Yelp Inc (YELP) 2015 Q1 法說會逐字稿

Welcome to the Q1 2015 Yelp Incorporated earnings conference call.

My name is Adrian, and I'll be your operator for today's call.

(Operator Instructions)

Please note, this conduct is being recorded.

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

Wendy Lim, you may begin.

Good afternoon, everyone, and thank you for joining us on Yelp's first-quarter 2015 earnings conference call.

Joining me on the call to 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 revisions 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 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, non-GAAP net income, and non-GAAP EPS, which are non-GAAP financial measures.

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

With that, I'll turn the call over to Jeremy.

Thanks, Wendy, and welcome, everyone.

We had a solid start to 2015.

Revenue grew 55% year-over-year to $118.5 million.

On our Q4 call, we outlined our focus areas for the year -- increasing consumer awareness, daily engagement, and closing the loop with local businesses.

I'm pleased with our progress on these key initiative in Q1.

The consumer experience is our highest priority at Yelp, and we want people to think of Yelp whenever they're looking for a local business.

In February, we acquired Eat24, a leading online food ordering service, and one of our first partners on Yelp Platform.

I want to take this opportunity to publicly welcome the Eat24 family to Yelp and express how excited I am to build upon what this talented team has already created.

Our goal with the acquisition of Eat24 is to increase daily engagement in one of our most important verticals -- restaurants.

Based on the Nielson study we commissioned this month, approximately 70% of food orders in the US were placed offline, and we believe there's significant opportunity for growth if those orders shift online.

By leveraging Eat24's product with our traffic and our more established brand, we believe we can grow Eat24's online food ordering business, much like we've done with our reservation solutions.

As an example of the type of growth we can achieve, SeatMe and Yelp Reservations had over 12,000 restaurants and night life establishments accepting online reservations in the first quarter, which represents 50% increase over the fourth quarter of 2014.

Prior to SeatMe and Yelp Reservations, online booking capabilities for restaurants were constrained and limited by expensive and complicated reservation solutions.

Our inexpensive, cloud-based solution represents a significant market expansion, as we've seen nontraditional customers adopt SeatMe, ranging from a winery in Rhode Island to an arcade bar in Tennessee.

We're continuing to invest in our reservations products, and we look forward to extending reservation capabilities to an even broader array of restaurants and night life establishments.

While Yelp's mission is to connect people with great local businesses, we also want to enable consumers to take the next step and transact.

As of the end of Q1, we had 1.5 million transactions completed on Yelp Platform since inception in July 2013.

We initially launched with online food ordering partners and have since extended Platform into new verticals, covering outdoor activities, florists, golf courses, night clubs, and lawyers.

That said, it's still early days, and there are more partners to come.

This is a multi-year endeavor, and we believe it will ultimately increase consumer loyalty, drive further engagement, and generate additional leads for local businesses.

Another means of driving incremental leads to local businesses is via our performance-based advertising products.

Qype-based advertising allows businesses to connect advertising dollars more directly to the revenue they get from advertising on Yelp.

In Q1, approximately 40% of our local advertising revenues came from CPC advertisers, up from 32% in Q4 2014.

This rapid shift to performance-based advertising has occurred faster than expected, and we're still relatively early in the development of our CPC product.

We're investing additional resources to scale functionality and expect CPC to remain a promising area of growth for our local advertising business.

The way consumers contribute and consume content today is rapidly becoming mobile-centric.

And as one of the first apps in the Apple App Store, we've been at the forefront of this trend.

Mobile has been and continues to be one of our top product priorities, and we've seen that focus result in strong mobile consumer traffic and engagement.

In Q1, more than 50% of our reviews and photos were contributed via the app.

And for the first time, our mobile unique visitors were roughly equal to our desktop unique visitors.

In the same quarter, mobile devices accessing our app grew 47% year-over-year to about 16 million, and those users have become our most valuable and engaged.

In the coming years, we see consumers continuing their transition toward a mobile-centric world.

We believe having high quality content and a great mobile experience will position us well for this important shift.

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

Thanks, Jeremy.

