Yelp Inc (YELP) 2013 Q3 法說會逐字稿

Welcome to the Yelp Q3 2013 Earnings Call.

My name is Leslie and I'll be your operator for today.

At this time, all participants are in a listen-only mode.

Later, we will conduct a question/answer session.

Please note that this conference is being recorded.

I'll now turn the call over to Ms. Wendy Lim.

Ms. Lim, you may begin.

Good afternoon, everyone, and thank you for joining us on Yelp's third quarter earnings call.

Joining me on the call today are CEO, Jeremy Stoppelman, and CFO, Rob Krolik, and COO, Geoff Donaker, will join us for Q&A.

Before we begin, I'll read our Safe Harbor statement.

We will 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.

Please refer to our SEC filings, as well as our financial results press release, for a more detailed description of the risk factors that may affect our results.

During our call today, we will discuss adjusted EBITDA; a non-GAAP financial measure.

In our press release issued this afternoon and in our filings with the SEC, each of which is posted on our website, you will find additional disclosures regarding this non-GAAP financial measure and a reconciliation of historical net loss to adjusted EBITDA.

Lastly, as you may have seen, we announced the filing of an automatically effective registration statement for a proposed offering of our Class A common shares.

Please refer to the separate release and the Form S-3 filing at www.SEC.gov for the specific details relating to this proposed offering.

As I'm sure you can understand, we will not be commenting on the proposed offering in our prepared remarks or during the Q&A session for our earnings call today, due to securities laws and [implied] period limitations.

With that, I will turn the call over to Jeremy.

Thanks, Wendy, and welcome, everyone.

We had a great third quarter, highlighted by 68% revenue growth and record highs across our core metrics.

We executed well across all areas of our business and we continue to innovate around three key three themes -- mobile, geographic expansion, and closing the loop with local businesses.

First, Yelp is well-positioned to take advantage of the mobile evolution in local advertising.

We continue to work on improving the consumer experience on mobile and in August, we launched the ability to write and post reviews from mobile, which was one of the most requested features from our community.

Since then, Yelpers have average approximately 10,000 mobile reviews a day or about 25% of all new reviews, which is testament to the high engagement we see on mobile.

We are delighted by the high quality of rich reviews we continue to see.

In fact, the star rating distribution for reviews, written on mobile, mirrors what we see on desktop.

This shows us that consumers are taking the time to write thoughtful reviews of their experiences with local businesses.

We also enhanced the search experience on mobile by adding search filters, such as outdoor seating and free Wi-Fi, that previously had only been available on the desktop.

This constant focus on the consumer experience has yielded great results.

In Q3, our app was used by 11.2 million unique devices on a monthly average basis, with 62% of searches now coming from mobile devices and 46% of ad impressions being shown on mobile.

Second, we continue to make progress with our international efforts.

As we rollout the Yelp playbook across the globe, we are seeing increased brand awareness and consumer engagement.

In Q3, 18% of our traffic and 8% of our reviews came from outside the US.

We continue to focus on integrating Qype and recently migrated content from France and the UK.

We anticipate that most Qype markets will be integrated shortly, including Germany, Qype's largest market.

I'm also proud to say that we entered South America for the first time with the launch of Brazil.

Now consumers can find great local businesses via Yelp on five continents.

Finally, our product and engineering team is focused on developing new ways to show business owners the value Yelp delivers to them.

This quarter, we continued to improve the business owner dashboard with the launch of the consumer activity feed.

This real-time feed shows Yelp user leads such as phone calls, website clicks, and directions to a business as they happen.

We're also seeing great early traction from Yelp Platform, which enables consumers to find a business and transact with it directly on Yelp.

We started with food delivery and we're already seeing thousands of food orders each week, with about half of those orders coming from mobile.

We continue to work on extending the Yelp Platform into other verticals, such as dentists, spas, and home repair.

The call to action feature is also receiving great feedback from our advertisers.

This enables businesses to highlight a desired transaction or promotion on their Yelp business listing and easily track those conversions back to Yelp.

Our early analysis found that Yelp advertisers, with the CTA unit, expressed a 15% higher conversion rate compared to non-advertisers.

We also are excited to welcome the SeatMe team to Yelp, as they have recently moved into our new offices.

