as well as one of the drivers of services growth going forward. What's the progress on that outside of just pure home services? And how should we think about that going forward?

We're absolutely first focused on home services and landing Hatch and doubling the size of the team and being effective in scaling. So first things first. But we do see, as Jeremy mentioned, this opportunity across verticals. And also there are other products that we'll be able to build and deliver through the Hatch platform. So we're excited about that opportunity. But first things first, let's land Hatch and run it well.

Yes. Not to get ahead of ourselves, but I wanted to -- you touched on a little bit around your investment priorities and things like that, but you've 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?

So we're right in the middle of already, believe it or not, 2027 planning, and we're exactly having these conversations. And I think there's just -- it's 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's a really different era. So it unlocks a broader set of more speculative ideas. I think that we're really excited about that.

And we want to be very disciplined in the way that we deploy capital. I think we've been disciplined in the past, and so we're always looking at that balance between investment in the core opportunity and returning capital to shareholders. But fundamentally, we want to deliver shareholder value over the long term. And so that's all going into this set of considerations, but 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 made the Hatch acquisition and things like that. So again, 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. How do you view that more broadly going forward?

We'll 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 was a premium but not outrageous. And it was something that we could operate effectively. We're going to apply that set of criteria and discipline to any acquisition that we're going to do. We do see a broad set of opportunities, but valuations may be ahead of themselves, I don't know, in private markets. But certainly, people have high expectations for the growth potential of those businesses. And so we're going to approach it in that same disciplined way. And if we can make the economics work and it's a good fit for Yelp, then absolutely we want to make that acquisition.

That's great. We only have a minute or 2 left here. Jeremy, I want to just give you the opportunity to bring it all home. You've 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 are you positioning Yelp to benefit from that landscape going forward? And what are you most excited about over the next few years?

Yes. I think this is one of those moments. Obviously, huge technological shifts. We've seen a few of those. Yelp was born out of the shift toward the rise of Google and the SEO opportunity, Web 2.0. And then the iPhone was born, and that was another moment where we had to rise to the occasion and built, obviously, the Yelp app, which was a lot of fun. And then here we are with this incredible technology, the AI era. And so, we have to reshape Yelp. This business is now 20-plus years old, leveraging all of the possibilities of AI.

And what's AI good at? It's sifting through great amounts of information, high-quality information. And 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. And 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 could be solved with AI. How can we create really compelling AI tools for them?"

And 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. And 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.

So it's a transitional time for Yelp, but I think it's also an incredibly exciting time, both to be the CEO and to be working on these products and taking us into the AI era.

That's great. Thanks so much, Jeremy and David. Thanks for being part of the conference this year. Appreciate it.

Thank you.

Thanks for having us.

Thank you. Hello, everyone. Thank you for your patience and for joining us. Welcome to Yelp Incorporated's second quarter 2026 earnings conference call, a reminder that participants are in a listen-only mode. After today's prepared remarks, we will host a Q&A session Thank you.

Good afternoon, everyone, and thanks for joining us on Yelp's second 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 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, noon in 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 a historical reconciliation of GAAP net income or loss to adjusted EBITDA, a calculation of net income margin 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 advance its AI transformation in the second quarter. Our team made local discovery more conversational, delivered new tools to help businesses succeed, and expanded the reach of our trusted content through new partnerships. We are pleased by the progress of our initiatives and the meaningful signs of improvement that emerge across several key metrics. At the same time, consumers and local businesses have continued to face a challenging economic environment. Second quarter net revenue increased by 1% year over year to $376 million with a net income margin of 8% and an adjusted EBITDA margin of 24%. Underlying our top line results, Services ad revenue was flat year over year, and RRNO ad revenue decreased by 10% year over year. We've increased our focus on growing a number of AI driven revenue streams this year, which contributed to other revenue growth accelerating from the first quarter to 98% year over year.

On the consumer side of our business, we saw encouraging traffic trends in the quarter with improvements in app installs and page views. Moving to our product initiatives, we have reconceived how consumers and businesses connect on Yelp through a conversational experience that provides answers and enables actions. Central to this updated experience, the new Yelp Assistant which works across all categories, demonstrated early positive signs in user engagement. In services category specifically, Yelp Assistant has been an important driver of project submissions and monetization, contributing to overall project growth of approximately 10% year over year. We are delivering AI tools that help service pros and other local businesses grow, operate, and succeed. For advertisers, we improved our advertising technology and ad formats. We also directed leads acquired via paid search to multi-location services advertisers, which contributed to substantial budget growth from these customers over the first half of the year.

Our team continued to scale Yelp host, our AI powered call answering service for restaurants, which reached an annual run rate of 2.4 million calls handled in July, more than tripling from January. We recently rolled out a number of updates to the product, including 16 new languages and an integration with OpenTable that enables consumers to book and manage reservations automatically via Yelp Host. We also significantly expanded Yelp Host's market opportunity by adding food ordering functionality with full point-of-sale integration, which enables restaurants to take phone orders for pickup without added fees. We accelerated our strategy in this area for services businesses through the acquisition of Hatch in February. Hatch annual run rate revenue grew 59% year over year to $35 million in June as we lapped a period of significant growth to To accelerate Hatch's roadmap, we significantly increased the size of the team in Q2. While this resulted in an adjustment period in the quarter, we saw improved trends in July. Looking ahead, we see a considerable opportunity in AI lead management.

With increased product velocity and added sales headcount that continues to ramp, we're excited by Hatch's growth potential in the year ahead. Lastly, we are extending our reach to power local discovery across the AI ecosystem through data licensing. In the second quarter, we saw robust demand for our licensing products, including from our partnership with OpenAI. Yelp ratings and reviews recently began powering ChatGPT's local experience in relevant categories. Recording and reporting on the data, we are also expanding our reach to power local discovery across the AI ecosystem through data licensing. Quest to Quote integration with ChatGPT is coming soon, building on our success with Apple Maps and Yahoo. In summary, we continue to make significant progress transforming Yelp with AI in the second quarter.

We are confident in our plans 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 second quarter results. Net revenue increased by 1% year over year to $376 million, $8 million above the high end of our outlook range. Net income decreased by 28% year over year to $32 million, representing an 8% margin. Adjusted EBITDA decreased by 9% year-over-year to $91 million, $16 million above the high end of our outlook range, representing a 24% 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 was flat year over year at $241 million, while RR&O ad revenue decreased by 10% year over year to $102 million. flat services locations and a decrease in our R&O locations resulted in an overall decline of 1% year over year in paying advertising locations to 510,000. Ad clicks declined by 5% year over year in the quarter, driven by fewer clicks in our R&O categories, partially offset by a slight increase in services categories.

Average CPC increased by 1% as services ad clicks comprised a greater portion of total ad clicks compared to the prior year period. Moving to other revenue, other revenue increased by 98% year over year to a record $33 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 to expenses. In 2026, we're investing behind high return areas that we believe will transform Yelp. In particular, we see a significant opportunity in other revenue through AI-driven offerings such as Yelp Host, Hatch, and DAIL 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. At the same time, we see substantial opportunities to unlock operational efficiencies and increase employee productivity with AI.

We've already seen AI tools drive meaningful improvements in product and engineering velocity. iterating quickly and bringing new products like Yelp Host to market faster than ever before. In the short term, we plan to increase our investments in a number of areas. We are providing Hatch with additional resources to accelerate their product roadmap and go to market. We also expect to continue to invest in consumer marketing to drive leads to multi-location services businesses. We reduced stock-based compensation expenses, percentage of revenue by three percentage points year over year to 7% in the second quarter. We also continue to expect that we will reduce stock-based compensation expense to less than 6% of revenue by the end of 2027. To create long-term shareholder value, we are evolving our approach to capital allocation.

We plan to invest in future growth, pursue strategic acquisitions through a combination of cash and financing, and return more than 50% of free cash flow to shareholders each year through share repurchases. To that end, in the second quarter, we repurchased $15 million worth of shares at an average price of $24.92 per share, contributing to a $50 15% year over year reduction in diluted shares outstanding. We subsequently repurchased approximately $25 million worth of shares in the third quarter, bringing our total repurchases for the year to approximately $200 million. We have now paused our program as we work to pay down our revolving credit facility. With $339 million remaining under our existing authorization at present, we expect to resume repurchases in 2027. Turning to our outlook, we anticipate that the challenging economic environment for local businesses will persist for the remainder of the year and continue impacting advertising revenue across categories. At the same time, we expect our investments in our strategic initiatives will continue to drive strong growth and other revenue as As a result, we anticipate third quarter net revenue will be in the range of $365 million to $370 million.

For the full year, we are narrowing our range and now expect net revenue will be between $1.460 billion and $1.470 billion. Turning to margin, we expect expenses will increase sequentially in the third quarter as we invest in our AI transformation, Hatch, and consumer marketing. As a result, we expect third quarter adjusted EBITDA will be in the range of $70 million to $75 million. For the full year, we are narrowing our range and now expect adjusted EBITDA will be between 350 and $1. $15 million and $325 million. In closing, with early signs of improvement across a number of key metrics, Yelp's second 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.

Thank you. We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Your first question comes from the line of Eric Sheridan with Goldman Sachs.

Eric, your line is open. Please go ahead.

Hey guys, this is Alex on for Eric. Thanks for taking our question. Maybe just wanted to dig into a little bit of some of the investments you're making behind the other revenue push here and specifically for Hatch. What are some of the investments, whether it's product development, go-to-market that you plan to to make to support that and what are the potential differences in structural margins going forward between that revenue stream and your core advertising? Thanks.

A reminder if you are muted locally to unmute your device.

Alex, thanks for the question. We are investing in Hatch. We're investing across the board, both in good market as well as product. and engineering. Really when we acquired Hatch in February, it was a startup, and now we obviously want to scale operations there. So we're bringing a lot of folks, as well as process and metrics to the go-to-market side. And we were able to deliver quite a few products product improvements throughout the course of the second quarter. We obviously think that there is a significant market opportunity here, and we absolutely want to go after it. In terms of over the longer term, the margin profile for this business we expect can be similar to other subscription businesses.

In the near term, though, we definitely want to continue to invest to scale and, again, to capture market opportunity.

Great, thank you. Your next question comes from the line of Sergio Segura with KeyBank. Sergio, your line is open. Please go ahead.

Great, thanks for taking the questions. Maybe one on data licensing and the chat GPT request-to-crow integration that's coming up. I'm just curious how you think about it longer term, how you believe Yelp captures most of the economic value from AI, you know, driving users back to the Yelp ecosystem, generating the leads to these platforms, or licensing the content and data, just how you view all those opportunities.

Hi, Sergio. Thanks for the question. You know, we're really excited about working with OpenAI, obviously. It has a big consumer footprint with chat GPT. You can now see our integration starting to happen there. It's still kind of the first inning, but you know, You can see ratings. It links back to Yelp. You can see review snippets. and those also can link back to Yelp. And in fact, we just started to see rolling request to quote and services represents a huge majority of our revenue.

So having that interconnectivity, I think is pretty exciting. Brian R. super early days, you know, in terms of traffic impact, but we, you know, see this as a potentially significant distribution channel over time, we do have a history here in licensing our data and cooperating with other big players. Brian R. For example, our data can be found in places like Amazon duck duck go bing and. Apple has been obviously a huge partner that we've worked with for a long time. And when our content shows up there, I think it's a win-win. We need consumers wherever they're at. There's often ways to get back to Yelp.

So it's both an opportunity opportunity to merchandise and remind consumers of Yelp, but also can deliver some meaningful traffic back. And so we see the opportunity with these AI players to be quite similar, and we're thinking about it much in the same way.

Great, that's helpful. Maybe just a follow up on that. Anything notable to call out on differences in quality or conversion of these leads coming through these AI platforms versus other performance channels?.

I think it's quite early to really have a strong opinion on that. You know, the way that it's being merchandised is just kind of at the bare minimum, as you can see. And I don't think that's the eventual steady state. But I really haven't, you know, seen any data on conversions, just because it's just been starting more recently. I mean, I guess separately, you know, on the overall, you know, speaking of overall traffic, you know, we did note some, consumer tailwinds and good things happening. And so just to highlight, that's coming from a variety of places. Some of it is our great work product teams done on SEO, as well as driving more downloads, which is exciting because of course, downloads are more of a direct relationship with consumers.

It's a great way to discover and utilize Yelp. And we did see some gains from, from our partner network. Again, we've been licensing data for quite some time. This is folks that are not in the AI LLM search space, but in working with our partners, we were able to drive some more traffic. And then we also saw some positive changes on the algorithmic side for Google, where we've seen they've started to really lean to user-generated content in a big way, I think, because the onslaught of spam and low-quality content. And so that's benefited us as well. Understood. Thank you, Jeremy. Appreciate the perspective.

Sure thing.

Your next question comes from the line of Colin Sebastian with Baird. Colin, your line is open. Please go ahead.

Hey, this is Zach on for Colin. I guess on your success with the Yelp post, have you found any early success cross-selling the ads product with it so far? And how might it be able to open the door to other new or expanded partnerships? Thanks.

Jeremy Leffler This is Jeremy here. I'd say we're very excited about Host. Homegrown product that we started from scratch a little over a year ago, and we're now at a 2.4 million call run rate. you know, up, it's about tripled from January this year. We've also just launched Open Table Integration, which is exciting. So people can call in and make changes to reservations. Obviously it works with Yelp guest manager, which is our front of house product, but we're opening up to the rest of the ecosystem there, which is exciting. And then food ordering we've recently added.

And so that's great for restaurants. Obviously it takes a lot of time to take down food orders, but also, you know, for taking in orders primarily through food delivery services that can really add up a lot of fees and expenses and getting that food out. Whereas food orders coming in over the phone phone is just pickup and it comes without a commission. So our restaurants really love that. On the ad side, we do have a group that is a dedicated group to working with restaurant partners. And so they're selling Yelp guest manager, they're selling Yelp ads, they're selling Yelp host. And so we do see some positive synergies there.

It's early days. I don't think it's really changed the game for us. for us on the restaurant ad side, but I do think having a really compelling product that is delivering for restaurants is certainly a step in the right direction and gives us some opportunity to have those conversations.

Your next question comes from the line of Nitin Bansal with Bank of America.

your line is open. Please go ahead. Thank you for taking questions. You mentioned that you resumed acquiring leads through paid search. So can you help us understand what has changed versus prior efforts and what gives you confidence that this time the strategy will have the intentional impact and will drive incremental advertising budgets to Yelp? Thank you.

This is Jed. I can take that question. Yes, you know, we have certainly experimented in the past on, you know, BUYING LEADS FOR THE OVERALL ECOSYSTEM. I THINK THE DIFFERENCE NOW IS THAT WE'RE SPECIFICALLY TARGETING MULTI LOCATION SERVICES, BUSINESSES. WE'VE TALKED ABOUT THAT OPPORTUNITY FOR A WHILE NOW. AND THEY'RE OBVIOUSLY ABLE TO COMMIT A LOT OF BUDGET IF YOU'RE ABLE TO DRIVE LEADS. and our ability to go out and source quality leads from the broader ecosystem. just enforces, you know, and allow us to kind of get through more budget And ultimately these businesses are looking for scale. They want the ability to buy a ton of leads that make a difference. And so we've been very targeted in the way that we go out and do that and are really confident in the RO on the ROAS of that spend for our customers.

So that's the big difference between when we've been doing it in the past.

Thank you and if I can ask one more, there was like a healthy acceleration in the paying advertising locations, both on the services side and the RRO side. Can you help us understand what contributed to that? How should we think about the future location's growth and the monetization implications for your ad business given that you lowered the upper end of the revenue guide by 5 million?.