Please note that we have posted a few slides and a data sheet on our Investor Relations web page that accompanies the financial portion of the webcast.

In the first quarter, revenue grew 55% year-over-year to $118.5 million, and adjusted EBITDA grew 92% year-over-year to $16.3 million.

For the first quarter, local revenue was $98.6 million, up 51% over last year.

As additional color on local revenue, we implemented a territory change within our sales organization at the beginning of January in an effort to increase our reach to more local businesses.

But the change had a negative impact on sales productivity.

Realizing this, we reversed this change in early March and have seen productivity recover with continued strength through April.

We also see strength in our national, mid-market, and franchise businesses.

And we are excited about the large opportunity they represent.

These large businesses that operate locally are eager to connect with consumers on Yelp, and we plan to continue to grow the sales team focused on this segment.

Brand advertising revenue was $6.6 million, down 11% year-over-year.

We have experienced industry headwinds related to the shift to programmatic advertising and the industry's desire to have advertising products that are disruptive to the consumer experience.

Given our focus on the consumer, we don't generally support those types of ad products.

Brand advertising revenue is a relatively high-margin business for us, and our lower than expected brand advertising revenue negatively impacted our ability to achieve our adjusted EBITDA outlook in Q1.

Other revenue increased 254% year-over-year to $13.3 million, primarily reflecting our acquisition of Eat24 in the first quarter of 2015, which contributed about $5 million to revenue, and our partnership with YP.com, which contributed about $3 million revenue in the quarter.

International revenue contributed about 3% of total revenue in the first quarter.

In Q1, we launched in Taiwan, and we continue to invest internationally, as we believe international represents a significant opportunity over the long term.

Total sales and marketing was approximately 53% of revenue in the first quarter, compared to approximately 59% in the same period last year.

Sales head count in the first quarter grew roughly 25% year-over-year.

Product development was approximately 20% of revenue, compared to 18% in the first quarter last year, as we continued to invest in developing innovative consumer features and advertising products.

G&A was 17% of revenue, which was flat compared to the first quarter last year.

GAAP net loss was $1.3 million, and GAAP EPS was negative $0.02 in the first quarter.

Non-GAAP net income, which consists of net income excluding stock-based compensation and amortization, was $7.9 million in the first quarter.

Non-GAAP EPS, which is non-GAAP net income divided by our fully diluted share count, was $0.10.

We generated approximately $26 million in cash flow from operations in the quarter and finished the first quarter with $331 million of cash and cash equivalents and marketable securities on the balance sheet.

Before I turn to our outlook, I want to go through our operating metrics for the quarter.

[Cumulative] reviews grew 36% year-over-year to approximately 77 million.

A record 6 million reviews were contributed in the quarter.

Average monthly mobile unique visitors grew 29% year-over-year to approximately 79 million.

Average monthly desktop unique visitors were down 3% year-over-year to approximately 80 million.

International traffic was flat, at approximately 31 million unique visitors on a monthly average basis.

Average monthly unique visitors, which consists of desktop and mobile web unique visitors, grew 8% over the year to roughly 142 million.

Going forward, we do not plan to disclose total monthly unique visitors and will instead provide a separate break out of desktop monthly uniquely visitors and mobile monthly unique visitors to provide greater variability into our business.

Local advertising accounts grew 43% year-over-year to approximately 90,200.

(Inaudible) local businesses were approximately 2.2 million, up 35% year-over-year.

Our customer repeat rate, which we now calculate as a percentage of existing local advertising accounts from which we recognize revenue in the immediately preceding 12 month period, was 76% for the first quarter of 2015.

Calculating the repeat rate based on local advertising accounts rather than active local business account has no material impact on the repeat rate, which was consistent at 76%.

Going forward, we will no longer calculate the repeat rate based on active local business accounts.

While we had a misstep in assigning sales territories in Q1, we continue to be confident in our business.

Local sales productivity has recovered since the territory change reversal, and with the increased investment in our CPC product, we believe CPC will be an important driver of our sales growth.

Additionally, we expect brand advertising revenue to be up sequentially, as we've seen stronger pipelines in Q2 and expect to open up mobile inventory and programmatic advertising this year.