We are working on the integration and by the end of the year, consumers will be able to book reservations directly on Yelp.

Our ultimate goal is to offer this capability to any restaurant, food, or nightlife location.

The Yelp team has been working hard and we've accomplished a lot in Q3.

Looking to the coming months and years, our continued progress and innovation around mobile, global expansion, and closing the loop with local businesses positions us well to capture the large local opportunity ahead of us.

As we build communities around the world, Yelp is turning into a truly global brand recognized for its rich content.

Now, I'll turn the call over to Rob for the financial details.

Thanks, Jeremy.

As Jeremy mentioned, we had a great third quarter.

Please note that we have posted a few slides on our Investor Relations webpage that accompany the financial portion of the webcast.

Let me start with the financial results.

We're very pleased with our performance as we achieved record results across our core metrics.

In the third quarter, revenue grew 68% year-over-year to $61.2 million.

Adjusted EBITDA was $8.1 million, about a 270% increase year-over-year.

Moving onto the four key operating metrics, cumulative reviews grew 42% year-over-year to 47.3 million as we added 4.8 million reviews in the quarter.

Approximately 1 million of these reviews added in the quarter came from the integration of the Qype France and UK sites.

Our average monthly unique visitors grew 41% year-over-year to roughly 117 million; approximately 33% of these uniques are accessing our mobile site.

Claim local businesses was 1.3 million, up 51% year-over-year, and active local business accounts grew 61% year-over-year to approximately 57,200.

Let me walk down the P&L, starting with the revenue mix, to provide some additional color.

We are seeing great momentum across all revenue sources.

For the third quarter, Local Revenue was $51.2 million, up 80% year-over-year.

Brand Revenue was $6.9 million, up 17% year-over-year.

Other Revenue increased 55% year-over-year to $3.1 million.

International Revenue contributed about 5% of total revenue in the quarter.

Our customer repeat rate, defined as a percentage of current customers who advertised with us in the past 12 months, was 73%.

Gross margin was 93%.

Total sales and marketing was approximately 56% of revenue compared to approximately 59% last year, reflecting leverage in the model.

Domestic sales and marketing was 53% of revenue compared to 54% in the prior year quarter.

Sales headcount grew 53% year-over-year, as we made up from last order when we were a bit light on hiring.

We intend to continue to invest in sales and marketing, given our significant growth and large market opportunity.

Product development was approximately 18% of revenue compared to 16% in the third quarter of last year.

A large portion of this increase is attributable to the hiring of engineers, including the SeatMe acquisition.

We have launched a number of exciting new products and features and we're proud of the team's accomplishments.

G&A was approximately 17% of revenue, or up $3.5 million year-over-year.

We saw increases in costs related to the move into our new building and the related rent expense, Sarbanes-Oxley compliance costs, and legal expenses for the SeatMe acquisition, offset by a reversal of legal accrual of approximately $1 million.

Turning to the balance sheet, our cash and cash equivalents position at the end of the quarter was approximately $101 million.

We generated approximately $7 million in cash from operations in the quarter.

Now turning to the guidance for the fourth quarter and full-year 2013.

For the fourth quarter, we expect revenues in the range of $66 million to $67 million.

We expect adjusted EBITDA for the fourth quarter to range between $9 million and $10 million.

For the year, we are raising guidance.

We expect revenues in the range of $228 million to $229 million or approximately 66% growth year-over-year.

We expect adjusted EBITDA to range between $28 million to $29 million, a six-fold increase over last year.

For modeling purposes, our basic share count for the full year will be approximately 66.5 million shares, which does not include our proposed offering.

We expect stock-based compensation to be approximately $8.5 million for the quarter.

I'll now turn the call over to the operator to open up the call for questions.

(Operator Instructions)

Mark Mahaney, RBC Capital Markets.

First, Jeremy, you talked about the impact of the mobile review functionality.

Broadly put, do you expect that to be -- is there any evidence of what impact that will on overall usage or user growth, given how popular, I think, of an ad that would be?

Secondly, could you just talk about the international profitability ramp?

I know it's still earlier stage for you, but are those markets that you've been working in and integrating in, have those been ramping in terms of profitability similar to what you saw, historically, with the US?

Thank you.

Sure.

Thanks, Mark.