Yes, overall we did see encouraging trends on the paying advertising location side on you know, we saw kind of the best performance that we've seen from a PAL perspective in a few years on the services side. You know, we stayed flat on the PAL side. Overall, PALs were down 1% year over year, which is a big improvement over Q1. And so, we see that as early signs of ENCOURAGEMENT THERE. THERE IS CERTAINLY A LAG AND THESE LOCAL BUSINESSES CONTINUE TO FACE MACRO ECONOMIC PRESSURES. YOU LOOK AT THE IMPACT OF INFLATION, HIGHER GAS COSTS, INPUT COSTS ALL AROUND THE BOARD AND THE FED IS So, trajectory turn in terms of the broader local economy, but it is certainly encouraging to see our traffic trends as well as the paying advertising location trends and, you know, we have a long pipeline that will continue to kind of drive. But, you know, over the long term, we believe we can, you know, impact both Aang advertising locations, the number as well as the ARPL.

Thank you.

Hey, this is Gishan Patel for Josh Beck. Can you elaborate on the tailwinds in Google traffic post the May and June core updates as some internet peers have noted AI overview related traffic headwinds? And if you could delineate between paid marketing versus organic tailwinds? Thank you.

Jeremy, yes, certainly we've been monitoring folks as they talk about what's going on in the space with AI overviews and traffic patterns, and it does seem that we've bucked the trend. I think our area has been different when it comes to AI overviews. Our categories that we get a lot of traffic in are highly monetizable. And while you do occasionally see AI overviews, they're usually not right at the top. And so I think there's some element of Google trying to preserve its own revenue there that is a bit protective. From a paid traffic standpoint, you know, largely we are organically driven. We do have some limited paid traffic, that we try to optimize.

We talked about some of that with multi-location and so forth, but it's relatively de minimis in terms of overall traffic impact, really, it's organic sorghum. Got it. Thank you.

There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

All right. Good afternoon, everyone. Cory Carpenter, Internet analyst at JPMorgan. Thanks Yelp for joining us at the conference again. And I'm going to kick it over for the safe harbor.

Thanks so much, Cory, for having us at the conference. We'll 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.

All right. I got a ton of questions. If anyone on the line has one, I think you can submit it electronically. I have that in front of me or in the room, feel free to raise your hand.

So let's start with just the big theme, at least from our perspective in recent quarters, you've talked about rearchitecting the company around AI. Maybe to start, could you talk about the changes you're making and just what your vision for this evolution is?

So we are absolutely reconceiving the entire Yelp experience around AI, but we're also transforming how we work. On the product side, we've invested heavily to build out what we call Yelp Assistant. That's a new experience. It's a conversational experience. We think it's really engaging.

And one of the things that's clear about LLMs is people want the evidence. Why did the LLM tell me what it did? Because oftentimes, they seem to turn up results that are incorrect in some ways, erroneous or hallucinated or just inaccurate. And so that was a big theme for us is how do we communicate given the quality of our content that this result is relevant to you. So that's on the product.

We did make an acquisition, Hatch, we'll talk more about that. We've built a voice AI product for restaurants that we think is best-in-class. There's a lot of things there. And then just I think we all recognize that there's this moment that came in December with that version of Claude that really unlocked an incredible amount of potential productivity. So we've embraced that as well, both on the product and engineering side, but also looking at the way that we can apply all of this to customer success, sales and certainly including the finance and people operations parts of the business.

So I know I mentioned earlier, we're going to flip it. We usually talk about the advertising business first. This year, I actually wanted to start on some of the diversification initiatives that you've made. So I think first question there is just you've got a few new revenue streams you're building. Maybe talk about the broader strategy behind that and what you're doing there.

Yes. So for us, just for context, Yelp obviously is traditionally very much an advertising business. We have 3 components to what we call other revenue. One is licensing, one is transactions and one is subscriptions. So for other revenue, we have a partnership with DoorDash that actually grew 88% in the first quarter. So we're pleased with that.

On the licensing front, something that we've talked about for quite some time is how Yelp appears on other sites and other experiences. One thing that certainly emerges is there's more players in AI search and particularly in that vertical which we serve, AI local search. And so we've been entering into licensing arrangements with other platforms, most notably and most recently, we signed an agreement with OpenAI. You can now find licensed Yelp content on meta.ai, on Bing, on Microsoft, Amazon Alexa. And for a long time, we've been in Apple Maps, on Yahoo! and many other platforms.

So just this idea of the ubiquity of Yelp content across the Internet on major platforms has been something that we've been very focused on, and we've been able to enter into additional licensing agreements. In addition, we certainly enjoyed getting traffic back from those sites. So that's definitely been part of the strategy and our point of view is simply that given the Yelp content and the directory that we have, if you want to be in local search, you really do need to partner with us. So that's gone extremely well.

And then most recently, we did make this acquisition of Hatch. Hatch is an AI lead conversion management product. And it works across all platforms. It's not unique to Yelp. It works on Angi and Google, Thumbtack and others as well, of course, as Yelp. And we're really pleased with that. March annual run rate was at $34 million -- revenue run rate was at $34 million, growing at 92%. We did acquire the business at the beginning of February. We're still going through that integration process. Things are going well.

We are investing. We're bringing people over. We're bringing know-how over. They now have a voice product. We've helped to inform that part of the product road map. There's obviously our at-scale lead management side of the business. So that is all in service to the target that we've now provided, which is $250 million in run rate revenue and other by the end of '28. So we've wanted to diversify the revenue streams because we have been exposed to the cycle, and that's been certainly more challenging in '25, and that continued into '26.

So I want to ask about that run rate. So you did give the -- by the end of 2028, $250 million or north -- or at least $250 million. Right now, you're, I think, a little over $115 million, so more than doubling. Just help us with the building blocks, how to get to where you are today to where you're going in 2028? And then also what type of investments you need to make to support that growth?

Absolutely. So as I mentioned, we're all in on AI and this AI tool opportunity is extensive. Certainly, we first want to operate Hatch and do that really effectively. We think there's additional product opportunities for the customers they serve. So I think this is very much a traditional opportunity to provide software solutions to businesses to make them more efficient or improve their return on their own investments. So we see significant opportunity there.

We will continue to look for M&A opportunities. We don't have anything to announce today, but we're active. At the same time, certainly, we need to show that we can operate the asset successfully, effectively, continue to grow that asset and bring more product to market there. So that's part of the consideration that goes into doing the next transaction.

And then beyond that, the licensing still presents a significant opportunity for us, and we think that there's lots of ways for us to deliver value to consumers even when they're not on Yelp. So those are really the core components of what give us confidence in our ability to grow other revenue.

One more, and then we'll go to advertising and capital allocation. So just as you're diversifying beyond advertising, how does that change your broader resource allocation at the company? And then how are you -- how do you expect AI to impact headcount and expenses?

Sure. So we've guided flat headcount for '26 with Hatch being a bit of an exception. We're certainly going to add folks there. But just in general, I think we see the opportunity to really drive productivity with AI. And over the next several years, we see significant opportunity. I think we're all learning how to apply this technology. And it's not just simply add technology and magic happens, although it is very impressive in its capabilities, you have to work differently. People have to think about their roles a bit differently and people have to adapt to the way that the tools are most effective in helping them to do the work.

So that's still a bit of a journey. But clearly, when you see the capabilities that come with it, the intelligence that's associated with it, the ability to reach throughout an organization for data through various MCP servers in the enterprise that bring back information, that's really interesting. In addition, applying AI, I think we all are very familiar with the product and engineering use cases. But in clearly call centers, inbound calls, customer success, there's clear opportunity for call deflection and in some regards, in moments, even better customer service with AI.

But what is certainly clear on the sales side is the opportunity for coaching. That's really emerged as a capability. We've built that ourselves, but I think you're hearing that from other companies. But this idea that the AI can listen and provide in real time or right after a call, suggestions to a sales rep on how to improve the conversations that they're having. We're having real success with that. Equally interesting is giving the manager tips on how the reps are engaging in conversations so that they can be more effective as managers. And that's rapidly emerging as a way to enhance productivity. So we're excited about that as well.

So just building on that, as we think of EBITDA margins, you've been working through this stock-based comp transition for a couple of years. I think it's fair to say '26 is a bit of an investment year for some of the initiatives we've talked about. But I also thought it was notable, you did say at earnings a few weeks ago that you expect strong growth in EBITDA margins over the next several years.

So maybe help us with where you expect the cost efficiencies and leverage to come from? Maybe you just kind of answer that with that last question. And how does the margin profile of your newer revenue streams compared to the ads business?

Certainly. So again, it's going to take a little bit of time. But if you just think across -- and bear in mind, I think there's 2 camps or 2 sides to this. There's productivity and there's efficiency. And we definitely are lined up on the productivity side. We want to grow revenue, and we want to deliver great consumer experiences, and we want to deliver value to our customers, whether they're buying a Hatch product or they're advertising on Yelp.

So the way we think about it is faster time to market, more output and really adaptability when you get feedback from customers, this is what we need. This is what isn't working. I'm willing to buy this if you had it. That cycle time is compressing very rapidly. And again, this is certainly not unique to Yelp, but I'll give you a quick example.

We came out with a voice AI product for restaurants, which we call Yelp Post that picks up the phone, can make a reservation, it can answer questions about hours, location and things like that. And we realized that there's a much larger TAM if we could add food ordering to that. And so from the time that we realized, hey, food ordering is a real opportunity to where we are now, which is in testing with this product live at -- with restaurants, that is a couple of months. That was just not possible in the past.

And by the way, food ordering, super complicated product. If you think about someone's going to call up, they're going to have additions, changes, they've got specific requirements. They need to send notes to the kitchen about what's being ordered and to be able to handle all those edge cases accurately because the person is going to show up, they're going to see what they're ordered, they will have paid for it and they take it home and maybe they don't notice, the possibility for being disappointed or frustrated is very high.

So accuracy really, really matters. And as we're just talking about, LLMs are error prone. So you got to have a lot of know-how and actually a lot of training data to fine-tune the models to be able to do that. So cycle time enables faster time to market, obviously, and ideally more revenue. And then I talked a little bit about the efficiency of our sales folks.

What is still pretty emergent for me at least is in the finance and people operations area, I think it's much earlier in terms of the efficiencies that can be achieved there, but things like collection should offer an opportunity even the way that you handle bad debt should evolve. So when you stack that up across product, engineering or product managers now prototyping features before they ask engineering to build them, closer partnership and integration between engineering and product, that's a whole opportunity.

Sales and marketing becoming more efficient, customer success being more efficient, finance, people operation. I mean, it's literally the entire enterprise is going to get more efficient. So that's why we said that we believe that there's a very good path to margin expansion over the next several years, even though we have chosen here in 2026 to invest in the business.

So I want to hit on capital allocation, and then we'll talk about the core ad business after that. So just on capital allocation and strategy, you did a pretty sizable buyback in the most recent quarter. I think you took on debt for the first time. Maybe just talk about how you're thinking about capital allocation going forward.

So we did deploy a considerable amount of capital in the first quarter, Hatch was a $270 million purchase, and then we do have $30 million in retention set aside that will pay out over the next 2 to 3 years. So we had $270 million there. We also did choose to repurchase $125 million in stock in the first quarter, which was considerably more than we've purchased in the past.

Now we did see that diluted shares outstanding from the first quarter of '25 to the first quarter of '26 went down 12%, which we think is a significant number. At the same time, you can expect a much more moderate pace of share repurchases through the remainder of 2026 compared to the first quarter because we did really obviously buy a significant amount of stock in the first quarter at $125 million.

And then, of course, over time, what we do want to do is to be able to look at M&A opportunities. And we have heard from investors that they'd like to hear more about the capital allocation policy, and we're going to share a bit more about that on our Q2 call.

Okay. Perfect. So shifting to the ads business, still over 90% of your revenue today. Just talk about the state of the RR&O and Services segments and the trends that you're seeing across both of those.

Yes. So RR&O has continued to be challenged. I think we all saw the -- both the CPI and the PPI prints of the past week and consumer sentiment is challenged. We see the 10-year at $460 million. So that's also another headwind, plus just a degree of uncertainty about the direction of the economy and price at the pump being something that's very top of mind for folks. So when you look at people making those decisions about eating out where it's more expensive to eat out and they're concerned about having to spend money on other things to transportation or whatnot, we've definitely seen a continued headwind.

Historically, for us, our Services business was a very consistent double-digit grower. And what we saw as we came into '25 is that there was a pretty rapid reaction, faster reaction than historically among smaller business owners to tariffs. And that impacted '25. We came into '26 and then the conflict in the Middle East has also created uncertainty for business owners. And in California, at least you have diesel at about $8 and you have gas at $6.50, and that's top of mind for folks.

So the dynamics are playing out in that physical local economy. The overall GDP headline number is still obviously quite robust, especially with the CapEx going on in AI. But when you look under hood in that physical local economy, it has become quite challenged. So our goal is to continue to deliver value, whether it's on the restaurant, retail and other side or the Services side. And that way, we are participating as things improve, but it's also driven this focus on revenue diversification so that we're not as exposed to the cycle as we have been.

Someone who just moved to the Bay Area the gas prices are eye-popping relative to. All right. Macro. We got an electric vehicle though. Macro. So like you said, it's been a headwind to RR&O for a while. I think 2 follow-ups on that. So one, what needs to happen for trends to improve? Like what are the leading indicators that we should look for? And then secondly, one question we get on macro is, is the headwind more due to consumer spending less, advertisers lowering their budgets or perhaps both?

So I would say very loosely, consumer sentiment broadly is an indicator of willingness to spend. So I think that's certainly a component. Inflation does need to moderate as if inflation expectations are high, that has an impact on decision-making. But also, it's very hard for businesses not to pass along cost now. They've been squeezed. So when a small business can't pass along cost, which has been the case, and they're seeing higher input cost, whether it's ingredients, materials and labor, then the room to advertise is compressed. And so that's certainly been an indicator.

So at that very top level, I think small business sentiment, important, consumer sentiment, important, inflation, important, but I think those are probably broadly indicative of how you could expect many businesses to perform. So I'm not sure that's particularly unique to Yelp per se. But those are the actual factors that we think are going to indicate whether or not our business performance can improve.

All that being said, it's not -- we're not pleased with this performance. It's not as if we're sitting on our hands waiting for those things to improve. We want to continue to improve the product. We came out with, as I mentioned, our Yelp Assistant, which works across all categories. We think there's an opportunity to increase our monetization there as we engage folks in a conversation. So that's one thing that we're certainly doing. Clearly, for advertisers, you want to continue to improve the value that you're delivering. So it's not cost per click they care about, it's cost per lead.

So what are all the things that we can do. In that conversational interface, we actually get more information than we do when someone just types in the hey, plumber. So can we match more accurately and deliver a higher quality lead that converts better, that therefore, has a lower cost per lead for those advertisers. That's absolutely something that we're continuing to work on. So we're not sitting on our hands. We're not satisfied at all with the revenue performance, and we're certainly continuing to take action to improve that.

All right. One more on macro, then we'll move on. So at earnings a few weeks ago, you did say the elevated uncertainty weighed on ad spend in March. I think trends maybe started to improve in April. Just could you expand a bit on what you're seeing and what you're assuming in your outlook?

Sure. So one of the dynamics that played out in '25 and repeated in '26 is with the tariffs in ' 25 April, let me back up. Normally, we see the seasonal ramp in advertising spend as you go into the spring and summer, makes sense. We're doing repairs on your house, you're traveling more, you're going out more, weather is better. And so that seasonal ramp was interrupted last year in April, really around tariffs and that seasonal ramp was interrupted this year in March. And so you got a flattish shape for ad spend trajectory in both April of last year and March of this year.

And then we did see a bounce back in April of this year after that flattish performance in March, but you're starting off of now a somewhat lower base compared to what the expected trajectory would have been. So we need to reflect that in the guidance that we provided for the year. We need to see how things play out, but that's the shape of the revenue as we see it for 2026.

So a couple on Services, and you've hit on this a little bit, but I think you mentioned strong double-digit growth historically in recent years for that business. Trends have started to moderate. What's been the driver of the slowdown? And maybe more importantly, how do you think about the growth trajectory from here for that business?

Sure. So service is now more than 70% of revenue at Yelp. We definitely have pursued that. For those who have followed Yelp for a period of time, we really differentiated the experience on Yelp between restaurant, retail and other and Services, and that really served us well. We're now in a new era, which is this conversational era. And we continue to see an opportunity to really drive that engagement on the consumer side and deliver value to them. And with that additional information, be able to match those consumers with the exact right service provider. So we're also in a new -- emerging into a new era around Services.