Now, I'll turn to our outlook for second-quarter and full-year 2015.

For the second quarter, we expect revenues in the range of $131 million to $134 million, representing a 49% year-over-year increase.

We expect adjusted EBITDA for the second quarter to range between $22 million and $24 million.

We also expect stock-based compensation to raise between $14 million and $15 million and depreciation and amortization to be approximately 5% of revenue.

We expect our tax rate to be approximately 40%.

For the full year 2015, we are affirming our outlook and expect full-year 2015 revenue to be in the range of $574 million to $579 million or approximately 53% growth over 2014.

For the full year, we expect adjusted EBITDA to range between $102 million and $105 million, a 46% increase over 2014.

We expect stock-based compensation to range between $58 million and $60 million and depreciation amortization to be approximately 5% of revenue.

For modeling purposes in the second quarter, we expect our weighted average fully-diluted share count to be approximately 81 million shares.

For the full year, we expect our weighted average fully-diluted share count to be approximately 82 million shares.

We feel we have a long runway, and we'll focus on investing to capture the large market opportunity ahead of us.

We continue to believe we can be a $1 billion revenue Company in 2017.

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

Thank you.

We'll now be gin the question-and-answer session.

(Operator Instructions)

Lloyd Walmsley, Deutsche Bank.

Thanks.

I'm wondering if you can just give us a little bit more color on the territory change that you did on the sales force.

And how much of the sales force did that apply to?

Like, how long were you operating under it -- what kind of testing you did beforehand?

It seems like the sequential growth in local ad revenue was down 20% -- something in the 20% range -- year-over-year, despite having a much bigger sales force.

So just trying to figure out what happened.

Hey, Lloyd.

This is Geoff Donaker.

So every year for the last five or six years, we've reassigned territories at the beginning of the year.

And there's always a number of different tweaks that go in to that, but it does apply to the entire local sales force.

This year, for the first time, we made a change where we took geography out of the equation.

The reason we did that is we wanted to make sure that we got leads into the hands of reps faster than our old system had allowed, so we did remove geography from the equation.

What we learned pretty quickly though, in the month of January and then the first half of February, was that geography turned out to be really important.

The (inaudible) truisms of local sports team scores and weather and being able to talk -- when you're talking to two different clients, one after the other -- turned out to be pretty important.

So by the end of February, we actually identified that problem and the (inaudible) team turned it around very quickly, reassigned all new territories based on the old geographically-oriented territory system, and then in March, we saw performance on the sales team recover.

And we're seeing that continued strength in April.

So the short version is January and February, and then moved on in March.

So just as the sales force grows, we should expect sequential ramps, kind of in line with sales force growth for local advertising, as we move forward?

As we've talked about in the past, the sales team is oriented towards revenue, rather than local advertising accounts.

So I want to make sure that we're distinguishing separately from those things.

But from the local revenue perspective, we are seeing strong performance in March and April.

Okay.

Thanks, guys.

Mark Mahaney, RBC Capital Markets.

Thanks.

The guidance, in terms of revenue growth for the balance of the year, requires revenue growth that kind of stabilized.

And yet, you've seen pretty consistent deceleration, not only in the revenue growth, but in local ad revenue and in some of the key metrics -- not all of them, but in some of the key ones.

What makes you think that growth will stabilize and possibly reaccelerate in the back half of the year?

Is it that you feel like you had this quick switch in recovery and sales force productivity in the back half of the March quarter?

Is it Eat24?

What is it that gives you that confidence?

Hey, Mark.

It's Rob.

Thanks for the question.

In terms of the confidence, we identified the problem and the mistake that we made with the territory change.

We reversed it in March.

And I've seen productivity recover in March.

So it gives us confidence that -- and continued strength in April -- gives us confidence, especially with all the new existing sales people we hired and the fact that we're going to hire more, it gives us confidence that we're going to achieve our full-year guidance.

And that's as we affirm it.

Then one of the metrics -- the international unique visitors -- if I'm reading it right, was kind of flattish year-over-year?

You're still pretty early stage in those markets, and you've launched a good number of them recently.

I'm surprised to see that.