On the impact of mobile reviews, we're obviously quite excited about the metrics we put out there today; 10,000 mobile reviews each day representing about 25% of daily review volume, and from my perspective, we're just getting started.

We just put it out there.

Android literally came out just a few weeks ago.

How it changes engagement or really effects our contributors is hard to say at this point.

But needless to say, the folks that have been asking for it are quite delighted.

We see that come up in reviews of the app and so, we feel good about the change, and we're really feeling great about the quality of content that's coming in through that channel.

I think it's a net positive, and of course, more high-quality content should lead to more traffic, more distribution.

Rob can take the international question.

Hi, Mark.

In terms of the international profitability ramp, the way I'd look at it is kind of a revenue ramp.

We did a few hundred thousand dollars last Q3 2012.

And so, in this quarter, Q3 of 2013, we did about $3 million, with $600,000 plus increase in revenue in revenue.

I would say, it's early on, but if you look back to your point about how the cohorts were doing way back when, I'd say it's ramping fairly -- as it did way back in the day for the US.

We're pretty happy with where we are with those teams out there.

I give kudos to the teams in the UK and Hamburg for really making it happen.

And we're also just now selling the Yelp ads in Hamburg in Germany now as of October 1. We're pretty pleased with our progress with international.

Youssef Squali, Cantor Fitzgerald.

First, can you talk to the pricing disparity between mobile ads and desktop ads?

To the extent there is one, can you just help us with the magnitude and what you're trying to do to close that gap?

Second, can you talk to the decline in EBITDA margin this quarter?

We saw some deleverage.

What precipitated that and how should we be thinking about it near-term?

Thanks.

This is Geoff.

I'm going to take the first part of your question on pricing.

Today, we really don't differentiate pricing between mobile and desktop.

The Yelp advertiser, there are a few different ways they pay.

The most common is you buy a subscription bundle that includes both your enhanced profile on mobile and desktop, and it also includes a basket of targeted ads that are going to show up across desktop, tablet, and mobile devices.

Again, we don't differentiate between pricing there.

When it comes to pay for performance advertising, that takes care of itself.

Advertisers set the bid and then, of course, we'll deliver that -- our system delivers that in the most high RPM way that we can.

At this point, we really are thought form agnostic and the goal is to make sure that we show those ads in the best place we can.

Hi, Youssef, it's Rob.

Regarding EBITDA deleverage from Q2, on a percentage basis, that's correct.

On an absolute basis, it's actually up $8.1 million in Q3.

What I would call out is that adjusted EBITDA is up about 270% year-over-year and we generated about $7 million from operating activities in the quarter.

We took the opportunity, I think in Q3, and we called this out in Q2, that we had a little bit of light hiring in Q2.

So we stepped on the gas, and we added about 300 people, approximately 300 people net adds in the quarter, so we're up to about 1,800 folks that are on board at Yelp.

We're pretty pleased with that.

We figure, to take advantage of this huge local advertising market opportunity, we'd go ahead and step on the gas a bit and hire as many as we could; obviously, keeping that nice balance between not too fast and not too slow.

There were some other one-time expenses that hit the quarter in terms of the move into our new building and the related rent expense, some SoCs costs and legal expenses offset with a legal accrual reversal.

We feel pretty good about where we are and we did raise the guidance for the year to $28 million to $29 million.

Neil Doshi, CRT Capital.

Jeremy, can you talk a little bit about the Android versus iOS?

It seems like you've been making a lot of headway on iOS.

Any thoughts on Android?

It seems like the development sometimes falls behind for Android and then you guys play catch up to iOS there.

Any thoughts around Google pushing their Google map surface and not being as deeply integrated on the Android front?

One more quick question for Rob in terms of product development, or the percentage of revenue, how should we do about that on a go-forward basis?

Thanks.

Android versus iOS, on the development side, some of what's going on there is just staffing.

We try to hire as many developers as we can, and we've been more successful on iOS over the last year, I would say.

We've just recently hired a bunch of additional people on Android, so we are planning a bit of catch-up.

Our goal is certainly to be at parity across all the features and functionality.

But that said, sometimes features do lead on Android.

I believe photos and reviews, for instance, recently launched on Android and will be later coming to iOS.

Both are doing well.