It is still a little bit puzzling to us why Services decelerated the way it did after such consistent double-digit growth, which we actually saw through the first quarter of last year. So that hurts a little outside our control. But the thing that is very important, obviously, to service pros is, "hey, I got that lead". And it's a little bit of what motivated us to make this Hatch acquisition because if you can use an AI to answer every message that you get or click that you get or call that you get and really improve the conversion, that's a great opportunity to provide value to them, but it also means that they're getting the return they expect and are willing to spend more on advertising.

So these -- the strategy is actually very integrated across both the AI tools that we're building, what we've learned from doing that, applying some of the capabilities that we've built at Yelp around voice, for instance, and serving our advertising customers more effectively. So it's not that the focus on this revenue diversification is something entirely separated. It's actually very integrated as a coherent strategy across all the customers that we're serving.

And then home Services is historically, I think, still your largest category within Services. What type of trends are you seeing within home Services in particular? And any other -- where are the growth opportunities within the Services categories that you're seeing?

Certainly. So on the Home Services front, I think you've heard some of the larger retailers mentioned that people have traded down from a remodel, say, to a repair. And some people have traded down from repair to a do-it-yourself because of the pressure they're experiencing. And so the ticket size has decreased.

And instead of maybe replacing the roof, you patch the roof and maybe instead of doing a new kitchen, you replace some appliances. And that is going to play out for a period of time yet. Again, as I've already talked about, we're going to do a lot to certainly focus on the things that are within our control, but that does need to be addressed. And I do think that there just needs to be more certainty around the economic outlook for folks.

I think we need an environment where people are able to just really focus on delivering against the opportunities in front of them as opposed -- I'm saying for small businesses, as opposed to wondering what might be the case in a month or 2, how do I manage my cost? How do I manage my labor? All of these things, if you think about a small business owner, they're doing everything. And there's only so much time in the day, and there's only so much they can concentrate on. And most importantly, they need to win business, deliver it, build for it, have a happy customer and move on to the next job. And the more distractions there are, the harder it is for that business.

So a couple of questions on product. And then if anyone here has a question, feel free to submit it online or raise your hand, and we'll get to you. But -- so you talked about Yelp Assistant, that's now rolled out across all categories. Maybe talk about what that is for those less familiar? And then what are the early signals you're seeing around consumer adoption?

Sure. So Yelp Assistant is our chat experience on Yelp. It was previously only for Services. Now it's for all categories. I encourage all of you to try it, download the Yelp app. There's an icon for it, a tab. And there are things about it that I really, really like. One is it's very engaging, has a lot of personality and it's very much Yelp. You'll find that the experience is very much what you'd expect from the Yelp brand.

And it's insightful. It's taking what you share, and it's really tailoring its commentary to what you're interested in. But even more importantly, it's then surfacing the snippets from reviews that show why it's saying that to you. So the evidence is right there in front of you. And I think this is where everybody is going to have to go because the LLMs have a high degree of error is it's not just that I got a response that seems credible, reasonable, accurate. It's that I can convince you that I have the evidence to support the reason why I'm making this recommendation for you. And because we have this incredibly high quality content, we're able to surface that evidence, and we can do it in a way that's very compact. And so you can scroll through and do a little bit more and research more or you can just see what's the next opportunity and why is it engaging for me plus, of course, there's photos.

This surface also presents a lot of opportunity to add additional local information. If you think about things that might influence a decision, what's the weather going to be? Is there an event nearby? Is there a park? Is there something to do with kids afterwards? Or is there outdoor seating that's dog-friendly. Suddenly, you can include a lot more information in this experience that isn't so easy when it's just a list of search results.

And finally, because it's conversational, you can ask the follow-up question. "hey, I saw you went out to have Italian food. How is that"? Or "hey, you needed a plumber. Did you hire that plumber? Did you get the leak fixed"? Suddenly, just as we've all experienced with other chatbots, they ask the follow-up question and they're more helpful. They are more engaging, and it's a more useful experience for you.

So we're doing all of that within that, and we're pretty pleased with it, the early results and they're very, very early that people are like it. The early NPS is very encouraging, and it's more engaging and people are clicking more. And that means that there's an opportunity also within that to increase monetization without the perception of increased ad load.

Another product I wanted to ask about at earnings, you mentioned Yelp Host. I think you said 1.5 million calls on a run rate basis. How should we think about the TAM and just the monetization opportunity that you're going after with Host?

Yes. We definitely think this opportunity is well over $1 billion. Just to give you a sense, we now have 16 languages supported in the product. We have 4 voices that you can choose from in English, but 6 regional accents that you can also choose from. And some of those accents are, for instance, French. It might be a French accent. And what's super interesting is the person calls up, they realize that the AI is a French accent. Can the AI speak French, and then they start speaking in French and sure enough, it speaks French. And so it's a delightful experience. And it's able to answer the questions accurately.

The other thing that's been really fascinating in building this product that I certainly have found extremely interesting is in that first half a second, you have to convince the person that they should engage with the AI voice and not just have to transfer. And what we saw in some of the previous iterations was people would give a monosalabic response, transfer. They like instantly knew, this is a bot. I don't want to talk the bot, transfer me. And we made a few small changes.

First of all, we have a very human sounding voice. It has intimation and it has emotional quality to it, has cadence. But a few changes and suddenly, people started speaking of sentences to it. And the moment people move from a monosolabic response, yes, no transfer to a sentence, they use it, and it's useful to them. And then when they come back, they know that they can just talk with it. And that's a pretty incredible moment, but to build that takes a lot of skill. There's a lot of know-how.

It's not just stitching together different services. You've got to have the training, the fine-tuning for the models based on the corpus. You have to have good engineering, of course. And most important, because we now have this 1.5 million run rate for calls, lots and lots of reps. You have the opportunity to experiment, refine, change, see what works, see what doesn't work. And so I just see us being able to accelerate the quality of this product over time because we're accelerating the quality of this product over time, it's self-reinforcing.

So we talked about Assistant Host. You released 35 new features earlier this year. Anything else on the product side you think it's important to highlight?

We do have a really cool feature that we released called Yelp Menu Vision which is really cool. It's an augmented reality experience where you just point the phone at the menu and it will show you the dishes in the ratings, that's really cool and very helpful because I don't always know what the dish is, and I'd like to see what it looks like, and I want to see what people said about it. And so that's been actually a lot of fun and people are finding that useful.

Interested to try it out. Okay. Two more questions, and I think we'll be out of time. So I think one of the common questions we get from investors is around competition, around consumer traffic in general to Yelp. I know you disclose traffic metrics annually, which you did at 4Q earnings. But what can you tell us at a high level around traffic trends that you're seeing? And what type of impact you're seeing from changes in the search market?

So there's a lot of dynamics going on around Internet traffic right now. One thing that we haven't seen is any meaningful impact from AI overviews. We get that question pretty regularly. Our hypothesis is that these are highly monetizing categories that we serve and Google wants highly monetizing categories to monetize. So that hasn't been something that we've seen, though I believe other content players have seen impact there.

In addition, Google seems to also really be prioritizing human-generated content. We're not alone in that. And some of the other platforms have certainly seen real benefit. We've seen benefit from our human-generated content as being a benefit. And then broadly, of course, is just this emerging experience that we're all having chatting with the different chatbots, whether it's an OpenAI, it's now Grok, now Claude, which now seems to be a consumer app and not just an enterprise app.

And so I think we're all seeing how that traffic plays out because we have this high authority content. We do see that people want to engage with Yelp content. They want to see the Yelp logo next to Ratings to know what the rating is credible. And we believe the way that this plays out is as you want more information, you're going to click through and come to Yelp, and we like the exposure that we get from that. So traffic is certainly evolving, and we continue to believe that we're really well positioned because of the high-quality content authority and brand that we have.

I have a closing question. Anyone in the audience have a question before I do? All right. Perfect. Easy. Okay. So just ending on a bigger picture question. What are the 1 or 2 things you're most excited about, but investors are not talking about today and you think could really be transformative for the business in the years ahead?

I think we really have covered the topics. I think the part that I'd go back to is this transition to conversation. We've talked about it. We're all experiencing it. I think it's going to be very transformative in the way that we engage with content. What I don't think is going to change there, and we do have this back and forth, and it's certainly going to emerge. But I think in the United States, what we're going to see is specialty verticals where you specialize in a particular type of content like Yelp is going to continue to be very differentiated and enjoy a strong competitive position.

And I think there's just this open question that everybody is still wrestling with and it's certainly going to emerge. But do you have terminal value? Is this a sustainable business? Are you going to be around in the years to come? And at least from the way that we think about it and all the research that we do with consumers and what we see through the direct interaction with the app is that people do want that differentiated, vertically specific experience in conversation.

And again, this idea that you can add even more information and relevance as part of that and that we can do that as Yelp, that to me is very exciting because it becomes a more comprehensive, answer to questions around local for consumers that we haven't answered in the past, but we believe we can answer in the future. And so there's a really cool road map of things to come around Yelp Assistant in particular, even as we start to build out these AI tools, even as we're present across other platforms and continue, we hope to deliver value to both consumers and to businesses.

Awesome. We'll leave it there. Thank you.

Thanks so much.

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.

Thank you, everyone, for being here. My name is Matt Cost, Morgan Stanley U.S. Internet team. Thrilled to be joined by David Schwarzbach, CFO of Yelp. Thank you so much for being here. And I think we have dualing disclosures. So maybe you want to kick it off.

All right. I'll go with the first disclosure. Thanks, Matt, for having us at the conference. We'll 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.

All right. And then on my end, for important disclosures, please see the Morgan Stanley research disclosure website at morganstanley.com/researchdisclosures. If you have any questions, please reach out to your MS sales rep.

All right. And now that we're through that, thank you so much for being here. So let's start high level. Talk through in the 6 years, I think you've been at Yelp now, some of the biggest strategic decisions that you've taken through today. And what you see as the strategic playbook for 2026 and beyond?

So I did join in 2020, right before COVID. COVID arrived, and that obviously drove a lot of change. The company had really already been on a trajectory to change from what had been a sales headcount-driven growth model to a product-driven growth model. That was one. A lot more self-serve, going upmarket and monetizing Services leads at a higher rate. And so we really accelerated that transformation that we were going through and continue to execute on that through '21, '22, '23.

I would say, in this current era, we're going through a new transformation like I think most companies, which is AI. And we are very committed to transforming the business, the way that we engage with consumers, the way that we provide value to advertisers using these pretty extraordinary capabilities that have become available to all of us.

And maybe a few things. One is just reconceive the entire experience on Yelp with AI, make it much more conversational. The second is to power tooling for small businesses to enable them to be more effective and successful. And the third is really to drive our partnerships with folks like Apple, Amazon, OpenAI to bring our trusted content to consumers wherever they are.

Great. So let's stick with AI for a minute then. You just mentioned the OpenAI partnership. So I think that's to provide AI-driven local discovery, but correct me if I'm wrong about that. And then just tell us a little bit about what that partnership does, what it looks like from a financial standpoint and what your expectations are for referral traffic to Yelp from ChatGPT.

So for Yelp, revenue from licensing falls in other revenue. Just as a background, other revenue consists of subscription. That's a SaaS side transaction. I think we'll talk in a moment about the relationship with DoorDash. And then there's licensing. And so around licensing, as I already mentioned, we have relationships with a number of different companies and most recently, OpenAI.

And one of the things that we did not do early on was license our data for training. We didn't think that, that was a good use of our data from the competitive perspective. We thought it would erode our competitive position, but also we wanted to really monetize at a much higher rate. Other revenue in aggregate grew 17% in 2025. In the fourth quarter, it grew 33%. And that's a reflection of these partnerships that we've been able to enter into.

And with regard to OpenAI or Amazon or you'll find us in Apple Maps, it really is this fundamental authority that Yelp has around all things local. And we've seen that if you go to a site and you just see a rating, say, 4.2, but there's no brand or company name associated with it, you don't really know what that means. As soon as you add that Yelp logo or the Yelp name, we find that consumers engage with it and trust it. And so the power of these partnerships isn't just that we generate revenue, it's that we are ubiquitous. People see our brand everywhere and then it does drive traffic back to Yelp.

I think everybody is still figuring out, though, what is the search experience look like with AI. I think that's true. Google is still sorting out what do AI overviews do? When do they appear, when you go to AI mode. I think that's also true across pretty much everybody else. And we believe we're very well positioned to power local search for those who aren't working with Google.

Got it. I want to go to Dash because you mentioned that in a minute here. But before we go there, there's something interesting that you've kind of touched on there about the Yelp logo communicating trust. So I guess that people who haven't been following the story closely, probably have an outdated sense of what Yelp is all about and people go looking for restaurant reviews or pictures of the menu. But I guess what is your role as you think about it as sort of communicating trust in the ad ecosystem? Like what is your position and value proposition in 2026?

So I think we've all had the experience using an LLM and would it return seemed inaccurate, if not made up. And that's a common experience. We've done our own market research. And so people are really looking for trust signals. Why should I believe that this LLM is returning a result that I can rail line to make a small decision, maybe going out to dinner or a big decision, remodel my home.

And our role around the quality of our ratings and reviews comes from human-generated content. And we used to talk about user-generated content, but we've really now focused on this differentiation that we have, which is it's humans generated and human reliable. And I hope all of you use Yelp, but my own experience, it's quite accurate. Like when it's 4.2, I have a 4.2 experience. And when it's lower, I have not as good an experience.

So if you think about it, what's -- where is Yelp at in a sense, what's its core asset? It is this authority. It's how do I know that this is accurate. And that's why these obviously large players are choosing to partner with us because we are very, very focused on review quality. We have about 330 million reviews as of the end of last year, and we don't show 1/4 of them. And that's a significant amount. To generate that amount of content that you don't show, obviously is expensive, but we do that in order to ensure that quality.

So you can think of our defensible market position is around this corpus of reviews that we've managed to aggregate over time. It's actually also the moderation that we can apply to ensure that quality and the brand value that we have established over a long period of time. And that enables us to partner across the web. And then, of course, for many people, Yelp is a very beloved brand. They love Yelp. They love engaging with it. They love leaving reviews. And obviously, we like that.

The last point I would make is we've really shifted from a revenue perspective, to Services over the last number of years, about 70% of our revenue comes from Services, although we're best known for restaurant reviews.

Got it. Maybe let's stick with that last point kind of about the relationship between RR&O and Services. As you pointed out, Services has become the main growth driver of the business. So maybe talk about the relative strengths and weaknesses of RR&O versus Services and then sort of the trajectory of these 2 businesses from here.

So there's no doubt that just broadly, the local physical economy has been quite pressured over the past couple of years. And this is a combination of factors. Input costs have risen, whether that's ingredients or parts, labor costs have risen. And at the same time, while businesses were able to pass those price increases on to consumers in the '21, '22, '23 time frame, by '24, consumers have had it. They were not willing to accept additional price increases. And that created margin compression.

The other thing that definitely emerged over the course of '25 was just this very significant pressure on these businesses to continue to deliver value at the same time that consumers were trading down a bit. Instead of taking a marble countertop, they were doing quartzite or I'm going to repair this instead of replace it or I'm going to try to fix it myself. And so we've definitely seen that ripple across broadly the local physical economy. In particular, it's really hit restaurants as well.

But in 2025, what we saw in the spring was there was just a lot of uncertainty that was introduced, particularly in the spring around tariffs, and that impacted seemingly business owners' confidence in the economy. And we really saw a dramatic change. We had seen double-digit growth in Services for 13, 14, 15 quarters. We saw it again in the first quarter of '25, and then that just slowed significantly, and that persisted through '25. So it has become more broad-based than it had previously been. But I would say that at least on the earnings call, what we shared was those dynamics have persisted into '26.

And has that played differently across different sizes of advertisers? Like have you seen a divergence in behavior between enterprise and SME?