Is there any particular explanation behind that?

Yes.

Hey, Mark, this is Jeremy.

Since there was an algorithmic change that happened last year on the global side, we have seen some flatness.

It's not perfectly flat across all markets; it's sort of there have been adjustments -- some markets up, some markets down.

The good news is the community growth is still there.

So we're getting more and more content internationally, which ultimately means our app is becoming more valuable.

And we're seeing some app growth internationally.

That's really where our focus lies now, is primarily on growth -- continuing to grow the community and the content base -- and then, hopefully, finding our way to app users, rather than relying on the traditional SEO growth there.

Gene Munster, Piper Jaffray.

A follow-up to Mark's question on some of the transaction base and some of the recent acquisitions you've done with SeatMe and Eat24.

Is there a certain outlook you'd have on that business, maybe near-term on the back half of this year and then longer-term -- how we could think about that and the potential impact?

Is this something that's just incremental to your existing business, or is it something that could be more substantial and a reason for longer-term optimism?

Yes.

I think the -- well, the SeatMe business we acquired a couple years ago has gone exceedingly well.

We're up to 12,000 reservation-taking businesses.

That's up 50% quarter-on-quarter, so that's gone well.

From a revenue standpoint, it's fairly small.

Those that are actually paying for the SeatMe product versus Yelp Reservation is a minority of that 12,000.

And they only pay $99 a month.

But from a consumer experience standpoint, it's a very positive one.

On the Eat24 business, we had about $5 million of revenue in the quarter.

That's in the stump period.

So when you look at that, if you were to take that over the whole period, it grew about 63% or, say, $9 million, which we would expect would happen as well in Q2.

There is some seasonality to that type of business.

So for the rest of the year, we see that business actually doing quite well and growing at a fairly substantial rate, also included in other line items.

Okay.

And then, I guess, just a follow-up.

We understand there was some -- a little bit of -- kind of an iPad giveaway, I guess.

I don't know if it was Eat24 or SeatMe or both of those.

Was that something that had a measurable impact on that business and those growth rates?

Or do you feel like those are more organic growth rates you just outlined?

Yes.

This is Jeremy.

I think what you're talking about is a promotion that we've been experimenting with on the SeatMe side.

So we continue to see really healthy growth in signing up restaurants.

This is for our full-service product.

We have two products in the marketplace right now -- Yelp Reservations, which is lightweight and doesn't involve an iPad, and then a more heavyweight front of house management solution.

And it kind of made sense to try and pair that with the hardware, since you generally want to get that anyways.

So we have seen positive results.

We continue to play around with that.

But as far as whether that's going to be there forever -- can't say at this point.

Jason Helfstein, Oppenheimer.

Thanks.

I just want to go back to a point you made in the comments.

Did I hear right, that you said there was 47% growth in users using the mobile app?

Or was that 47% of mobile users through the app?

And then I have a followup on that.

This is Jeremy.

So we were talking about the mobile app.

We saw 47% year-over-year growth to about 16 million app users.

And so, just as a follow up on that, as we're all trying to understand the health of the business, and clearly, there's a strong -- people paying a lot of attention to the deceleration, some of the user metrics -- do you think that's a statistic you should be providing, going forward, and more representative of the health of the business?

And then, kind of talk to what you're doing to ultimately drive that, either through marketing or organic initiatives.

Thanks.

Yes.

Mobile is unique, and mobile app numbers is something that we've historically given out, so I think we'll continue to do so.

If you fast forward a few years into the future, you can imagine that our business is quite reliant on mobile traffic.

And that's where we, frankly, continue to invest a lot of our time, attention, and resources, particularly on the products and engineering side.

And the good news is, it seems to be paying off.

Mobile web -- if you include mobile web, you're looking at 29% year-over-year.

And then we talked about the app number being even stronger.

So we feel good about where the business is headed, but it's certainly a period of transition, where you are seeing desktop decline as users give up their desktop machines and switch over to iPhones and whatnot.

Kevin Kopelman, Cowen and Company.

Great.

Thanks a lot.

You talked about the Yelp Platform hitting 1.5 million transactions.