We're actually doing great on both platforms.

iOS represents a bit more of the usage, which I think you see across pretty much everyone in our category and especially, US-focused internet companies.

Part of that, I think, is just demographics.

The people who are buying iPhones tend to be more interested in downloading apps and using the internet.

Android, as you may have seen, out in the marketplace as far as research is concerned, is often the free phone and therefore, is getting less engaged users.

With respect to competition, I think we've got incredible focus on local and community building in specific in cities all across the world now and that gives us highly differentiated content, something that Google has continued to struggle with.

Pretty much, every year, they're reinventing their efforts and calling it something new, giving it a new name, whether it's buying Zagat, selling Frommer's, calling it places, or hotpot, et cetera, et cetera.

We take them seriously, but it has been eight years of competing quite successfully there.

It's Rob.

On the product development side, we did acquire SeatMe in the quarter, so they had more engineers; of the 15, I think eight or nine folks were engineers.

Also, we're making a lot of progress on people wanting to come to Yelp on the engineering side, so we've definitely been investing in that.

As Jeremy just said, on the mobile front, we've definitely hired some more Android developers, so we can make that on parity with the iOS.

In terms of how to think about it, I think we'll continue to invest in that given the growth rate and the opportunity.

I don't know that it will be much higher than where -- in terms of a percentage for maybe Q4.

But we'll definitely keep investing in that.

Brian Fitzgerald, Jefferies.

Could you give us some sense of the growth rates and an update on the cohorts, like earlier ones, 2005, 2006, for example.

Are the later cohorts still following that same trajectory and trend as the earlier ones?

Maybe the pricing differential between Europe and the US impacts there, and how do you see those closing over time?

Thanks.

I'll take the first one.

In terms of the cohorts, we were actually looking at the cohort data.

We actually have it as a slide on the IR site.

I think it should be up now.

We see, actually, all cohorts, the 2005/2006, 2007/2008, and 2009/2010, accelerating from Q2.

We were at 43% revenue growth in Q2 2013 for the 2005/2006, the earliest cohort, and that actually accelerated to 57% this past quarter, Q3.

We feel good about where that's trending.

We're not specifically positioning the sales force on that particular cohort, but it's good to see because it just shows that we're fairly underpenetrated in even the oldest cohort market.

As we look beyond that, even beyond the cohorts, we're making a lot of progress.

Obviously, local ad revenue grew 80% and that accelerated from 77% in Q2.

All the data is up there.

I'm happy to answer any other questions about that, but all cohorts accelerated in the third quarter.

This is Geoff.

I think you also asked that question about how are we pricing at in Europe versus the US?

The short answer is, directionally the same.

We have experimented with a variety of different price points in all of the above markets.

We really just started selling Yelp advertising in Germany a couple of weeks ago, as Rob mentioned.

But directionally, at this point, those price points are very similar to what we offer in the US, too.

Over time, our expectation would be that we'll certainly evolve and look at pricing on a market by market basis in order to do the right thing for each local business environment.

But overall, our expectation is that Europe should end up looking a whole lot like the US over time.

Lloyd Walmsley, Deutsche Bank.

This is Kevin LaBuz on behalf of Lloyd.

I'm just wondering what you're seeing with the callbacks and ad units on the Yelp Platform, and is that impacting your ability to acquire customers and to retain them on the business advertising side?

This is Geoff again.

The short answer to your question is yes, good news on both of those products so far.

They are pretty different, however.

I want to differentiate those.

You mentioned the call to action unit, that's a product that we offer to all Yelp advertisers today.

We've gotten really good uptake in the first few months since it's been out.

I think, as Jeremy mentioned earlier, some recent internal analysis has shown that advertisers with that CTA, or call to action unit, are actually seeing a 15% higher conversion rate from views to leads on their Yelp pages.

That's, obviously, a really positive sign and makes us want to continue to roll that product out even further.

The Yelp Platform is also in its early days.

We wouldn't think of participants in Yelp Platform as necessarily being Yelp advertisers, since they're coming in by way of one of our Platform partners, for instance, today SE24 and delivery.com.

However, the numbers there are also really positive.

We are seeing thousands of orders a week in just these very first few months of Yelp Platform.

Of course, we continue to add new restaurants to those platforms today and then work towards adding new Platform partners in different verticals later this year or early next.