That's also a great question. One thing that historically we saw was large enterprises made very quick decisions. They have FP&A teams. They report earnings, and they're making rapid business decisions around marketing spend. And small business have been much slower to respond. And that was not the case actually in the spring of '25. Small businesses responded very quickly to the headlines, much, much faster than had historically been the case. So there's clearly something different about that dynamic at that time compared to the prior years.

And since then, I would say it's now gone back to where enterprises are making more rapid decisions and small businesses are making decisions less frequently, but they haven't returned to the level of spend that they had previously been at or at least the growth in spend. So the dynamics did change. But at this point, I would say, in essence, they're both operating about at the same speed because there's so much news all the time.

Yes. Closely related to that is multi-location. I think it's something you've called out as an opportunity. I guess, are there initiatives you're pursuing to push further into that? And how is that going?

We are very unrealized in Services in both mid-market and enterprise, and we put a lot of effort in '25 into tooling to enable us to serve those businesses, and we made a lot of progress. We're continuing to focus on that here in 2026. And one of the things that we are doing is increasing spend on paid search because obviously, if we're going to buy a lead, we want to land to someone who's willing to pay for that lead. And so connecting the purchase lead with being able to monetize is something that we've been very focused on. And those enterprise businesses, they want more leads. So if we can deliver them, they want to buy them.

Got it. Maybe let's go on to Dash. So I think you've talked in the past about seeing some competitive pressure from food delivery. And at the same time, you have this partnership with DoorDash, I think also one with Grubhub. So how do those partnerships work? And what's the progress on growing them to date?

So those -- we had historically worked with Grubhub. That relationship shifted primarily to DoorDash last year. It's gone really well. And we're pleased to be able to partner with them and to surface Yelp content also on DoorDash and obviously be able to refer folks from Yelp to DoorDash, and that's a pay-per-lead type of model with them. And obviously, DoorDash and just food delivery has really emerged almost a secular shift in the way that people eat. They don't eat out. They eat at home with food delivered has been a big shift.

But just as a quick calibration, only about 10% of our revenue now comes from restaurants. So it's a small portion, although 85% of our traffic comes broadly from Restaurant, Retail and Other. So just in terms of economically, that shift to delivery has had really only a marginal impact on our business, but we're certainly pleased with and happy to have the partnership with DoorDash because people do come to Yelp, they look at a restaurant, if they can order through DoorDash from Yelp, then that's certainly a convenience.

Got it. So I think that you saw last quarter paying ad locations go down by about 5% and mostly driven by RR&O. So how has that churn trended across segments? Is it really just an RR&O phenomenon? And is it coming from customer churn or ad spend per customer?

It's a good question. So it is definitely predominantly on the Restaurant, Retail and Other side for all the reasons that I already discussed, though we did see a modest amount of pressure on the Services side as well. And I think at the end of the day, what's our job? To deliver valuable leads to businesses, whether it's a restaurant getting someone to come in or it is a plumber who wants to do that next job. And so what we remain focused on is delivering incremental value to the advertisers through becoming more efficient at matching by ensuring that the conversation between that advertiser and that consumer is as good as it can be.

One of the things that we did, and we'll talk more about it, I know in a moment, but we did make this acquisition of Hatch. Hatch is an AI lead management solution, we think best in the market. And if you want to interact with the consumer, you want to do it in a way that leads to a lead. And so that's our job is to really make those things more valuable to advertisers.

The other thing I would say is we did dramatically increase our monetization of Services traffic over the 2020, '21, '22, '23 time frame. And we realized it wasn't good enough to just add leads. You had to add quality leads. So we did focus for a period of time around quality. And yet there is still headroom to go on the Services side to increase monetization. And we actually have focused less on increasing monetization in Restaurant, Retail and Others. So regardless, we do see that there's an opportunity to increase that given the traffic we have.

Got it. Let's stick with Hatch. I mean you introduced it as an acquisition you made recently. So talk about how it enhances your, I think, previous Yelp receptionist product.

Yes. So we had built a voice AI product for service Pros that would pick up the phone when someone called, they're busy with the job. And we had actually partnered with Hatch. Hatch works across Yelp, Thumbtack, Angi, Google. So it's across all platforms. And it is very effective at increasing the probability that someone is going to pick that particular business for whatever job they have, whether it's plumbing, electrical, it could be landscaping.

So the acquisition, we're very pleased it just closed a few weeks ago. And we have focused on that as opposed to the Yelp Receptionist product that we had been building. There's no doubt, and we're going to get to AI that things are changing very rapidly. And this idea that an AI agent can successfully engage with the person to understand better what their need is and then to ensure that they are getting the service that they expect, that is a clear opportunity, and we do see improved conversion when you add these AI agents to the conversation.

Got it. So let's stick with AI. I mean, so I think in '25, you talked about adding over 50 new products and features on the AI front or many of them are powered by AI. Can you talk about which of them have seen the highest adoption and what the results that you're driving from them are?

So in the spring of 2025, we introduced Yelp Assistant that was focused on Services. We have something called Request-a-Quote. You come to Yelp, you can either just search for a plumber and pick a plumber or we ask you, tell us a little bit more about your job so we can better match you with the right service pro, Request-a-Quote. And that Request-a-Quote was definitely a question tree. If the person asked this and gives that answer, yes, no, what you may have, it would go to that next fixed question.

The beauty of a conversation in the LLM is it's dynamic. What is the most optimal next question I should ask that person. So you get a lot better information and improves the matching. So that has seen significant traction over the course of the past year. And in 2025, Request-a-Quote request increased by 400% compared to 2024.

The other thing that's very important about Request-a-Quote is 100% monetized, almost always 100% monetized. So we show 4 results instead of person clicking on one. So that inherently increases the monetization without a perception of increased ad load. And so it's actually a better consumer experience and it monetizes at a higher rate. So the Hatch product fits right there in message center where it's managing that conversation between the Service Pro and the individual and doing that across a variety of platforms.

Broadly speaking, voice AI is something that is rapidly emerging as a capability. We believe that we have put together an equally best-in-class product to what's offered on the market, either by start-ups or other enterprises, more established enterprises and voice quality is a complex topic. It's not simply can the AI understand what's happening, though that's obviously essential, and we think that we're very good at that.

But there's a lot of dimensions. People make a decision in that first second or 2 whether to engage with the AI or not. And so the voice quality, the emotional character of it, the intimation, the cadence, all of those matter tremendously in actually having a person choose to talk with the AI. And that's something that we think that we're doing really well. It's something that we think we can bring to Hatch's product, and it's certainly powering our Yelp Host product, which is answering phones at restaurants.

Yes. You talked or touched on Yelp Assistant there for a second. So I guess you've highlighted in the past couple of quarters, a lot of momentum with that product. I think you also announced plans to roll out cross-category this quarter. So what actions are you planning to integrate that product beyond Service Request in '26? And how do you see that impacting revenue?

Thematically for us, it's really the shift that's going on in search from links to answers and actions. And so people really want an answer and they want an action. And they don't just want that for services that they want that across the Yelp experience. And if you think of Yelp as a specialized LLM or chatbot versus general chatbot, what differentiates Yelp? Why would someone come to Yelp to engage as opposed to going to another platform. And it is going to be I can do a search for anything local across all the categories we serve. So clearly, it was very important for us to bring Yelp Assistant, not just to services to all categories.

So we're doing that. We're very excited about the product. We've made tremendous product -- progress around it. We're building the integrations to enable that action layer after you ask the question to still have the Yelp voice in the experience is very important. Brand expressed as voice is something that has emerged as quite an important dimension to all of these products. We think we do that well. So we're very excited about the opportunity there.

And then most importantly, it's now a conversation with the consumer, and you can really learn about what their preferences are, you can understand better nuance of whatever it is that they're trying to do and you're able to serve that more effectively by surfacing the right businesses or the right information to them.

So it really is this idea that we are reconceiving Yelp around a conversation powered by LLMs with that authority, that ability to show the evidence why do we have confidence that what we are telling you is accurate because we have a photo, we have the review, and we have the rating. That's what differentiates us. That's why you would choose to go to a specialized chatbot for local Yelp as opposed to a general experience.

That concept of brand as voice is a really interesting one. And I think it's especially interesting for Yelp because -- and this is a supposition on my part, but I would guess that many consumers historically kind of viewed Yelp as a neutral intermediary where it's a place where you go to find user human-generated reviews and they're aggregated on this site. So what is the brand promise that you're putting into a voice with Yelp? And how are consumers reacting to that?

This is a great question. And for folks who are passionate Yelp users, what they love is that Yelp can -- of course, has that authority and is able to offer the evidence. But it's more playful. It's more fun. It's not going to be exactly the experience that you might expect that is a little more rigid or corporate. That's not why people come to Yelp. And we really want to ensure that, that tone comes through in the way that the Yelp Assistant engages people.

Now of course, it's got to be respectful, and we have a supervisory LLM sitting on top of it, and we want it to be appropriate, and we've taken all those precautions from a trust and safety perspective. But once you get beyond that, you can be authoritative and playful. They're not mutually inconsistent as long as you're offering the evidence for why that information is being presented.

Got it. Really interesting. I guess kind of sticking with the AI theme, let's move on to risk. It's obviously been a very hot topic, probably something that comes up in every session at the conference the past couple of years. But on the other side of Agentic commerce, you have this concern that investors have that consumers will increasingly find local businesses, for example, through an LLM platform and instead of going perhaps to Yelp. So is there a risk there? Is there an opportunity there? And what's your response to those concerns?

So far for us, this has been a tremendous opportunity and not per se, an immediate risk of any sort. And things are changing so rapidly. So I'm confident that Yelp is very durable and things are still emerging. So with that caveat, why do I have confidence in the durability of Yelp? It just comes back to this thing that I've already been showing, human-generated content, and trustworthiness. And I still want to make the decision, Show me the restaurants, don't just pick the restaurant for me. There's that nuance.

And also a Service Pros coming into your home, how can I trust them? What do I know about them? Am I going to trust the LLM to make that decision for me? Or do I want the evidence that, no, this person is very trustworthy. They were on time. They did the job well, and I was able to resolve anything that came up during the job. That isn't easy to replicate by just turning to an LM and saying, I need a plumber. It just doesn't -- it's insufficient in my opinion.

So we are very much architecting the experience to continue to convey that detail and level of information to the consumer. And again, this theme of differentiation, why would I pick Yelp? It's because I know that, that information is trustworthy, can inform a good decision. and I will get what I expect.

Let's talk about how people are finding Yelp. I think the latest figures you have 74 million direct visitors to the site and the app. Do you rely on search or paid marketing to get people to Yelp? And do you expect that to change at all going forward? It's obviously a really fast-evolving ecosystem.

Absolutely. So Yelp, because of its strong brand, has a very, very low cost of traffic acquisition. And we have our app, 28 million app uniques in 2025. And then we have our desktop experience and our mobile web experience. The comScore number is usually between 70 million and 80 million, the 74 million that you referenced but it's actually 38 million and 60 million for desktop web and mobile web. So we have this huge audience already. And we do -- we spend very, very little on traffic acquisition, TAC. We see an opportunity to do that, as I mentioned before, for an enterprise customer, really bring that lead directly to them and be able to monetize at a high rate around that.

But certainly, we benefit from SEO, where we show up in Google results. We're highly trusted. And we think that we are going to remain very relevant in this era of chatbots where they're looking for trusted content to surface. That's why people are partnering with us and licensing our information, as I already talked about. So overall, very confident that this core asset, highly trustworthy human-generated content is something that people are going to continue to seek out.

Got it. Thinking about strategy for a second. If I think back about what we've talked about up to this point, there's a couple of different categories of things that you're doing. There's Yelp Assistant kind of AI on the consumer-facing side. There's Yelp Host, which is kind of playing intermediary, but it's an AI product for advertisers and businesses. And then you have -- you're plugging into some partnerships like with OpenAI. So how are you thinking about allocating investments and energy and the strategic priority of those kind of very different functions of the Yelp platform?

So we are very rigorous in our planning process. We're very, very ROI-driven, and we are also taking the long-term view and building the product not just for 2026, but for the years to come. I think we've all heard this that there was a huge shift around December in the capability of coding tools, particularly Claude Code. And it is absolutely starting to show up in the way that we think about how to build, how fast you can build, how fast you could iterate, try a feature.

One of the things that has really emerged in our thinking over the past several weeks is an understanding, historically, when you choose to build something, it's expensive. And so you have to have a lot of confidence that what you are building is the right thing. That leads to a lot of decision-making overhead.

In a world where you can generate code much more quickly, spin up features rapidly, put them in front of your audience and get their feedback, A/B tested or just looking at the metrics, it starts to change how you approach product management and product engineering. And I think this is going to be true across the board, where you're going to have this compression of the risk management that has historically gone into writing code. And it's very exciting. It will demand a different way of working. It will demand different processes.

But with this sort of -- we passed this event horizon of some sort in December, where it is now not just a -- it's not just possible. It's not just a capability, but it's an expectation. And the speed with which you develop the expectation is now that, that's going to go even faster. So we made the shift to product-led a number of years ago, and we had already changed a lot of our process to speed time to market. I believe that's going to further accelerate that.

And so that's an exciting place to be because if you have that depth in visitors, if you have that expertise, if you build this variety of capabilities and you can iterate more quickly, then you can bring things to market that much faster that have the potential to be very successful. And if it's not, it's okay. You can move on to the next feature.

Got it. Maybe in the last few minutes, we can hit a few on the financial side. So I think you guided to EBITDA margin compression of 3 or 4 points this year, driven by investments in AI and in Hatch. So how do you expect those AI transformation costs to continue over the course of this year and going forward? And how should we think about your margin trajectory over the medium term?

So we did generate $369 million of adjusted EBITDA in 2025, 25% adjusted EBITDA margin. We guided lower this year at $310 million to $330 million. It's an investment year, and we are investing for the longer term. We are in this seminal moment, this secular shift to a new way as we were just talking about of building and bringing product and features to market, and we want to take advantage of that.

So our expectation, though, is over time, we are going to get the benefit of that. There's fundamental premise when you're product-led, which is that the improvements that you create stack over time and drive margin. That's one element. And then, of course, our focus at Yelp is very much around doing more. And so we want to drive top line with all of these improvements and create this set of capabilities. So my expectation is that over the longer term, all of this leads to margin expansion. And I think that's going to be generally true as people adopt these capabilities. But for sure, 2026 is all about investing for the future.

Got it. Thinking about capital allocation. I think you bought back a little bit less than $300 million of stock last year, raised or authorized another $500 million in February. Given the investments that you're making in 2026, how are you thinking about balancing capital allocation across reinvestment, share buybacks and M&A?

Yes. So maybe just a couple of stats first. $324 million in free cash flow in 2025, 22% free cash flow margin. As I already mentioned, $369 million in adjusted EBITDA. We drove stock-based comp as a percentage of revenue below 8%. 3 years ago, we told people we would do that. We did that. And we've set a target of less than 6% by 2027. So we've been very focused on capital management, capital allocation efficiency over a long period of time. By the way, we generated $2.24 of EPS, up from $0.50 just a couple of years ago.

So we think that, that gave us or gives us the financial strength to make the investments that we're making this year. But with the investment in Hatch, we have definitely shifted our capital allocation policy a bit in that we're using our capital to make those acquisitions even as we continue to expect to buy shares in the market subject to economic and financial conditions.

So we continue to see that as an important part of the approach. Obviously, the Board approved $500 million in incremental share repurchases. And I would just say the balance is shifting a little bit towards holding less cash on the balance sheet, doing acquisitions, doing share repurchases.

Got it. Maybe we can close on sort of a big picture question about AI. It's been a lot of the content that we've hit on today. But I guess, what would you point out to people as the most underappreciated opportunity from AI and maybe the most underappreciated challenge?

We're still figuring out this interaction model. That's a challenge. And it's going to take a lot of iteration. I talked about Yelp Assistant in Services a year ago, the thing that was a surprise is when we got better information, our matching got worse. And we're like, how can this be? It was so counterintuitive. And it turned out that the matching algorithm had been tuned to less precise information. And so we had to retune the algorithm to absorb this better information.

And so I would just say you can't underestimate that it's product development is still a thing. iterating is still a thing, understanding how that you present that information and all the underlying systems take advantage of that is still emerging. So that's just an unknown, but an amazing opportunity.