Just given some of the functionality improvements that you've had recently, can you give us any color on what the growth trajectory looks like in Q2?

Yes.

This is Jeremy again.

We continue to invest in Platform.

We have lots of partners signed up.

And we give out the transactions numbers just as a marker that it continues to grow and become a more interesting part of our business.

That said, we're still quite focused on how it's driving the consumer experience.

One of our goals this year is around increasing engagement and making sure that consumers keep coming -- have an excuse to keep coming back to the app all the time.

We think being able to transact and really close the loophole with local businesses is a nice, an important feature for consumers -- being able to put that credit card in and know that whenever you come to Yelp and find a local business, you're not just having to make a phone call, but you can actually get what you're trying to accomplish done.

So we like how that fits in to the consumer value proposition.

And Kevin, this is Rob.

From a revenue standpoint, that amount is in other revenue.

It's a fairly small amount.

It's definitely growing at a fairly fast clip.

But for right now, we're continuing to, as Jeremy said, focus on the consumer experience.

And then we'll see what happens over the next couple years, as we do that.

Okay.

And definitely thinking about it, just on transactions.

And just a separate question on EBITDA.

It was a little light in Q1 versus the guidance that you put out there.

Is that also just related to the revenue shortfall on the sales force change?

Are there any other spending items?

And can you give us an update on your advertising programs?

So on [just the] EBITDA piece, I think the majority is really -- that difference in our guidance and what we ended up at -- was driven by the brand revenue.

It's a high-margin business, and it didn't meet our expectations internally.

So it came in short, and so, therefore, we kind of missed on what we had expected.

That being said, on the brand side, they came into Q2 with a much more robust pipeline.

And we feel that they've got things back on track.

That being said, there still is a lot of industry things that are going on, including programmatic, which we're adjusting to as well.

You had asked about our advertising program, but I wasn't sure -- if you're still on the line.

I may have lost you.

No?

Okay.

I'm going to assume that's the advertising programs that we sell.

So I think, as Rob mentioned during the call, CPC advertising is doing really well for us.

It's actually now up to 40% of advertiser relationships are CPC rather than CPM.

That shift is going faster than we expected it to.

By and large, it's a really positive thing.

A lot of work for us to continue to do to make sure that product is doing everything it's supposed to do, but we felt good about the direction it's headed.

Stephen Ju, Credit Suisse.

Thanks.

So Jeremy or Geoff, can you share with us the differences in the level of activity between your app users and the desktop users?

You continue to roll out some of the functions that used to be desktop only into the mobile app, so I'm just wondering if this is improving engagement overall, or whether this improves the rate at which folks are uploading reviews or content.

Also, following up on the CPC-based advertisers being 40% now -- what was that number a year ago?

And what optionality does this open up for you, in terms of pricing, if at all, over the longer-term?

Thanks.

All right, Stephen.

I'll talk to the activity point.

One thing that we're quite encouraged by is as users do shift from desktop to mobile, particularly the mobile app, we do see much higher engagement.

In fact -- this is an indicator that we're seeing -- 65% of searches now are happening on mobile.

We're also seeing more and more content.

I think it's about close to 50% of content is now -- north of 50% of content -- is coming from mobile.

And, of course, a big portion of that, vast majority, is coming from the mobile app.

So as that transition happens, I think it speaks to really good things happening fundamentally, from a content perspective, from a traffic standpoint.

And ultimately, that should lead in to inventory to sell, as well.

And asking a little bit more about CPC as well.

So yes.

40% of advertisers in this past quarter were on CPC.

In the previous quarter, it was 32%.

While I don't have the year ago, I believe in the third quarter of last year, it was 24% of advertisers.

So you can see a pretty rapid sort of step change in that.

You asked the question of what can we do, in terms of pricing over the long-term or whatnot.

I mean, use your imagination there.

Certainly, we do believe there's opportunity for better price [maximization] in what's now an option-based system.

What that should mean is that, in geography categories that are very competitive, prices will go up.

And in others, where we have unlimited inventory, you could have lower prices, and advertises could get a great deal.

That's certainly the goal.

Brian Nowak, Morgan Stanley.

Thanks.