Ron Josey, JMP Securities.

Thanks for taking the questions.

Two quick questions.

One on domestic.

I believe Yelp launched around four new domestic markets this quarter, which is one of the largest launch quarters to date, domestically at least, increasingly.

Given the broad user base we're seeing with unique users growing and the number of reviews accelerating, is it getting relatively easier to launch new domestic markets?

Importantly, has the time to monetization improves; so closer to 18 months relative to the 18 to 36 months typical timeframe?

And the quick follow up is, any update on the click to call feature that you all have?

In 1Q, you mentioned 15 million click to calls were done in 1Q, and just curious what that was in 3Q?

Thank you.

This is Geoff again.

I'll take the first part of your question.

On the domestic markets, there's no special answer to why there were four domestic markets this quarter versus in a previous quarter.

We're really just introducing these new markets and that same sort of Goldilocks pace Rob mentioned before, which is when we can find the right community managers and when each of those markets is ready, we go ahead launch them as quickly, but with high quality, as we can.

As to your question about monetization of those markets, it's not something that we track particularly closely for our more recent markets.

I think it's fair to assume that revenue does hit those markets faster than it did in our earliest case study examples that we've given, like Philadelphia or San Francisco or New York, for instance, where we were still in the earliest stages of building a sales force.

At this point, once we do get content and traffic going in a newer market, we are able to go ahead and assign that territory out to our existing sales force, and then folks are able to start calling local businesses in those markets.

I think it's fair to assume that some revenue hits those markets earlier, but as to whether or not the overall cohort accelerates, it's not something that we've looked at closely.

Jeremy, were you going to answer the second part, or Rob?

In terms of the mobile app usage, the number of calls, it was 19 million in the quarter to local businesses.

There were 27 million clicks for directions in the quarter, as well, in Q3.

Point of clarification, I think you said paid or something of that nature, those are just click to call or click for directions, they're not actually paid.

We do have a pay per call feature, if you will, a product.

It's a very small, de minimus amount for our entire P&L.

If you look at our mobile app and what's happening, these are 19 million calls to local businesses, and we show all that data back to the business owners on the dashboard.

Heath Terry, Goldman Sachs.

I was wondering if you could give us a sense of what kind of monetization levels or monetization you've seen from increasing utilization of the inventory that you have?

Back when you went public, there was a significant amount of inventory between mobile and international that was essentially unmonetized.

What degree of monetization or how large is that percentage of unmonetized inventory on the Platform today?

This is Rob.

We still have quite a bit of inventory that's unmonetized.

One of the reasons we're pretty focused, and the sales team's pretty focused on reaching out to new local businesses to sign up is because we have a lot of inventory left to be monetized.

We haven't given out that percentage, but you can imagine that, as a percent, pretty small relative to the total of inventory.

We have a long way to go there, and that's definitely not a constraint of the business.

Mark May, Citi.

Are the impressions and clicks and calls on Yelp mobile more valuable than on desktop?

If so, what's the rough magnitude of the difference in ROI, or however you'd like to frame it?

Thanks.

It's Geoff.

There are a variety of ways that we can look at that.

But the short answer, at this point, is that an impression, by and large, is about the same value on desktop or tablet or mobile to an advertiser.

If I'm looking for a mover, it doesn't really much matter what Platform I'm using.

I'm looking for a mover and likely to choose one on Yelp and go ahead and call that mover.

To us, mobile and tablet have some advantages, particularly if you're using a Yelp app, because we can report back to the business owner exactly how many calls they got or clicks for directions, where we're a bit more limited, sometimes, on desktop.

There are some actions we can show, but we can't show all of them the same way we can on mobile.

That's certainly useful to us, but as to whether or not we price those things differently, I think back to a question Youssef may have asked, we don't price them differently at this point.

While that's something that we might look at in the future, pricing leverage is really not something that we're focused on in the near-term.

We just look at that addressable market of millions and millions of local businesses, and given that we've only got 57,000-odd customers today, we feel like we're still just getting started.

Kevin Kopelman, Cowen and Company.

Can you give us any color on what kind of momentum you're seeing in Europe?

Also, how smooth was the Qype Germany switchover, given it's a lot larger than the previous markets you transitioned?