I think the thing that is underappreciated probably about AI at the moment is just how comprehensive it is across the enterprise and across the consumer-facing and in our case, advertiser-facing surfaces. There is going to be this incremental intelligence and this conversational interaction that just changes all of the way that we all interact with information. And we're all obviously using these tools, but I don't think that we've yet realized the full potential of them in the way that we work, learn and choose to go out to eat or have someone come to our home.

Great. David, thanks so much for being here.

Thank you for standing by. At this time, I would like to welcome everyone to today's Q4 2025 Yelp Inc. Earnings Conference Call. [Operator Instructions]

And I would now like to turn the call over to Josh Willis, Investor Relations Manager. Josh?

Good afternoon, everyone, and thank you for joining us on Yelp's Fourth Quarter and Full Year 2025 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 has been 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, Josh, and welcome, everyone. Yelp delivered record net revenue and strong profitability in 2025, driven by our focus on services and accelerated pace of product innovation. We introduced more than 55 new products and features, many powered by AI as we continue to transform the experience for consumers and businesses. Overall, in 2025, net revenue increased by 4% year-over-year to $1.46 billion. We grew net income by 10% year-over-year to $146 million, representing a 10% net income margin. This resulted in 19% year-over-year growth in diluted earnings per share to $2.24. Adjusted EBITDA increased by 3% year-over-year to $369 million, representing a 25% adjusted EBITDA margin.

Underlying our results, the operating environment for RR&O categories remain challenging, with revenue from these businesses declining 6% year-over-year to $444 million. At the same time, services drove our business performance with advertising revenue from businesses in these categories up 8% year-over-year to a record $948 million due to the strength in advertising demand and reflecting record revenue per location. Excluding projects acquired through our paid search initiative, Request-A-Quote projects increased approximately 15% year-over-year, driven by improvements to the flow and increased adoption of Yelp Assistant. Our AI chatbot continued to resonate with consumers in 2025 with Request-A-Quote project submissions through Yelp Assistant up more than 400% year-over-year, representing approximately 5% of all Request-A-Quote projects during the year.

Total ad clicks decreased 7% year-over-year, driven primarily by macro pressures and, to a lesser extent, reduced spend on paid project acquisition in 2025 compared to 2024. Average cost per click increased 10% year-over-year, reflecting growth in advertiser demand in our services categories and fewer clicks overall. Total paying advertising locations decreased 3% year-over-year as softness in RR&O offset growth in services, while average revenue per location reached an annual record. Other revenue accelerated significantly, up 17% year-over-year, driven by growth in transaction, subscription and data licensing revenue.

We also continued to grow our review content in 2025. Yelp users contributed 22 million new reviews, bringing cumulative reviews to 330 million. App unique devices were down 2% year-over-year as consumers visited restaurants with reduced frequency. Over the past year, we meaningfully increased our focus on transforming Yelp with AI. We believe combining our authentic human-generated content with advanced AI presents a significant opportunity to redefine how people connect with local businesses.

We plan to build on our progress by investing in three strategic initiatives in 2026. First, we are reconceiving the Yelp experience to focus on delivering answers and actions. We set the stage for this in 2025 by introducing natural language search, launching AI-powered business highlights and expanding Yelp Assistant to RR&O business pages. We plan to further expand Yelp Assistant in 2026 to function across categories and entry points with the goal of making local discovery and task completion seamless. We began testing this comprehensive experience in the fourth quarter and expect to fully roll it out by the end of the first quarter.

To further close the loop between discovery and action, we expanded our food ordering network by adding hundreds of thousands of new restaurants through our DoorDash partnership and integrated RepairPal's booking system into Yelp. Second, we are delivering AI tools that help service pros and other local businesses grow, operate and succeed. Building on years of investment in delivering value to our advertisers, our focus is shifting toward becoming an even more valuable partner for businesses by helping them operate more efficiently through AI-powered tools. In 2025, we introduced Yelp Host, our AI-powered call answering service for restaurants, which has answered more than 190,000 calls and handled thousands of reservations since launch. In 2026, we plan to roll out further upgrades, including the ability to take food orders over the phone.

To accelerate our broader strategy, we recently closed our acquisition of Hatch, a leading AI lead management platform for service pros. With this acquisition, we've now shifted our focus in lead management from Yelp Receptionist to supporting the rapid growth of Hatch.

Lastly, we are further extending our reach to power local discovery across the AI ecosystem. As search evolves towards AI, we believe the value of our first-party data, including 330 million reviews, nearly 500 million photos and more than 8 million business listings is becoming increasingly clear. In 2025, we saw strong demand for our data licensing products, and we recently signed an agreement with OpenAI. We believe we are well positioned to be the essential partner providing trusted local content and enabling actions whenever consumers are making local decisions.

In summary, our focus on product innovation and a differentiated services experience once again drove our results in 2025. Looking ahead, we are confident in our ability to transform Yelp with AI in ways that play to the strengths of our business. We plan to increase our investments in 2026, inclusive of our recent acquisition of Hatch to capitalize on this opportunity and deliver long-term sustainable growth.

With that, I'll turn it over to David. has answered more than 190,000 calls and handled thousands of reservations since launch. In 2026, we plan to roll out further upgrades, including the ability to take food orders over the phone.

To accelerate our broader strategy, we recently closed our acquisition of Hatch, a leading AI lead management platform for service pros. With this acquisition, we've now shifted our focus in lead management from Yelp Receptionist to supporting the rapid growth of Hatch.

Lastly, we are further extending our reach to power local discovery across the AI ecosystem. As search evolves towards AI, we believe the value of our first-party data, including 330 million reviews, nearly 500 million photos and more than 8 million business listings is becoming increasingly clear. In 2025, we saw strong demand for our data licensing products, and we recently signed an agreement with OpenAI. We believe we are well positioned to be the essential partner providing trusted local content and enabling actions whenever consumers are making local decisions.

In summary, our focus on product innovation and a differentiated services experience once again drove our results in 2025. Looking ahead, we are confident in our ability to transform Yelp with AI in ways that play to the strengths of our business. We plan to increase our investments in 2026, inclusive of our recent acquisition of Hatch to capitalize on this opportunity and deliver long-term sustainable growth.

With that, I'll turn it over to David.

Thanks for that full year review, Jeremy. Before I discuss our fourth quarter results, I'd like to take a moment to highlight the progress we've made transforming Yelp's business over the last five years through our product-led growth strategy and disciplined expense management. Through our commitment to share repurchases, we reduced our fully diluted share count, which includes outstanding stock options, RSUs and PRSUs from 86 million to 67 million, a 22% reduction between December 31, 2021, and December 31, 2025. Combined with our demonstrated profitability, this drove earnings per diluted share of $2.24 in 2025, a more than fourfold increase from 2021. In short, Yelp enters 2026 from a position of greater financial strength with net income of $146 million in 2025, adjusted EBITDA of $369 million, cash flow from operations of $372 million and record free cash flow of $324 million.

Turning to our fourth quarter results. Net revenue decreased by 1% year-over-year to $360 million, $2 million above the midpoint of our outlook range. Net income decreased by 10% year-over-year to $38 million, representing a 10% margin. Adjusted EBITDA decreased by 15% year-over-year to $86 million, $7 million above the midpoint of our outlook range, representing a 24% margin.

As Jeremy mentioned, top line growth was driven by performance in our services categories throughout the year. Advertising revenue and services increased by 3% year-over-year in the fourth quarter to $231 million. Conversely, restaurants and retailers remained pressured in the quarter, resulting in a 12% year-over-year decline in RR&O revenue to $107 million. A decrease in RR&O locations, combined with flat services locations in the fourth quarter resulted in an overall decline of 5% year-over-year in paying advertising locations to 496,000.

Turning to expenses for the year. Our 2025 results highlight both our ability to deliver profitable growth and the margin potential of our product-led strategy with a net income margin of 10% and an adjusted EBITDA margin of 25%. We again kept headcount approximately flat year-over-year in 2025, demonstrating our continued commitment to disciplined expense management.

We see a significant opportunity to drive growth in other revenue through our AI transformation and plan to increase our investments to capitalize on this opportunity in 2026. Excluding the recently integrated Hatch team, we expect headcount growth to again remain approximately flat year-over-year in 2026, reflecting both our commitment to driving leverage in the business through our product-led strategy and our team's ability to deliver operational efficiency using AI. We also remain focused on increasing the quality of our adjusted EBITDA. In recent years, we have taken significant action to shift our compensation mix between stock and cash. While we expect the full impact of these efforts to stack over time, in 2025, we were able to reduce stock-based compensation expense as a percentage of revenue by 2 percentage points from the previous year. In line with our target set in 2023, SBC as a percentage of revenue in the month of December 2025 declined to below 8%. We continue to expect that we will reduce SBC expense to less than 6% of revenue by the end of 2027.

In 2026, we are deploying capital to support our growth initiatives through investments in our AI transformation, our acquisition of Hatch and incremental investment in paid search. We intend to continue evaluating potential strategic acquisitions and repurchasing shares subject to market and economic conditions. In 2025, we repurchased $292 million worth of shares at an average purchase price of $33.29 per share, including $88.5 million worth of shares repurchased in the fourth quarter. As of December 31, 2025, we had $38.8 million remaining under our existing repurchase authorization. To support our ongoing repurchase plans in February 2026, our Board of Directors authorized an additional $500 million for share repurchases. Turning to our outlook.

We continue to believe in the significant long-term growth opportunities ahead as we focus our investments on high-return areas. We expect many of the same trends that characterized 2025 to persist into 2026, continuing to negatively impact advertising revenue for the year. We anticipate the opportunity in other revenue and services to continue to drive our business performance, while our RR&O remains pressured. As a result, for the first quarter of 2026, we expect net revenue will be in the range of $350 million to $355 million. For the full year, we expect net revenue will be in the range of $1.455 billion to $1.475 billion.

Turning to margin. We anticipate expenses will increase seasonally from the fourth quarter of 2025 to the first quarter of 2026, primarily driven by payroll taxes and benefits. As a result, we expect first quarter adjusted EBITDA will be in the range of $58 million to $63 million. For the full year, we expect expenses to increase, driven primarily by investments in our AI transformation and paid traffic acquisition and in Hatch operations. As a result, we expect adjusted EBITDA for the full year to be in the range of $310 million to $330 million.

In closing, Yelp's 2025 results reflect both disciplined execution and the margin potential of our product-led strategy. We continue to believe in the opportunities ahead to create shareholder value over the long term as we invest in our AI transformation to drive sustainable business performance.

With that, operator, please open up the line for questions.hare repurchases. Turning to our outlook.

We continue to believe in the significant long-term growth opportunities ahead as we focus our investments on high-return areas. We expect many of the same trends that characterized 2025 to persist into 2026, continuing to negatively impact advertising revenue for the year. We anticipate the opportunity in other revenue and services to continue to drive our business performance, while our RR&O remains pressured. As a result, for the first quarter of 2026, we expect net revenue will be in the range of $350 million to $355 million. For the full year, we expect net revenue will be in the range of $1.455 billion to $1.475 billion.

Turning to margin. We anticipate expenses will increase seasonally from the fourth quarter of 2025 to the first quarter of 2026, primarily driven by payroll taxes and benefits. As a result, we expect first quarter adjusted EBITDA will be in the range of $58 million to $63 million. For the full year, we expect expenses to increase, driven primarily by investments in our AI transformation and paid traffic acquisition and in Hatch operations. As a result, we expect adjusted EBITDA for the full year to be in the range of $310 million to $330 million.

In closing, Yelp's 2025 results reflect both disciplined execution and the margin potential of our product-led strategy. We continue to believe in the opportunities ahead to create shareholder value over the long term as we invest in our AI transformation to drive sustainable business performance.

With that, operator, please open up the line for questions.

[Operator Instructions] All right. It looks like our first question today comes from the line of Robert Coolbrith with Evercore ISI.

Just wanted to ask about the environment for services, both on the consumer and the service provider side. You saw some deceleration in Q4 in revenue and a little bit steeper sequential decline in services sales this year versus last. Just wondering if you could maybe comment on that a bit and what you're looking for from the services business in '26. And then I'll just have a quick follow-up on OpenAI.

Sure. I can kick things off here, Robert. Thanks for the question. Services demand, I think, has softened a bit. Where we really see it hit hard with respect to the consumer and the overall macro environment was RR&O. But I would say it's spilled over to services somewhat, not to the same extent, obviously. So that gets to the question of what are we doing? Well, we're really leaning in with Yelp Assistant. So that's our key investment there. We've been working on that for some time, particularly in the services side, but we rolled it out last year. The business pages -- and we're looking forward to bringing it cross category.

We think transforming the consumer experience through AI is really a great opportunity for us. Obviously, AI is a very disruptive force for a lot of companies out there. And so we're really riding that wave. We think consumers are going to expect to have a more chat-like interface in general to a service like Yelp. And so we're eager to bring that to our consumers, drive engagement. And of course, as those users engage with it in high-frequency categories like restaurants, you would expect them to eventually get to services categories as well. And when you're in Yelp Assistant, that's a fully monetized experience with Request-a-Quote. So we're really excited to get that out. We expect to begin our launch towards the end of Q1 here. And that's just the beginning.

Of course, we plan to continue to invest in that to bring other actions into Yelp Assistant, so things like making reservations or booking appointments or having a service provider show up at your house. Those are all on the road map. So we're looking forward to executing on that. And then we continue to lean into multi-location services. That's a big opportunity there. We've historically been underpenetrated. We've made a lot of progress. We've also found ways to deliver additional traffic, go out and acquire some traffic for those customers, and that can generate incremental revenue as well. So we do have a lot of bets that we're placing this year that can improve things on the services side and look forward to reporting back on that.

Great. And then just on OpenAI, anything you could tell us maybe about the general outline of the deal if that could be a positive factor for traffic, exposure to younger user cohorts and so forth in addition to whatever monetization opportunity there might be?

Sure. Yes, I'll take this one as well on OpenAI. Great to have an agreement there. A couple of quarters ago, we flagged for investors that, hey, we were seeing really high-quality conversations in that area. deals were being signed. It was still early days. And I think this is an important milestone on that journey. Yelp has really great content, millions of human written reviews, really critical content, critical information. If you want to deliver an experience, a general search experience, eventually, those consumers are going to be asking questions with local intent. That's historically with Google has reported that something like 50% of queries on traditional search have local intent.

And if you're trying to compete with Google, like many of these folks are, you really need that high-quality content and Yelp has it. And so we're seeing that reflected both in this agreement as well as others. And the conversations are continuing. This isn't the last one we expect to do. I guess I would finish with where does that show up on the revenue side? Other revenue is where data licensing lives. It's up 17% year-over-year. And actually, in the fourth quarter, that accelerated. It was up 30% or 33%.

And our next question comes from the line of Jason Kreyer with Craig-Hallum.

So you talked about this AI transition. Just wondering if you can talk about what that looks like through the lens of the consumer. Like how does this evolve in terms of consumers interacting with Yelp and consumers interacting with your customers over time?

Yes. Happy to answer that. Yes. Obviously, AI is a very disruptive force, and I think it's changing consumer expectations. How are we approaching that? Well, first and foremost, on the consumer experience, we're really trying to leverage AI everywhere that we can. We rolled out lots of features that are powered by AI. One of the first things we did was enhance our search so you can actually enter natural language queries in there and get back much better answers than you could prior to that.

But with Yelp Assistant, that was our foray. We've been working on that for some time, conversational initially focused on the services experience that has driven a lot of projects, incremental projects. And in fact, as we rolled it out, we've seen really great adoption there, up 400% in terms of projects going through Yelp Assistant.

Fast forward a little bit there, and we brought it to business pages. And so now consumers, which more frequently, they're having this expectation of you land on a business page, you don't want to read through all the information. You just want to get the needle in the haystack. And so consumers are now able to do that, type in a question about a business, it digs into the photos, it digs into the reviews, and it comes back with relevant information. And that was sort of a milestone on our way to where we're headed towards the end of this quarter, which is the cross-category Yelp Assistant. And that's really exciting because you can ask it any question about a local business or what your need is or whether it's a service request, it will guide you through that process and ultimately match you with businesses.