I have two.

To go back to the last one -- when the CPC model opens up for options, can you talk about how long it would take to roll out a new, more optimized pricing structure with maybe lower dollar commitments for some customers to drive faster growth?

How long would it take to roll out a whole new pricing option and pricing tier for your SNBs?

And then, the second one on the sales force.

You mentioned the sales force head count was up 25% year-on-year in the first quarter.

I think in the past, you said it was going to be up 40% for the year.

Can you help us understand the cadence of the sales force growth throughout the year?

Sure.

It's Geoff again.

Let me try (inaudible).

I'll start with the second one first.

You're right on those numbers.

We've said that we intended to grow the sales force 40% this year.

In this first quarter, we came in a little lighter than expected.

Our net additions were only about 25%, versus that 40% goal.

So our expectation, based on hiring pipelines and everything else we're seeing, is that we should be able to get back in that 40% range starting rather soon and then, end the year at the 40% type of clip.

To your other question about how long, theoretically, would it take to roll out new pricing -- on one hand, I'd say not long at all.

That's something we can do at any time.

Really, this is actually already happening today.

So many parts of our sales force do have the ability to sell what we call an entry level product to local business advertisers, where they can start with a smaller price if they want to.

Some are starting with us as low as $100 or $200 through a [full-serve] channel.

And then, on a self-serve basis, you do also have advertisers who could come in and select to come in at an even lower price point.

And some are buying a product that's as low as $25 or $50 a month.

That's not typical, but it is a product that is available today on a self-serve basis and increasingly available in [full-serve], as well.

Eric Sheridan, UBS.

Thanks for taking the question.

To go back to sales force productivity, how do you guys think about the sales force productivity you're getting in the international markets versus US markets, where you're a little bit better understood as a brand or maybe more widely deployed on people's mobile phones and brand awareness amongst local business advertisers?

Just trying to understand what that difference in productivity might be and how that might have changed over the last year.

And second question, there's been some news reports around exclusivity with iOS outside the US for Yelp in maps and search -- going away from the apple product.

What sort of headwinds, if that's true, does that create for you, going forward?

Thanks.

Thanks for your question.

It's Geoff.

I'll take the first part of the question on productivity.

Yes, it's fair to say that internationally, our sales force productivity is lower on average than it is in the US.

Newer markets, as you already pointed out, lower brand awareness, and newer and more rookie sales teams, in general.

Generally, some promising signs, but starting off a pretty small base.

But it is lower today than in the US.

And this is Jeremy for your question around iOS and Apple maps.

We continue to have a great relationship with Apple.

In fact, the relationship that we had as it began, it was never meant to be exclusive.

We never thought it was going to be.

It never was.

However, we did have and continue to have the best content in many places around the world, and Apple continues to showcase it.

I think what they're going for is a level playing field, something that, frankly, other folks in the states haven't strived for.

So we're fine competing on the merits of our content.

If you go in there and look for reviews, more often than not, virtually all the time, you still find Yelp content because it is the strongest out there.

We feel good overall about the relationship, going forward.

Blake Harper, Wunderlich Securities.

Thanks.

Two questions.

One, with the shift to programmatic with your brand advertising, can you talk about who or how you're working with there and if that does impact some of the margins?

You mentioned that was some of the higher-margin business.

And how you would expect the economics to play out with that shift there?

Hey, Blake.

Yes.

I mean, we work with a number of partners in that field, and we're actually expanding that list as we speak.

So there's kind of two pieces of that brand advertising.

There's the programmatic side, which we've seen fairly large growth in, and we're working with a number of partners to open up our inventory to that.

Then on the other side, there's the direct sales piece, which I think is where we're seeing some of the industry headwinds, related to what we have to offer, and as well as the lower CPM, as we move to programmatic.

So those are the two pieces, and what we're seeing on the programmatic side is actually pretty encouraging.

We've actually been kind of adding partners to that as we go.

Great.

And one more, if I could.

The Yelp Now product that you introduced -- I just wanted to understand if there was anything that's driving either search stuff on mobile for either the directions, calls, or platform transactions at all.