Could you give us the percentage of revenues from international, and also how many advertiser additions in the quarter were from Qype?

Thanks.

Let me start with the last question first.

Percentage of international revenue was about 5% or $3 million in the quarter.

To your question about -- was it mobile ad impressions, or sorry, business ads?

In the quarter, we generated about 5,800 net ads in the quarter and of that, the Qype additions were fairly small.

I'd say maybe a couple hundred, if that.

You asked a little bit about Qype and that integration and the overall traffic.

Today we're seeing about 18% of our traffic coming from outside of the US and that's up 98% year-on-year.

The short answer to your question is we're seeing great growth internationally, and specifically concentrated in Europe where we've been working on those Qype integrations.

I think Jeremy mentioned earlier that we have completed the integrations of Qype France and the UK, which are two of their three biggest markets of the last couple months.

Germany will be coming very soon.

We have, as we also earlier mentioned, we started selling Yelp ads in Germany, and we'll be cutting over to that German site, again, coming very soon.

Chris Merwin, Barclays.

You talked a bit about the progress you're making with call to action and also, now, the customer activity feed.

Certainly, it makes sense about how that's going to help current advertisers better understand the ROI that they're getting from Yelp.

But can you talk a bit about how those features will help the non-paying accounts convert to paying?

Is this something that the sales force is pushing and could that maybe be a catalyst to help improve the penetration rate of the claimed accounts?

Also, just as it relates to the integration of SeatMe, how should we think about that impacting your current partnership with OpenTable?

Thanks.

Thanks for your questions.

I will take the first part and I think maybe Jeremy will answer the SeatMe OpenTable question.

As to the two products that you mentioned, the call to action product, as well as the customer activity feed, the call to action product is available only to paying advertisers, as you mentioned, and certainly, we think that is a good thing for paying advertisers.

Of course, it's also something that our sales force mentions and sells as part of the sales pitch.

We do think its one more item in the basket of things that we're selling to a local advertiser or local advertising prospect.

While early days, we're hopeful that makes a Yelp package even more attractive than it might have been prior to that launch.

On the customer activity feed, that's actually a feature that's open and available to every business with a claimed Yelp account.

Even non-paying businesses do get to see all of those activities that are going on on Yelp and on their profile page and their various leads.

As to the question of how does that help sales?

We think even non-paying businesses being able to understand all the value generated off of Yelp is a great place to start and a really good conversation starter to help them think about whether or not they may want to increase that number and, again, pay for some advertising to do that.

To your SeatMe OpenTable question, we continue to have a great relationship with OpenTable.

You can still seamlessly book a reservation at a high-end restaurant, whether it's on the site or on your phone.

We do see a lot of opportunity for SeatMe.

It's a lower price point product, and so we think there's actually different customers out there.

Obviously, there's going to be some restaurants, but there's a whole wider group in the restaurants, food, and nightlife category, as we look at it.

We've seen customers like wineries sign-up, bars that take reservations and so we think that the category, as we look at it with the SeatMe brand, the SeatMe product is far bigger than just the high-end restaurants.

Darren Aftahi, Northland Securities.

Thanks for taking my questions.

Just two quick ones.

First, on the Yelp Platform, can you talk about the timing of some of these new verticals?

You mentioned dentists, spa, home repair in your prepared remarks.

Then what the potential revenue model is going to be there?

The second one, what was home and local services as a percentage of revenue in the quarter?

Thanks.

This is Jeremy.

I'll take the first question about Yelp Platform.

We don't have very specific timing, but we are working towards adding these additional partners in the areas that you mentioned.

I think early next year we should have more folks and that's what we're working toward, but we haven't set specific dates.

On the revenue side, right now this is really about the consumer experience.

What we're trying to do is create -- just like how Amazon has dominated e-commerce by having this horizontal experience of whatever product you want you can buy it and have it shipped to you.

We want to re-create a similar thing for consumers on Yelp.

They can find any type of local business and then be able to transact, book an appointment, get that person to show up at their door.

We think that's a phenomenal experience and that's where our focus is, rather than driving revenue.

But in these relationships, they all do have a revenue component.

As that becomes bigger, I'm sure we'll break that out.

It's Rob.

On home and local, as a percent of revenue, it's 24%.