One of the great things back to that needle in a haystack comment is that we're able to back up a user's question or a user's request with great data. So photos that are an example of what they're looking for or snippets right out of reviews and get really precise. We think that's going to delight consumers. Ultimately, that's our goal. And I think with the changing search landscape, everything going or some portion of share going to a more generative AI or a ChatGPT-like experience, consumers are changing their expectations and they don't just want regular search. And so we've put a significant investment in transforming the Yelp experience and preparing for the future, and we'll get our first taste of it as we launch Yelp Assistant at the end of Q1 here.

I guess on other areas where we're using AI to transform, I guess I would point to the opportunity that we see in SaaS tool -- AI-powered SaaS tools. So as you probably know, we launched Yelp Post and Yelp Receptionist last year. Yelp Posts is fantastic. We're seeing a great response from restaurants. Sales are above our initial expectations. We've answered over 190,000 calls. So great momentum there.

And on the Receptionist side, we did get the opportunity to pair up with Hatch. We're delighted. I think that accelerates our road map there by a couple of years. They were a first mover in the space. And we're able to bring our extensive distribution as well as AI capabilities and talent to bear on the hatch opportunity. Both are going after very large TAMs. So we're extremely excited about the AI SaaS opportunities ahead of us. Yes.

Maybe just sticking with Hatch on a follow-up. Just curious what that cross-sell looks like for Hatch services. And then if there's any hatch functionality that will kind of accelerate the road map on host as well.

Yes. I mean we're already talking to a lot of the same customers, and there's plenty of contacts that we have that we can introduce Hatch to. So I think that's a really exciting opportunity. They're a relatively small team. We have thousands of sales reps.

There's also a benefit, too, in that if you get more efficient at managing leads by leveraging AI, your return on advertising is better. So that's kind of an extra win-win. in there. So very excited about Hatch going after a big TAM, and they're growing rapidly, 70% year-over-year growth. So exciting times there.

And our next question comes from the line of Nitin Bansal with Bank of America.

So AI innovation is accelerating at a very rapid pace, particularly as large platform disturb traditional advertising and software models. As you expand your SaaS offerings with Hatch, what gives you confidence that your product innovation can keep up with the leading players and you will be able to achieve the adoption level that you're targeting for?

Sure. Thanks for the question. How do we expect to keep up a level of innovation, a pace of innovation such that we could stay ahead of perhaps bigger players. It's not -- it's something that we're very familiar with. Obviously, for many years, we've competed with big tech players, particularly Google. And how we've been successful is, I think, our focus. It's early days in the space that Hatch plays in, which is AI lead management for service pros. They're laser focused. They understand their customers. They understand the players in the ecosystem. They have key partnerships that are essential to make that work. There's just a level of detail and focus that I think is very hard for other companies, especially large ones that have other big opportunities to pursue to spend their time on.

So we're quite confident that this is an opportunity with a lot of runway and Hatch has great momentum. And we're -- our view is how do we help. They're doing great. The 70% growth year-over-year is fantastic, and we want to see if we can make that even -- go even faster. So we're bringing our resources to bear. We're bringing our distribution to bear, and they're really experts in the space. And I don't -- I think that's very hard for someone to replicate if they've got lots of other large opportunities to chase like some of these bigger AI players.

If I can ask one more. Looking out five years from now, how do you envision Yelp's revenue mix to evolve between like recurring subscription revenue versus variable ad revenue? And what would it mean for your like overall top line growth and margin profile like three to five years down the line?

Thanks for the question. We do see the opportunity to diversify revenue by continuing to drive other revenue. Just as a quick reminder, other revenue consists of three components. There is the licensing revenue, there is transaction revenue and things are going well with DoorDash. We're very happy there. And then, of course, there's the subscription revenue. With this significant opportunity across the CaaS landscape, especially with our distribution, we do see the opportunity to diversify our total revenue mix, which is obviously heavily ad-driven today. So, yes, that's definitely an opportunity from our perspective Obviously, as well, there are different margin profiles between SaaS performance and SaaS business models and ad-driven business models. That being said, when you look at over time, where do SaaS businesses go in terms of margins, it's also very attractive.

So my expectation is that our SaaS -- our ability to drive SaaS margins will converge with where we are or better than the ad revenue. And as a reminder, when you look at licensing or transaction, that is almost entirely margin. So that's a very nice mix there for us. I'd say overall, other revenue today already has, in aggregate, a better margin profile than the ad side of the business.

[Operator Instructions] And our next question comes from the line of Kishan Patel with Raymond James.

This is Kishan Patel on for Josh Beck. In restaurants and retail, what do you think needs to change for that advertiser base to stabilize and then improve? And how would you prioritize these changes over the next few quarters?

Yes. Thanks. I can take that question. This is Jed speaking. Obviously, there have been some headwinds in restaurant, retail and other. We saw those over the course of 2025. There is a lot of these restaurants are dealing with a weakened consumer, and there's additional pressure of really high input costs that makes it a tough battle out there on Main Street from -- in the local economy. We do believe that over time, in-restaurant dining will return and that we're very well positioned for that.

I think when you look at the transformation of Yelp and Jeremy had mentioned Yelp Assistant cross-category Yelp Assistant, that's going to provide an entirely new interface for consumers to interact with all of the Yelp data, and we believe the investment there will position us well when a lot of the stuff comes back. But we're not resting on our worlds. Jeremy mentioned the Yelp Host, and we've been thrilled with the progress there thus far. We believe there's a very large TAM.

I think as we mentioned in the letter, we're going to be -- we'll soon have the food ordering available on that Yelp Post product. And I believe we're really well positioned from a voice perspective, and it is obviously a very large TAM that we can go after and bring our existing infrastructure to bear on that opportunity. So overall, we're going to continue to invest in that consumer experience and also see other opportunities to drive on those AI-based SaaS tools.

Got it. And regarding Hatch, can you provide more color on the margin trajectory goals for Hatch after closing given the cash flow disclosure and how that impacts the full year EBITDA outlook versus the core business?

Thanks for the question. It's David. Because Hatch is growing very rapidly, we remain focused on driving that top line growth. Margin -- driving margin is not the immediate focus for us. We actually want to go and really realize the opportunity by providing the solution to as many service pros as we can. Again, I do think over time that the margin profile will converge just a typical SaaS margin profile, but that's not immediate. So it is reflected in the guidance that we've given on adjusted EBITDA for the year from an operating expense perspective.

Just as a side note, the retention amounts that we are paying out are being added back to EBITDA. So we're adjusting those. You can see those numbers in the shareholder letter just for reference. But what we want to really achieve right now is this significant growth and realizing the opportunity from the acquisition.

All right. Thanks, Kishan. And that does conclude our Q&A session today as well as our call. So thank you so much for joining us today, and you may now disconnect. Have a great day, everyone.

Have a great day, everyone.

Thank you for standing by. My name is Eric, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q3 2025 Yelp Inc. Earnings Conference Call. [Operator Instructions]

I would now like to turn the call over to Kate Krieger, Director of Investor Relations. Please go ahead.

Good afternoon, everyone, and thanks for joining us on Yelp's Third Quarter 2025 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 the 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 adjusted EBITDA, GAAP net income margin to adjusted EBITDA margin and 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's transformation with AI continues to accelerate. We are reconceiving the experience on Yelp for both consumers and businesses, recently rolling out more than 35 new features and updates that leverage the power of AI in combination with our human-generated highly trusted content. This valuable content also underpins the continued expansion of our data-light partnerships. Taken together, we believe our product-led strategy, along with our broad reach will enable us to deliver on our ambitious product road map and create long-term value for our shareholders.

Turning to the third quarter. Yelp delivered record net revenue and strong profitability. We generated $376 million of net revenue with a net income margin of 10% and adjusted EBITDA margin of 26%. Underlying our top line results, Services revenue increased by 7% year-over-year and drove our business performance. At the same time, the operating environment for businesses in our Restaurant, Retail & Other categories remained challenging with RR&O revenue declining by 2% year-over-year. We are continuing to deepen our focus on services.

Excluding projects acquired through our paid search initiative, Request-A-Quote projects increased by approximately 10% year-over-year in the third quarter, driven by improvements to the request flow in our AI chatbot, Yelp Assistant. In fact, project submissions through Yelp Assistant increased by nearly 400% year-over-year. Our product and engineering teams also recently rolled out an enhanced version of Yelp Assistant that remembers important details and preferences from past projects.

In addition to Yelp Assistant, we are using AI to simplify how consumers evaluate and select the right service pros. We extended our review insights feature to services categories, created a dedicated before and after section in businesses media galleries and expanded our response quality badges for service pros nationwide. Beyond services, our product and engineering teams continue to leverage AI to transform the way consumers connect with great local businesses in RR&O categories.

We recently expanded Yelp Assistant to RR&O business pages, leveraging our trusted content and information from businesses websites to give users instant, reliable answers to questions about specific businesses. This is a significant step towards delivering a comprehensive Yelp Assistant that works uniformly across all categories and entry points. We plan to begin testing our category-wide Yelp Assistant before the end of the year.

We also recently launched Menu Vision, an augmented reality feature that enables diners to point their camera phones and menus and view photos as well as reviews of individual dishes. In addition, we are now partnering with DoorDash as our preferred food ordering and delivery provider, expanding our food ordering network by approximately 200,000 new restaurants to a total of more than 500,000. We expect this partnership will generate incremental revenue, which will be recorded as other revenue.

Lastly, we rolled out 2 new voice AI subscription products, Yelp Host for restaurants and Yelp Receptionist for services. These SaaS solutions combine LLMs with Yelp's high-quality data to provide smarter, more human-like answering services tailored with information specific to each individual business. We are excited about the potential of these incremental offerings, which we believe are best-in-class. Early results indicate a strong product market fit, saving restaurants and service pros significant time.

In summary, our focus on services and AI products has continued to transform our business, and we remain excited by the opportunities ahead to drive profitable growth and shareholder value over the long term. With that, I'll turn it over to David.

Thanks, Jeremy. In the third quarter, net revenue increased by 4% year-over-year to $376 million, $6 million above the high end of our outlook range. Net income increased by 2% year-over-year to $39 million or $0.61 per share on a diluted basis, representing a 10% margin. Adjusted EBITDA decreased by 3% year-over-year to $98 million, representing a 26% margin, putting at $13 million above the high end of our outlook range.

As Jeremy mentioned, Services revenue increased by 7% year-over-year to a quarterly record $244 million. Restaurants and retailers remained pressured in the quarter, resulting in a 2% year-over-year decline in RR&O revenue to $114 million. A decrease in RR&O locations offset growth in services locations in the quarter. This resulted in an overall decline of 2% year-over-year in paying advertising locations to 512,000. Ad clicks declined by 11% year-over-year in the quarter, primarily due to macro pressures. To a lesser extent, competitive pressures in RR&O categories and reduced spend on paid project acquisition in the current year period also negatively impacted clicks. Average CPC increased by 14% year-over-year, reflecting growth in services demand and fewer clicks overall.

Turning to expenses. Our third quarter results demonstrate the margin potential of our business with a net income margin of 10% and an adjusted EBITDA margin of 26%. We achieved these strong results through disciplined expense management. As we continue to focus on allocating resources towards our best opportunities, we continue to expect headcount will be approximately flat year-over-year by the end of 2025.

In the third quarter, we reduced stock-based compensation expense as a percentage of revenue by 2 percentage points year-over-year to 9%. We remain focused on reaching our targets of less than 8% by the end of this year and less than 6% by the end of 2027. We expect these efforts to stack over time, improving the quality of our adjusted EBITDA and benefiting GAAP profitability in the years to come.

Our capital allocation strategy consists of 3 main elements: first, maintaining a healthy cash balance to fund our operations; second, retaining balance sheet capacity for acquisitions; and third, returning capital to shareholders through share repurchases. In the third quarter, we repurchased $75 million worth of shares at an average purchase price of $32.59 per share. As of September 30, 2025, we have $127 million remaining under our existing repurchase authorization. We plan to continue repurchasing shares through the remainder of 2025, subject to market and economic conditions.

Turning to our outlook. With heightened macroeconomic uncertainties, we did not see our typical seasonal increases in revenue in the second and third quarters. We anticipate that these heightened macroeconomic uncertainties will persist in the fourth quarter with net revenue decreasing from the third quarter. As such, we are lowering our outlook range for the full year. We now expect net revenue will be in the range of $1.460 billion to $1.465 billion, reflecting a decrease of $8 million at the midpoint. Turning to margin. We expect fourth quarter expenses to remain relatively consistent with the third quarter as we remain focused on disciplined expense management. In addition, we expect our efforts to reduce SBC will continue to act as a headwind to adjusted EBITDA but will not impact net income. As such, we are narrowing our range and now expect full year adjusted EBITDA to be in the range of $360 million to $365 million, reflecting an increase of $8 million at the midpoint.

In closing, Yelp's third quarter results reflect the underlying profitability of our business. We continue to believe in the opportunities ahead to create shareholder value over the long term as we focus our investment in areas that we believe will transform our business, particularly around AI.

With that, operator, please open up the line for questions.

[Operator Instructions] Your first question comes from the line of Eric Sheridan with Goldman Sachs.

This is Alex on for Eric. I just wanted to unpack what you're seeing in the macro environment a little bit more. I think if you take -- just looking at the model, if you take sort of normal sequential seasonality in the Services segment in your Q4 guide, it implies a pretty meaningful step down in RR&O. So are you seeing sort of a more broad-based macro pressures within the Services segment as well? Or is it really still just concentrated in the RR&O segment?

Alex, thanks for the question. This is David. So broadly on the macro front, as we mentioned, the pressures that we saw emerging in the spring, particularly in April, persisted through the second quarter into the third quarter, and we did see those persist here into the fourth quarter. In terms of pressure on RR&O versus Services, first, I think it's important to just recognize our seasonality between those 2 sides of our business. On the RR&O front, there is typically a seasonal rise in the fourth quarter. And on Services, there's typically a seasonal decline as service pros wind down for the year and weather changes.

In terms of RR&O more specifically, we have seen that there is more caution among advertisers in their spend as they've come into the fourth quarter. I think you've heard that from a couple of other consumer Internet companies this week. And so that is certainly something that we have seen as well. On the services front, we continue to see consistent demand from advertisers still wanting to reach consumers as they look at doing projects or having repairs done. So net-net, it's more significant on the RR&O side.

The next question comes from the line of Jason Kreyer with Craig-Hallum.

This is Cal on for Jason. So maybe to start, you called out in the shareholder letter the strong demand for data licensing products, particularly in AI search. And I think we saw some of that with the growth acceleration in the other segment. But just curious if there's any additional color there on the expanding opportunities for Yelp, especially as we're seeing these AI search platforms start to stand up more third-party integration.

Cal, this is Jeremy. Yes, I mean we continue to be really excited about this area for Yelp. Obviously, have highly trusted content about SMBs, which we think is a critical ingredient for any of these LLM-based players that are trying to provide a general search experience, especially one that competes with Google. We talked about the momentum last quarter. I would say the quality of conversations we continue to have with the various folks in the space is excellent. I think we'll have more to talk about. We're still kind of early in the development of this area. But we're really excited, both on the data licensing side as well as the APIs we have to offer. We think Yelp is just a critical resource, and I'd say the conversations are showing that so far.

Great. And then just as a follow-up, you integrated the RepairPal booking system into the Yelp platform and now you're launching the DoorDash partnership. So just curious with the greater ability to tie out ad spend to -- on the platform to bookings and transactions, what benefits might you expect to see, whether it's a CPC uplift or more resilient ad spend? Any color there would be great.

Yes. With RepairPal, the integration continues to go well. We have started rolling out bookings there to expose RepairPal to Yelp users. I think that's positive. It's certainly helping us on the services revenue side as a contributor there. You mentioned DoorDash. We're really excited about that partnership as well. Obviously, expands our footprint in terms of restaurant coverage and with a very high-quality partner leader in the space. So we do see some incremental revenue coming from that as we get further out.