And just see if there's been any change in patterns or behavior there, since you've launched that.

This is Jeremy again.

Talk about the Yelp Now functionalities.

What we're really going for there is to try and create an experience where the consumer is able to transact as quickly and easily as possible.

The areas the we initially focused on have been food delivery and restaurant reservations.

It kind of starts with -- hey, I want a restaurant reservation.

What time?

And then showing you available inventory from Yelp Reservations and SeatMe.

And then, on the food delivery side, we can tap in to all of the different options that are available with Yelp Platform.

Right now, it's not very obvious how to discover it.

There's just a few places you can get into it.

So it's still kind of early days, and we just launched the features, so we haven't seen a massive impact.

But I think, over time, as we tune it and further roll it out, we do expect it to have a nice positive impact on transactions.

Justin Post, Merrill Lynch.

I was wondering about the Google algorithm changes from about a week ago.

Have you seen any impact from that?

And then, looking forward, anything in the pipeline that you think can really help drive traffic to your site, any big initiatives we should be looking forward to for the rest of the year?

Thank you.

This is Jeremy.

Talking about the mobile friendly update that Google announced about a week ago -- or was supposed to trigger about a week ago.

I think it's still too early to say for sure, but the early signs are no massive impact either way.

And so we are, obviously, mobile optimized in most places that matter -- or all places that matter.

So we don't expect to see much either way, there.

When it comes to traffic, I think the thing we're most excited about is the shift to mobile and, particularly, the strength we're seeing in mobile app.

So we have 47% year-over-year growth there, and we hope to keep expanding that and see where we end up towards the end of the year.

Youssef Squali, Cantor Fitzgerald.

Thanks a lot.

That's Youssef Squali.

Two quick questions, please.

Going back to the international monetization question.

Can you remind us again, how many markets or how many cities are you in, in aggregate?

How many cities are you monetizing today?

And in your oldest city -- say London, I guess -- just where is your productivity there?

Where's your monetization levels versus that of the US?

And then, I guess, Rob, if I look at the cohorts analysis on, I think, slide number 4, it looks like there has been a pretty substantial deceleration, particularly into most recent cohorts -- 2009, 2010.

I think it went down to 61% from 100% about two quarters ago.

I was just wondering if there's something specific to call out there.

Thanks.

Hey, Youssef.

Thanks for your questions.

So on the international monetization side, first of all, we generated about 3% of our revenue internationally.

It's up, actually, about 30% year-over-year in the quarter.

And if you take out the FX impact, it's probably up about 57% year-over-year.

We don't necessarily look at it by city; we look at it by country because that's how we internally are thinking about it.

And when you look at it that way, we're monetizing, I think, about eight countries outside the US -- sorry, eight countries including the US, so seven countries outside the US.

And we're in about 29 countries or so outside the US, so we're encouraged by what we're doing there.

The team -- actually this year, 57% revenue growth is -- we're pretty pleased with.

And right now, we're just trying to scale that.

It's a different scaling opportunity, given the fact that you can't, just like in the US, I can hire someone to Chicago or New York to call in to Miami.

I can't necessarily do that because of the language for somebody in Hamburg or France.

So there's different scaling opportunities.

But we're pretty encouraged.

As to your question about cohorts, there's a lot of volatility in our cohorts.

You can look over the past couple of years and see that.

I think that one of the things to think about is the way we sell is based on revenues, so we're actually compensating our sales force based on revenue.

And we're also not assigning them specific cohorts.

So we're not saying, hey, you go after the oldest cohorts, and you go after the newest cohorts, and all will be good.

It's really based on geography and where the leads are coming from and traffic is.

So we don't really read into that, other than if you look at our oldest cohort, still growing like 50%, 45% year-over-year, which for a business that we've been in the market for 10 years and still growing at 45%, it's still pretty encouraging.

And our newest market is growing in the mid-60%.

So from our standpoint, it gives you a sense of there's still a huge market opportunity there that we're encouraged by and we think will continue.

Heath Terry, Goldman Sachs.

Thanks, guys.

I do want to spend a little more time on international.

Maybe first, to just understand where your goals are.