Just to round out the top five, the home local in Q3 was 24%, restaurants were 16%, beauty and fitness 13%, health, 12% and shopping is 11%.

Fairly similar to Q2 2013.

Stephen Ju, Credit Suisse.

This is May Hanavara on for Stephen.

We noticed that you recently changed your privacy policy, and we're starting to see ads from some local businesses incorporating user reviews.

We were wondering if you have any early read on how well the new ad format is working?

This is Jeremy.

We have made some changes to our privacy policy.

However, that was not connected to the feature you're talking about where review snippets are shown as part of the ads.

That's actually been there for, I think, several years, if not since the beginning of the ad product.

Rob Sanderson, MKM Partners.

Can you talk a little bit more about go to market on SeatMe, and does this layer into your sales model effectively and what have you learned to date?

How big a focus will this be for you?

On international monetization, what have you seen when you've moved some of the smaller Qype markets over to the Yelp Platform in terms of the monetization ramp?

Can you also give us a sense of how much bigger were France, Germany, UK for Qype than the markets that you've already moved?

Thank you.

This is Geoff.

I'll give them both a try.

First one, on SeatMe and our go to market strategy, we're delighted that the SeatMe team has now moved into the Yelp building.

That happened several weeks ago now as we moved into our new headquarters.

Integration is off to a great start.

As Jeremy mentioned, we're working actively now to bring that SeatMe functionality onto the Yelp Platform so that consumers can go ahead and use that coming up very soon.

As to go to market and how we approach Yelp advertisers and prospective new advertisers, we're experimenting with price points and approaches there.

Nothing to say definitively today, but I would expect that we'll be experimenting with that over the next couple of quarters and we'll be able to tell you more definitively at that time.

Our expectation, though, is that this is a kind of a service that would be very attractive to many Yelp advertisers in the restaurant, food, and nightlife categories in the years to come.

As to international monetization, it's really early days, as far as those Qype markets go.

We were selling in the UK starting in the middle of last year and that continues to go well.

We, of course, now do have more content and traffic against which to sell advertising because of the Qype integration.

In France and in Spain, we actually grew our sales capabilities, thanks to the Qype acquisition and have begun selling into those markets as of a few months ago now.

So far, so good.

In Germany, as we mentioned earlier in the call, really those guys were selling the Qype ad product until just a couple of weeks ago and have only recently started selling Yelp advertising.

Terrific first month, but not a whole lot of details behind that yet.

Jordan Monahan, Morgan Stanley.

The first one is, I think, actually, Jeremy, at the beginning of the call, you mentioned closing the loop and we've heard more about that from some of your competitors recently, as well.

It seems to be an area of focus.

I'm wondering, when we think our restaurants in particular, just given it's a fairly large part of your engagement, how big do you think that opportunity is, and what are the pieces that you need to put in place in order to realize the opportunity?

Once those are in place, are you thinking about that as a potential take rate type opportunity or some other way?

Just one quick question on competition, I know it was asked earlier, but Google has changed, yet again, the name of their local program and it's now called, I think, City Experts and they seem to be fairly aggressive in marketing it and offering cash rewards and so on.

I'm just curious if, in the month or so that they've been doing that if you've seen any impact at all, rather than some of the prior efforts that they've made.

Thank you.

I will start with the first part of that question, which is opportunity around restaurants and nightlife.

Some numbers that we pulled in earlier times suggested there are about a million businesses on Yelp that are in those categories.

Certainly, as we look across Platform, our partnership with OpenTable and the SeatMe product, and a variety of other products that we may not have thought of yet, our goal is to provide transaction capabilities and every kind of advertising product to that full suite of prospective advertisers in the years to come.

We know that consumers are finding restaurant food and nightlife locations every day on Yelp and certainly, our goal is to just make that experience more seamless for consumers as well as for the business owners themselves.

As to the question about how do we get there, it's many of the things you know we're already working on.

Bringing Platform to more partners, as well as more restaurants within those partnerships, getting the SeatMe product integrated and then out to market to the existing Yelp advertisers, as well as prospective future advertising.

And then continuing to chip away with products like the call to action product and more features for the business owners to use in their dashboard.

This is Jeremy.