Your next question comes from the line of Josh Beck with Raymond James.

Maybe just following on the DoorDash partnership. Certainly, it seems like it's a much bigger footprint of restaurants, I think, over 0.5 million. I'm curious, should we think about it as something like a lead generation type of model? I mean my experience has been you're on Yelp and you find something to order and it kind of deep links to DoorDash. So is that kind of the right trigger for modeling it out? Or any kind of guidance you can give us there?

Yes. This is Jed. I can take that. As Jeremy mentioned, first of all, we're really excited about this partnership. The footprint of restaurants has expanded dramatically on Yelp by about 200,000 restaurants. And I think if you're a consumer looking for the best food options in your area, it's a natural progression to then transact on the platform. And I think the way you described it is, in fact, how it is happening on the platform. So you have a direct integration into the DoorDash ordering model. By the way, we have other food partners that we're still partnered with in order to kind of keep that full coverage. But we really just think, ultimately, it's a much better consumer experience to be able to kind of get -- consummate everything on the Yelp platform, and we're really excited about it moving forward.

Okay. And then maybe a follow-up on the AI strategy. It certainly seems like there's a lot of vectors. You have the on-platform push with AI assistant or the Yelp Assistant and the like. We've seen some examples in the last few months of Internet platforms kind of enabling third-party chatbots within their app, not a lot of those examples. And then obviously, the bigger kind of push to agentic commerce and agentic browsers and doing partnerships there. So there's -- obviously, that's probably just a sample, but there's many ways to kind of form this strategy. Just kind of curious how you're thinking about it broadly and maybe where that could head in the next year.

Yes, sure thing. It's Jeremy. I'll take that. I think AI for Yelp is really transformative. We've already started down that path. You mentioned Yelp Assistant. So that was our first chatbot agent-like product, really geared towards services. We have recently expanded it. So now there is a version of Yelp Assistant that lives on business pages. So you can ask -- in a wide variety of categories, you can ask anything about that business, and it's going to give you answers and back it up with our trusted content. So that's really exciting. And that's essentially a waypoint as we get to the cross-category Yelp Assistant, which we're going to be testing here in Q4 with more of an expansion expected early next year.

I think for us, that's a big deal. That's going to be the way that consumers interact with Yelp content. I think in the future, obviously, a lot of people are getting used to. The chat interface is a way to tap into insights and information. And we have really great content, highly trusted, millions of reviews and to be able to put a chat interface on all of that and serve up exactly what you're looking for, I think, is going to allow consumers. So we're really looking forward to that. We've also built and just started selling our Yelp Host and Yelp Receptionist products, which are essentially answering services that are powered by AI, fantastic technology, time saving, also helps businesses capture more value. both from their Yelp leads, but it can be employed across all leads.

There's no reason why that phone number can't and shouldn't be added to their website, to Google, et cetera, and really create leverage, reducing costs because maybe they don't need to have as many people picking up the phone, but also capturing critical information, whether it's for a restaurant, they can actually tie into our front-of-house reservation and waitlist services and have people make bookings or add themselves or take themselves off the waitlist. It's just really powerful stuff and with a huge TAM. So it's as if we've kind of launched a whole little start-up within Yelp, but with all of our great content as well as our incredible distribution power. So we're looking forward to seeing how that plays out.

And then also on the AI side, as you mentioned, there's a lot of players trying to create valuable search services. And so that's where our data licensing business comes in, our APIs that we offer to tap into Yelp content as well as our AI tech, bringing things like Yelp Assistant wrapped in an API is something we definitely want to do and can create monetization opportunities for others off Yelp. So there's just a lot of different ways for us to invest and leverage AI. And we're early innings, but we do see it as transformational for the company over time.

Okay. And I don't know if I can sneak in one more for David. Just with respect to the restaurant industry, obviously, same-store sales has been challenged pretty broadly. What, I guess, are you monitoring? Is that kind of the key external metric for a potential recovery in spend? Just what should we be watching in terms of macro factors within that vertical?

Yes. Thanks for the question. Obviously, we also listen and follow what the larger restaurant players are saying about the industry and their expectations. And so they have obviously a good read on it. We want to see folks starting to dine out more is a good indicator, certainly and as opposed to per se, delivery, that's a factor. But I think if you just step back, I think that the larger macro picture is a key indicator for us. Obviously, there have been a variety of new reports out, pressure for -- on spend for folks in lower and mid-income levels. And so that's certainly a leading indicator for us that shows what the expectation should be around restaurants.

There's also another factor at play here, which is just a continued pressure on input costs for restaurants. They have seen a significant amount of inflation, both on the ingredient side, but also on the labor side. And so that will play out over time. They've had a harder time passing on that cost to consumers in the current environment. But one of the things that we think is likely to happen is as we lap that inflation increase, assuming that it doesn't persist, then they will start to be able to generate more margin, which will put them in a better position to advertise to consumers. So you've got a little bit of dynamics playing out both on the consumer side as well as on the restaurant side.

The next question comes from the line of Nitin Bansal with Bank of America.

Just a follow-up on the earlier question. You mentioned that Yelp Host and Yelp Receptionist are expected to drive like incremental subscription revenue and a large TAM for these products. Can you help us understand the scale of this opportunity and how much of these products could contribute to revenue next year? And what early adoption and feedback you are seeing so far?

Nitin, this is Jeremy. Sure. Happy to talk a bit more about Yelp Host and Receptionist. It's obviously early. We're 1 month in with Yelp Host and just a couple of weeks in, in a few categories with Receptionist. But I would say that the feedback has been really positive. They're out there in the field answering calls. Yelp Host has received thousands of calls. It's handled hundreds of reservations at this point. So it's no longer just in test. It's really out there serving real customers and touching real consumers or helping real consumers.

As far as how big this can be, I think we have conviction that it's a really large TAM. We have north of 500,000 folks that are Yelp advertisers. That's obviously a natural place to start. They already have a relationship with Yelp. But then we also have businesses that have signed up with us over the years as well as maybe businesses that don't even have existing relationship with Yelp, there's no reason why they wouldn't want an answering service that could potentially save them time and money, capture valuable leads that were maybe getting dropped. And so we think there's just a lot of value here to unlock for business owners, both SMBs, but also mid-market and multi-location.

With multi-location, that informs like a longer product road map because as you get to that scale, there's other needs. So we have things to build. But we're really excited about what's ahead of us here. We think this is a very impactful area that will provide incremental revenue. And we also see it as a potential expansion opportunity into lead management more in general. And so we just -- we think it's the start of something potentially really big for us.

If I can follow up one more. Average pricing on the platform has been growing at like an accelerating pace. Can you help us understand like the key factors behind this trend? Additionally, like how it is impacting the advertiser ROI influencing incremental ad spend and retention on the platform?

It's David. I'll cover that. So just stepping back for one moment. On the Yelp, we receive ad budget from advertisers and then we optimize the deployment of that ad budget on their behalf through auctions. So we don't, per se, set the number of clicks or the cost per click. We let the algorithm determine that optimal mix. And with that auction, we're really trying to determine what's the price for that visitor in that category that time of day in that part of the country. So it's a very dynamic system, and we like that because it enables us to balance between actually hundreds of parameters that go into that matching algorithm. So that's the backdrop.

In terms of clicks lower and CPCs higher, that's going to be a natural outcome because we have the budget to deploy. And then in terms of the current dynamics and trends, the year-on-year does tend to have a shape to it where it will increase for a period of time historically and then decrease for a period of time. So what we're really looking at often is the absolute dollar run rate for the click and advertisers are most focused on not what was the cost per click, but actually what was the cost per lead. So we're always very focused on continuing to drive improved value per lead. And to the extent that we can drive improved value, then advertisers are certainly willing to pay more per click.

And over the course of 2025 here, because of macro pressure, we have seen that there are fewer clicks on the platform, and that's resulted in the higher prices. It has not translated in the third quarter to a change from a year ago period in terms of churn. So advertisers, I believe, recognize a couple of things are happening. One, of course, is those leads are valuable to them in an environment where there may not be as much interest in visits or using their services. And so they want to generate those leads and they're willing to pay for those leads. That's one dynamic. We think that we are continuing to increase the value that we are delivering to those advertisers.

And the cost for those leads fits within their model as they've seen inflation, certainly, they've also passed on a portion of their costs. to the consumer, although I called out the challenges, particularly in restaurant for that. But setting that aside, inflation has certainly been something that's impacted their pricing as well. So you combine all those factors, and we certainly are very attentive to the cost per click. And ultimately, our mission is to deliver valuable leads and visits to those advertisers as efficiently as possible, competitive with other platforms.

Our last question comes from the line of Sergio Segura with KeyBanc.

I have 2. So maybe first on Yelp Assistant. I know it's early for the logged-out users, but just curious what you're seeing there, if it's pretty consistent with what impact you've seen from logged-in users. And then on the EBITDA side, the cost side of the business, raising that outlook. Just can you provide us a little bit more color on the efficiencies that you're seeing there that are driving that improved outlook?

Sergio, this is Jeremy. Yes, Yelp Assistant, the logged-out release is just starting to roll. So it's a bit early to see the exact effects. But overall, Yelp Assistant on the services side is doing great. We're up in terms of projects, 400% year-over-year. And so we'll keep you posted as we get more data on the rollout, but there is a lot of opportunity there, as we highlighted last quarter, to expose Yelp Assistant in a variety of different places, especially with logged-out users.

And this is David, Sergio. Turning to your question on EBITDA. We operate, we believe, in a very efficient way in deploying capital and investing across the business. We're constantly monitoring that and making adjustments. As you recall, we committed to flat headcount here in 2025. We expect to be flat as we come to the end of the year. That's a commitment we made in 2024 and 2023 as well. And we believe that we continue to increase the efficiency and leverage across Yelp from the contributions of everybody working at Yelp. So we are overall pleased with the progression there.

There's also an element of being able to capitalize more software because we're doing more new greenfield projects. So for instance, Yelp Assistant -- Yelp Host, Yelp Receptionist and portions of the work that are associated with Yelp Assistant. So the overall profile of our investment even in product and engineering reflects the fact that we are increasing our velocity and particularly our innovation. So we're very excited about our ability to leverage AI to build these new products, deliver more value to both consumers and advertisers. And obviously, we'll continue to be very disciplined in the way that we allocate capital going forward.

There are no further questions at this time. Ladies and gentlemen, this concludes today's call. Thank you all for joining, and you may now disconnect.

So I think in the interest of time, we're going to get going with our next one. It's great to have the team from Yelp here. We've got Jeremy Stoppelman, CEO; David Schwarzbach, CFO. Jeremy, David, thanks so much for being part of the conference again.

Great to be here.

Okay. David, I know you've got a safe harbor read. I'm going to yield the floor.

Perfect. Thanks, Eric, for having us at the conference. We'll 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.

There you go.

Thank you.

Okay. Well then, we got through it. Jeremy, I want to start with you. I think when I think about the company, you've been at the forefront of trying to continue to pivot product and platform and be a product-first CEO and founder for a long period of time. Where are you on the journey of where you want to take Yelp from an evolution standpoint against the backdrop you see today?

Yes. Well, we've been around for a while, over 21 years. I think coming out of the pandemic, it's really been a services-focused product-led story, and that served us really well. We've grown revenues dramatically. Very proud about that. Teams executed. We built a lot of innovative things within the services space, in particular, but across all of Yelp. But now we are at a moment of great shift, another platform shift, if you will, which is AI. And I think that is unlocking possibilities that we would have never imagined a few years back. And so that's really exciting. We've got some new products coming, I'm sure we'll talk to. We've got our core Yelp Assistant, which has been focused on the services side that we think is a leading-edge experience for consumers, matches consumers with business owners around projects. And then we'll be bringing that, for example, across all categories. And so we think that's really going to reinvent the consumer experience on Yelp, which we're really excited about.

Okay. We're going to get into a lot of that as we go. But I think one of the level-setting mechanisms at this conference is always to ask what you see in current macro environment today. So you have 2 different businesses, you have a services business, you have a sort of an RR&O segment. Sort of talk a little bit about what you see from the business behavior across the different segments you operate in?

Yes. We've seen on the restaurant side of the business, softness continue. It was that way last year as well. There's a lot of macro effects going on there, labor costs shooting up, input costs shooting up, consumers being a little bit fed up with the price tag when they go out to a restaurant. So that has continued to be a headwind there. On the services side, revenue was up 8% in the quarter. And we did see with the tariffs and all the chaos in April, we saw that affect the business, slow things down from the trajectory that we were on. We still did grow in the quarter, but the seasonal pattern was more muted. That was a bit frustrating, but we also have a lot of great things coming and continue to see growth on the services side.

Okay. Understood on the environment. Turning to the competitive landscape. When you think about who you compete against and what that landscape looks like right now, when you look across the search, the services landscape, how would you assess who you compete with and what the competitive landscape looks like today?

I would say despite all the AI changes and so forth, it hasn't changed a whole lot since last time we talked. You still have your vertical focused players, your Thumbtacks, your Angis, et cetera. You also have, of course, Google and its local and maps experience as well. But of course, then there's the impacts of AI and you have some of these new AI search players or potentially general search players. And I think that's a potential opportunity for Yelp.

Yes. What does the landscape look like in terms of traffic sources for you as Yelp? Obviously, you've done a lot of work in getting people to come directly to the app, direct to the property, but there are still external traffic sources. And there's a lot of nuance around how some of the third parties have changed how they deliver traffic to counterparties. What have you seen there?

Yes. I mean I'd say the traffic picture for us hasn't changed dramatically. We do have a very successful app and have some great and exciting plans for that. We continue to get some traffic from SEO. There's also the SEM side of it, the paid traffic side, where we've been doing a lot of experimentation. We've also found a lot of success there bringing in business owners through paid traffic through SEM over time.

Okay. What have been your -- let's turn the conversation to AI, which is obviously continues to be the topic.

I guess on the traffic one, I didn't know if -- were you thinking about any of the sort of like Google-related. Because I know some companies have been affected by them.

I was going to ask about like Google AI overviews or things like that. Are there elements because we're getting that question a lot from investors as well, like the traditional funnel that might have contributed traffic to you, that's outside of your control because Google is changing the surface of what they show a consumer. Any impacts or any dynamics there of what you're continuing to see?

Yes. We haven't seen from an AI overviews perspective, any kind of impact really. And I think what's going on there is Google obviously is trying to make sure that its experience is somewhat similar to what you can find on a ChatGPT, but when it comes to queries that are highly monetized, drive a lot of revenue for Google, what you're seeing -- it's a smaller percentage. It's probably single digit. I have no idea, but probably single-digit percentage. And they're far more cautious. You're not -- if there is an AI overview, you might find it buried towards the bottom of the page. And so it's really been the same as it had been prior to them starting to add AI layers to search results.

Yes, we've written about that. I mean we've looked at a lot of traffic sources, talked to advertising folks. It feels like AI overview is more blanketed towards noncommercial queries than commercial queries. Yes.

Which is a smart strategy in the sense of like consumers are obviously going to run into lots of queries that aren't monetized. And so they see all this experience that feels maybe more modern, but yet the sort of core business remains pretty much the same.

Okay. Let's get back to your core business. What have been the key learnings so far from the rollout of the Yelp Assistant?

The key learning is that AI can deliver a lot of value if you apply it in the right way. I think Yelp Assistant was not an easy endeavor, like we were quick to make -- like a lot of AI applications, we were quick to make a very cool demo, but it did take some time to really get it right and have it perform better than our status quo experience. That was a lot of last year. And then this year, it's really been about expansion, rolling it out in more places. We still have in the second half, bringing the Yelp Assistant experience to users that have not registered. So we do see a lot of logged out traffic, people that haven't fully registered for Yelp. And right now, they can't experience Yelp Assistant. And so I think opening up that funnel to Yelp Assistant is going to be really powerful, drive a lot more projects to our -- the business owners that rely on us for leads.

