Yelp delivered record net revenue and strong profitability in Q2 2024, demonstrating resilience in its services business while facing headwinds in restaurants, retail, and other categories.
Summary
Yelp reported Q2 2024 net revenue of $357 million, a 6% year-over-year increase, exceeding the high end of their outlook range. The company achieved a net income of $38 million, representing an 11% margin, and adjusted EBITDA of $91 million, a 26% margin. CEO Jeremy Stoppelman highlighted the company’s product-led strategy:
“Yelp delivered record net revenue and strong profitability in the second quarter. Net revenue increased by 6% year-over-year to $357 million as we introduced more than 20 new features and updates in the quarter, reflecting our product-led strategy.”
Main Themes
- Guidance: Full-year net revenue outlook revised to $1.410-$1.425 billion, down $12.5 million from previous guidance
- Competition: Pressure from food delivery platforms affecting RR&O segment
- Economy: Challenging operating environment for restaurants and retailers
- AI and Product Announcements: Leveraging AI for ad tech optimization and user experience improvements
- Market-moving Information: Adjusted EBITDA guidance raised by $10 million despite RR&O headwinds
Insights
Yelp’s services business, particularly home services, continues to show strong growth, with a 15% year-over-year increase. The company is adapting its product offerings to better serve multi-location businesses in the services category, which currently accounts for only 20% of services revenue. This presents a significant growth opportunity as Yelp extends its success with SMBs to enterprise customers.
Market Opportunity
Yelp is focusing on expanding its services business, particularly in the multi-location segment. The company has launched new features such as Request-a-Quote for brands and a leads API to cater to larger advertisers. This strategic shift aims to tap into the underserved enterprise market within the services category.
Market Commentary
The restaurant, retail, and other (RR&O) categories are facing significant challenges due to declining transactions and limited ability to raise prices. Yelp believes this is a cyclical downturn and expects consumer spending to recover, positioning the company to benefit when the market rebounds.
Customer Behaviors
Yelp is seeing strong engagement in its Request-a-Quote feature, with project growth accelerating from 20% year-over-year in Q1 to 35% in Q2. The company has observed that businesses with fewer reviews are particularly responsive to additional leads generated through paid project acquisition.
Regulatory Policy
The recent antitrust decision against Google is viewed positively by Yelp’s management. CEO Jeremy Stoppelman commented:
“This is something that we’ve been calling for scrutiny of Google regulation and antitrust enforcement. So, we’re very excited, obviously. The wheels of justice turned slowly. I testified in front of the Senate in 2011, so it’s been a long time that we’ve been advocating for scrutiny of Google and its illegal monopolistic practices.”
Economy Insights
The challenging operating environment for restaurants and retailers is impacting Yelp’s RR&O segment. CFO David Schwarzbach noted:
“Really our large restaurant, retail and other customers have felt the impact of declining transactions and not really being able to really take price like they were able to do over the last couple of years. And that’s reflected in some of the current marketing budgets.”
Industry Insights
The ongoing challenges in the RR&O segment suggest that other companies in the restaurant and retail technology space may face similar headwinds. However, the strong performance in services, particularly home services, indicates potential opportunities for companies focused on this sector.
Key Metrics
Financial Metrics
- Net Revenue: $357 million (6% YoY increase)
- Net Income: $38 million (11% margin)
- Adjusted EBITDA: $91 million (26% margin)
KPIs
- Advertising revenue in services: $223 million (11% YoY increase)
- RR&O revenue: $118 million (3% YoY decrease)
- Paying advertising locations: 531,000 (6% YoY decrease)
- Self-serve revenue growth: Approximately 20% YoY
- Request-a-Quote project growth: 35% YoY
Competitive Differentiators
- Strong position in local business information and reviews
- Growing services business, particularly in home services
- AI-driven ad tech optimization
- Expanding product offerings for multi-location businesses
- Potential to benefit from antitrust actions against Google
Key Risks
- Continued pressure on RR&O segment due to macro factors
- Competition from food delivery platforms in the restaurant category
- Dependence on Google for traffic and potential changes in search algorithms
- Execution risks in expanding services to enterprise customers
- Potential for slower-than-expected recovery in consumer spending
Analyst Q&A Focus Areas
- Impact of generative AI on Yelp’s business and potential opportunities
- Implications of the Google antitrust decision
- Strategies for addressing RR&O segment challenges
- Plans for paid project acquisition and lead distribution optimization
- Long-term profitability and margin expansion potential
Yelp Summary:
Yelp’s Q2 2024 results demonstrate the company’s ability to drive growth in its services business while navigating challenges in the RR&O segment. The focus on product innovation, AI integration, and expansion into enterprise services presents promising opportunities. However, investors should closely monitor the recovery of the RR&O segment and the company’s ability to capitalize on potential changes in the search landscape resulting from antitrust actions against Google.