On the Google question about City Experts, certainly we've seen Google paying very close attention to what we do and attempting to replicate the various aspects of what we do, whether it is on the community side.

It was not too many years ago that they had community manager program which they eventually wound down; City Experts looks a lot like that.

We had a question a little earlier about ads that use review snippets and I think that was actually the change to Google's privacy policy or Google+ privacy policy, so they could replicate that or try to replicate that.

I think it's obviously a good thing that we're the reference point when it comes to success in local.

But I think the eight-year history of competition suggests that the subtler things that we do, the playbook that we have is quite unique and extremely difficult to replicate.

With Google's latest efforts, I don't really worry too much that it suddenly makes Google a fun destination where people want to volunteer a lot of their time to writing really high-quality reviews in 111 different markets across the world.

James Cakmak, Telsey Advisory Group.

Jeremy, at the beginning of the call, you mentioned that Yelp is increasingly becoming a globally recognized brand and your strategy is certainly playing out.

At this point, as you think about increased financial flexibility in the capital structure, where do you see potential voids, and where we could potentially see areas of investment to round down services.

Secondly, on the transaction side and all your efforts there, how do you guys think about the feedback loop and actually tracking the experience of the transactions for the consumer, or is it something that is just limited to reviews?

Thanks.

Yes, so as we think about international, I think, for us, it's really about, as we have more and more high-quality content, the stuff that we're known for, obviously, domestically, it naturally gets organic exposure.

There's basically a positive feedback loop that happens and has happened again and again, which is, if you have a community that generates incredible rich content that other people happen to looking for via search engines or by downloading our mobile app.

And ultimately, some of those people decide to become contributors and create even more content.

The brands sneaks up on you.

It was a good five or six years before people in New York suddenly woke up one day and said, Yelp is the place I turn to for trusted recommendations.

I think that phenomenon is going on in Europe right now and it just takes a number of years.

Depending on the age of the market, you'll have variable brand strength there.

But the playbook is working and I think, as you can see, through content growth and traffic growth, we're getting there.

I think there was also another part of your question that was, are we looking at other forms of contribution outside of reviews?

The short answer to that is, we're certainly always evaluating and looking at new ways that our community members can contribute and participate on Yelp.

Right now, the review and photos are the primary ways that people do contribute on Yelp, but there are a variety of others, some of them on heralds, like lists and talk threads and things of that nature.

You can imagine that there will be other things we'll experiment with in the future, too.

For now, though, I think it's fair to assume that reviews and those high-quality reviews that we've talked about are going to be the focus.

Kerry Rice, Needham & Company.

This is [Sean Ratsui] for Kerry Rice.

I was wondering if you could provide some color on advertisers leveraging the cost per click offering?

Just curious to see if there are any specific traits you can call out, maybe in terms of the size of these advertisers or maybe the verticals, or they're pretty consistent across the base.

As an add-on, if I may, could you also give us a sense for what portion of these advertisers are also subscribed to the packages that you sell, and are spending incremental dollars through the CPC self-surf platform.

Thank you.

It's Rob.

I'll take a crack at that.

There's two pieces -- there's the local ad business that is purchased by small local businesses and generally, they actually buy the subscription-based products.

Some -- you can definitely see some buying the CPC products, more of a self-serve or potentially a package bundle of products.

But we're also seeing a lot of regional and national players take advantage, to your point, in leveraging our products, our CPC bundled package.

What they're doing is they're buying a set amount every month in terms of the CPC.

They're also buying an enhanced profile for each of their business location pages.

I think they're getting enormous value from that.

We've definitely seen a number of larger advertisers see significant increases.

I know one consumer retail outlet that's nationwide saw about a 75%, 80% increase in user views and calls for directions.

There was a large hotel chain that saw about a 300% or 400% increase in calls and directions from utilizing the call to action, as well as the CPC products.

I think there's different players in the market and we're trying to put together products that serve each of them independently so that they can buy what it is they want.

We're pretty happy with that.

I think that was your question.

Thanks.

At this time, I would like to turn the call back to management for closing remarks.

Thanks, everyone, for joining us on our Q3 earnings call.

We look forward to reporting Q4 in the early part of next year.

Thanks.

Thank you, ladies and gentlemen.

This concludes today's conference.

Thank you for participating.

You may now disconnect.