Whether it's the -- let's stick with the consumer side of the equation first, whether it's the Yelp Assistant or maybe a product road map that we're not aware of. I'm not asking you to sort of push you to announce something, but how does the user experience you think change on Yelp over the next 3 to 5 years, anchoring around what you learned today versus what you're most excited about in terms of changing that UI or UX?

Well, I think the Yelp Assistant represents a very exciting platform for us. Right now, it's been service-focused, but there's no reason for that other than that was sort of where we started. But we do see it as an opportunity to go cross category. We've talked about that is coming in the second half. I think that's going to be super exciting from a consumer standpoint. It really reinvents the way that you are tapping into all the incredible human-created knowledge that is within the reviews and the photos and the videos and to be able to have a conversation with Yelp and get very, very specific on like what exactly you're looking for? What's the ambience of that restaurant? What do you want on the menu? Do you want to -- all these things that might have been like lots of bells and whistles and switches you'd have to find yourself to be able to navigate to that business yourself.

All of that becomes incredibly easy and intuitive. And so we do think Yelp Assistant is a reinvention of the consumer experience, and I think provides a road map for that 3- to 5-year period. You can imagine that Yelp Assistant also taking care of lots of things, making bookings on your behalf. It's not just maybe talking to the plumber, but also navigating with the scheduling software that the plumber has on the back end as well. And so there's a lot to do there, very long road map, but we're excited to make it -- bring it to life.

Okay. Maybe flipping to the other side of your business, and you alluded to it a little bit. But in terms of the application of AI to the way local businesses interact with you, service providers, for lack of a better term, the supply side of the equation, where do you see the most friction or the most interesting opportunities for AI to drive incremental supply growth, supply conversion, supply frequency, things that maybe can be big components for the business over the medium to long term?

I mean I think from -- so the supply side, you're talking specifically about how are we attracting businesses? Yes.

Yes. Yes, businesses, service providers, like where AI can be applied to bringing in volume on that side of the market.

Yes. I mean I think one of the really exciting ways that we're going to be talking to business owners about something new is with our Yelp answering services products. So we have one specific to services businesses. We have one, that one is called Yelp Receptionist. We have one called Yelp Host. And we know in talking to our customers that they struggle with -- these are real small businesses, they struggle with answering the phone. Like if you're under the sink, it's hard to pick up when that consumer is calling. If you're having a fun weekend away, maybe you're in Vegas, like you're not picking up your phone, you're potentially -- it's going to voice mail. It's very conventional. You're not capturing the lead, you're not understanding the priority of those leads and all of that. And so we, over the last several months, have built these answering services that are very lifelike, that have human intonation.

It's kind of shocking actually talking to one of these. We -- in our investor -- quarterly investor letter, we provided a link where you can go and listen to a demo of it. I think it's quite cool, obviously. I'm a little bit biased. But we know that businesses are missing calls a lot of percentage of time. Those are leads that are falling on the floor. And that could be leads that we generate. So that's even worse where it's like they paid real money to drive a lead to their business, that person didn't get a pickup, the business didn't really capture the lead, missed opportunity. And so providing an answering service that can actually get the relevant information, make sure the business owner sees it, if it's a really big job, can jump on it. We think that's really powerful. That drives better ROI for the businesses, but it also gives us something brand new to talk to all these different service providers about, which can also have an energizing effect on selling all of the products that we have.

Okay. Maybe one more for you, and then I want to bring David into the conversation also. If we pivot to the Services segment part of the business, you've seen sustained health in Request-a-Quote. Curious if you can drill a little bit down into the strength you're seeing in the services side of the business? And how do you think about building and scaling continued momentum on services on a multiyear view?

Yes. I mean I think it's really about continuing to create something that's compelling for consumers. There's a lot happening, obviously, with the general search space. I think if you take an experience like what we have with Yelp Assistant, one, we can attract new consumers because I think it's very innovative as we go cross category, there's not going to be anything like it. But you can also then wrap it in an API and you can provide it potentially to these general search players that will be looking in the years ahead to be building out their local experience. If I look back on what did Google do in like 2003, 2004, they were focused on general search. They didn't have maps. They didn't organize any local content.

It wasn't until like 2006 or so that Google even started thinking about how do we solve this -- half of the queries have local intent, but we haven't even really tried to serve up something relevant to consumers. I think a similar thing is playing out among the folks that are trying to provide a competitive alternative to Google, where they have a lot on their plate, they've built out sort of a basic experience that is compelling. Obviously, ChatGPT has built -- or OpenAI has built a really big brand very quickly, but the local experience is lacking.

And I think that represents a really exciting opportunity for Yelp, both across the higher frequency categories, but especially on the services side, where if you're having a conversation on one of these other platforms and you're saying, "Hey, my sink is broken. I don't want to fix it. Can you help connect me with a plumber?" Yelp can actually do that. We've already built it all out. We've wrapped it in APIs. And so I think we're at the very early stages of seeing how that gets built out and the partnership opportunities. We did talk in our recent quarterly call about some of the acceleration that we're seeing on the data licensing side of our business. We're now north -- as of the call -- or on the call, we talked about how we had crossed over $10 million in ARR from these players that are operating in the AI search space. And we still think it's very early. So exciting times, I think, and opportunities for Yelp.

Maybe double-click on that and talk a little bit about the broader data opportunity that exists in Yelp. So obviously, you gave that disclosure a bit. But we get that question a lot from investors that there are only a handful of really unique corpuses of data that exist out there. You happen to have one of them. Like how do you think about that as an asset for the company, both internally and potentially to drive external monetization?

Yes. I think it's a bit underrecognized. If you're trying to build a general search experience, you need highly trusted local data. You also -- I think consumers also are very aware of the flaws of these LLM-powered experiences. And if you just turn to one of these search services and ask it a question, it spits out some answers, like you know that it could be hallucinated, it could be out of date. And so I think having a trusted partner with a very established brand in the space is really important and value adding to that experience. So I do think we're going to see more of that. And I think if you're not Google, then you need to be looking for a partner in that space. And I think if you're -- if North America is high on your priority list, there is an obvious partner, which is Yelp. And so we are seeing that in terms of the quality of conversations we're having in the background on this. We have obviously brought on some partners, and we've seen good momentum in the data licensing side. But I think, again, we're still very early in that.

Okay. Understood. David, bringing you into the conversation, maybe pivoting to multi-location services. Can you quantify the size of multi-location services opportunity today? And how you're making progress against penetrating into that market?

So we're actually very underpenetrated in multi-location services, and we see a very large opportunity there. We have seen and are able to increase our growth there as we've rolled out a variety of things that those multi-location advertisers require. They're more sophisticated. They want to have an API for managing their leads because they have a whole system for that. They need to connect to their CRM. We implemented Zapier around that. They want conversion API now to close the loop on the ROI. So we've been building out all those capabilities and working with them so that they can really be productive on Yelp, deploy that spend effectively, work the lead and obviously generate revenue for themselves. So overall, pleased with the progress that we're making there.

Okay. And then how do you think about what investments need to be made in that operation in terms of unlocking growth over time? Is it an execution piece? Or is it also an investment piece?

It's definitely both. So from a product road map perspective, you need to continue to invest because each of these folks have implemented, say, a CRM differently. So you have to be able to support a broad range of CRMs. That's one example. Search is moving from links to answers and actions. So you need to be able to close the loop on the action piece, so book something that comes back around to the Yelp Voice AI Receptionist that we have say for services, which is it's not sufficient just to pick up the phone, but the person wants to be able to make a booking at that time, same thing on the restaurant side. But on the services side, while you need to be connected to their CRM and their booking software, whatever it happens to be. So more investment required there. Plus, we need to continue to, on the people side, figure out, hey, how do we support these folks? How do they -- we help them with their implementation of this tooling so that they can get the most value out of Yelp? So it is an investment on both sides.

Okay. Jeremy, I know you answered my question earlier from a macro perspective with restaurant, retail and other. But in terms of the things that are inside of your control, are the things away from the macro environment that you're exploring that could improve the growth of RR&O? So how do you foremost frame it up as like what can you control versus what is unfortunately out of your control from the way the consumer interacts with that sector?

Yes. I mean I think we talked about the macro earlier. But on the side that we do control, it's really the product experience. And we have been leaning in. I think the Yelp Assistant experience with the addition of all the restaurant content, RFN as we call it, restaurant food and nightlife. I think is an opportunity to reinvent how consumers use Yelp, the type of information they can easily and seamlessly tap into. It will be a product moment, a tentpole moment, for us from a product standpoint. And so I'm really excited to see how does that impact people that maybe over time, have drifted away from Yelp because, well, there's content that's like kind of okay on other places like Google, so maybe I don't have to pay as much attention to Yelp, whereas now Yelp will once again have a very unique consumer experience that, frankly, you can't get anywhere else. And so that's coming very soon in the second half. Looking forward to seeing the response there.

Okay. And maybe just one quick follow-up there. Is there any benchmark you're willing to share or how you're initially thinking about what that might do either on the user side or on the business side of the equation? Like how should we be thinking from the outside looking in, which is how we get to measure you about what success looks like as that rolls out?

I mean, I think it starts with how we're talking about Yelp Assistant and the progress there. Like what are we seeing in terms of consumer response? Are consumers using Yelp more intensely as a result? Are they coming back more frequently? These things -- depending on which metric we're talking about, it can take time to really show up. It's not going to be like day 1, we open the doors probably and like the whole situation has changed. But I do think we'll be talking a lot about what we're seeing as far as consumer reception of the multi-category assistant. And we'll certainly bring Wall Street along for the ride on that.

Okay. Understood. David, pivoting back to you, we've anchored most of this conversation around repositioning the platform for the long-term, elements of growth drivers, new product initiatives within the company. Talk a little bit about what are the necessary levels of investment in the business to make sure you don't miss out or for stall any of those growth opportunities in the years ahead?

So as Jeremy talked about, we've really moved to this product-led growth model over the past number of years. And one of the things that we think is very important about that is as you make improvements, those stack over time. And we've been able to hold headcount flat. This year, we're committing again for the third year in a row to holding headcount flat and yet product velocity has gone up a lot. Time to deliver products has improved dramatically. So we're really pleased with that overall pace of innovation, and we're bringing this fresh product, the Voice AI Assistant to market.

We did that, I feel like in record time for a new product. So we're excited about our continued investment there, but that investment is very much around at the end of the day, how -- what are our people doing with their time, what projects are they working on? That's separate, obviously, from CapEx. Our CapEx is overall very low because we're able to use these foundation models very successfully and effectively. And then I know we'll get to it, but we also do see a lot of opportunity to deploy capital off the balance sheet in service to our strategy.

Okay. Understood. Sticking with that theme, though, one of the questions I've asked everyone here at the conference is against the elements of finding capital for growth and balancing margins, how do you think about deploying AI internally in the company? We've talked a lot about the ways AI can get infused into your product and become part of the experiences that external parties have with Yelp as a company. How about internally?

So we have quite a few different projects running in order to enhance productivity at Yelp. We very much see these types of technologies as amplifying human potential, not replacing humans. And so we look at it across, first, product and engineering, of course, we have something that we call Chatbench. Everybody in the company has access to it. They can choose different models. They can run code through it on the product and engineering side. We're seeing productivity help there. And particularly, these large language models really help with these tedious and repetitive tasks that engineers have to do and it frees their time up to be more productive in driving business value.

We've most definitely looked at it on the sales and marketing side, and that's both on the customer success as well as the sales piece. On the sales piece, interestingly, very simple application, making managers more productive by being able to take calls and look at the way that sales reps are engaging with customers and coaching those sales reps. You're able to digest all those conversations and provide one-on-one guidance for the manager with those people. So that just wasn't possible at scale in the past.

On the customer success side, of course, I think everybody is looking at ways to first answer calls with LLMs, whether it's in the voice form or even over the Internet. So intercept and then redirecting that call to the right sales rep that's -- excuse me, customer success rep is another way that we're applying it. And then on the G&A side, it's still really very early, I would say. We've trialed quite a few different products. And I think that's going to evolve, but that's going to probably be a bit longer. Overall, though, we do see that these efforts are paying off and productivity is improving. But I'd still say, overall, it's early, and it's not yet this dramatic transformation that I think some might have expected.

I know you've given a framework for the near term. Is there a paradigm you leave investors with about how to think about balancing growth investments and then optimizing for margins or keeping margins at a certain level to optimize for growth investments? What's the paradigm you guys talk about internally that you think investors should be thinking about for the company?

ROI, ROI, ROI. We are super ROI focused, and we look at all of our projects, and we do our best to analyze them to determine what we think the impact on the business is going to be. Now for more greenfield projects, obviously, you don't know what the potential impact is, but we want to go after things that have a large opportunity. So that's the balance that we're going through. We're going through planning right now. We're actually having exactly these conversations internally. We want to see how the voice assistant does. But overall, this is the -- at the end of the day, should we deploy a marginal sales rep, should we deploy a marginal engineer in order to drive performance?

Okay. And then bringing it home on sort of capital levels, you know I always like to ask you this question sometimes even on earnings calls. We had this conversation as well. But the battle for an incremental dollar of capital and the priorities for an incremental dollar of capital, how should we think about that? You guys have been returning capital to shareholders, and that's been a narrative involved in your equity for quite a while now. But just what are the rank orders and priorities? And more importantly, what might change those rank order of the priorities in the years ahead?

So for folks who aren't familiar, we are committed to returning capital in excess of a target cash balance to investors. We've been doing that quite consistently over the past number of years and subject to market conditions, intend to continue to do that. So that's first -- and you've seen that start to really show up because we've reduced stock-based comp as a percentage of revenue considerably. You really started to see that show up in basic and diluted shares year-on-year. I want to say we're down $4 million or $5 million from Q2 of '24 to Q2 of '25. So we're pleased with the progress that we continue to make there.

At the same time, last year, we deployed capital through an acquisition, a small acquisition of RepairPal. We continue to see opportunities for M&A. We're very disciplined around it. We don't have anything to announce at this time. But to the extent that we can drive growth and margin and expand our business and serve our customers and deliver value to consumers through M&A, we're happy to deploy our unlevered balance sheet on behalf of that ambition. So that's the kind of thing that we will balance against share repurchases to the extent that we see those terrific opportunities, we want to pursue them.

Yes. And I don't want to put words in your mouth, but the way I've always heard it from you guys on the public earnings call is that M&A almost is a tool to speed up your time to market, right? It's an element where you've always been very disciplined. You haven't done a lot of M&A, but it neatly fits into where you think the market is going in some part of the business. Is that the right way to take away the framework?

Yes. It's definitely always about can it serve the strategy? How does it fit into the picture? Obviously, we've been focused on services, RepairPal fits neatly into the services umbrella. And you always have to be searching, I think, for opportunities to drive ROI. Like if there's something out there, I think it's our job to evaluate it and step in when it makes sense. We have to be good stewards of shareholder capital. So we don't want to be willy-nilly about it. But if we can accelerate our strategy, accelerate our growth through inorganic, through acquisition, like we definitely want to pursue that as well.

Yes. Well, building on top of that, I always like to ask you the last question as we have only a couple of minutes left. When you think about your vision for the company, you've got the competitive landscape, the overall environment you operate in and then the things you can control about where you want to take product, platform and align against your vision for the company. What does the next 3 to 5 years look like for Yelp measured against that dynamic?

I think it's really about platform shift in a sense with AI being this major new technology. You go back to a 2007 invention of the iPhone, 2008 launch of the App Store. That was a huge transition for us, a huge moment. We had an app that was one of the first in the App Store. I think similarly, we've been ahead on AI. We do see it as a way to reinvent the Yelp experience, and we've been leaning in as a result. We've been investing behind it, both in sort of the core Yelp experience with things like Yelp Assistant, but also trying to find -- to identify and pursue greenfield opportunities like our Yelp answering services. And so I think you can expect more of that in the next 3 to 5 years.

Okay. Well, it's going to be super interesting to watch. This is, I think, one of those transformations of modality and computing that we've seen before. It will be the third one, after we've seen 2 already in our careers. But guys, I always appreciate you taking the opportunity to come here and be part of the conference. Thank you, Jeremy. Thank you, David. Please join me in thanking Yelp for being part of the conference.

Thank you. Appreciate it.