When you talk about that $1 billion number in 2017, how much of that do you see as coming from international?

I know we've generally been seeing international growth sort of stay around this 2.5%, 3% of revenue level.

So I'm just sort of curious if that's what's implied in that longer-term outlook.

And then, maybe more of a focus than the monetization at the moment, was just looking at the international monthly active user numbers that you reported.

That didn't grow at all year-over-year.

Wondering what's driving that?

Is that still a function of the Google algorithm changes, and what the strategy is to reaccelerate growth there?

Hey, Heath.

It's Rob.

So in the first part of the international monetization question, we do feel comfortable with a $1 billion revenue target in 2017.

We really haven't said in terms of how much of a percent the international piece would be.

If you assume then it stays 3%, then (inaudible) about $30 million.

I think it will probably be beyond that at that point, but we haven't really broken anything out, internationally versus domestic.

The good news for us is that domestic is still growing at a pretty phenomenal rate.

So I think that right now, the continued focus on the US market is something that we love because it's growing so fast.

And that's where we're hiring most.

If you look at our sales head count, that's where we're hiring.

Then to the bigger question about international traffic and users and whatnot, I guess, taking a step back, why are we in all these international markets?

We think the Yelp opportunity for customers to find great local businesses is a global phenomenon, and we think it actually makes the Yelp product more useful for American users, as well as users all over the world, [so we continue to break into] to new markets.

We've been able to do that pretty cost effectively.

You asked a question about the traffic standpoint.

I think Jeremy touched on this a little bit earlier.

Yes, we believe that's a Google-driven phenomenon, based on their algorithmic changes last year, but the metrics that we're really looking at more regularly are the community strength itself, the contributions coming in from international, and therefore, the utility and usage on the app.

And all those metrics actually look quite strong.

And so we're generally feeling really good about the pattern, user traffic not withstanding (inaudible).

Mark May, Citi.

Thanks.

Sorry, I'm rolling in here a little late.

Sorry if you've addressed these already.

On Yelp Platform, as you've begun to integrate some of the partners that you announced last year, what if any impact are you seeing that have on sales conversion and maybe churn, if at all?

And then, in terms of your stepped up marketing plans for this year that you talked about last quarter, where are we in sort of you getting all your in-house stuff in order to really start to act on that?

And I had one followup, if I could.

Thanks.

Hey, mark.

It's Geoff.

Let me try to take those two.

First off, Yelp Platform -- as Jeremy mentioned, that's really a consumer-focused exercise at this point.

We felt great about it, and it's obviously got potential to be an interesting part of the business in the out years.

Really not having any impact that I can speak to on either the sales or retention standpoint from a local advertising business perspective.

It's interesting from an anecdotal standpoint sometimes.

We talk about it with the customer, but not our main focus.

Marketing plans -- yes, on the last call, we mentioned we were intending to spend approximately $30 million on marketing this year.

We still intend to do that.

Most of that spend will happen in Q3 and Q4.

We spent a couple million dollars on marketing in the first quarter.

That was a mix of online and a little bit offline activity.

I'm not going to break out the specifics on it.

Generally feel good about what we're seeing so far, and I think you'll continue to see an evolution there.

We'll step it up just a little bit more in Q2.

And then, assuming those tests go well, then more in Q3 and Q4.

If I could ask a follow-up, can you give us a sense of how much you're investing in your international operations today?

Thanks.

Yes.

Hey, Mark.

So right now we -- I think in Q1, we invested approximately $10 million for that international group.

And we generated about $3 million, $3.5 million of revenue.

Ron Josey, JMP Securities.

I wanted to go back to the CPCs a little bit.

And I think, Jeremy, you mentioned CPC ad revenue was coming in faster than expected, but that it's still early on, building this out.

So I'm wondering what still needs to be built out.

And then, sort of a bigger question, I know, Geoff, you mentioned you have a self-service channel now, with $25, $50 minimums.

But why not roll that out faster?

And why not build out self-service versus adding sales force?

Thanks.

Hey, Josey.

It's Geoff.

I'm happy to take both parts of that question.

What still needs to happen from a CPC [entry] perspective -- look, the kind of [auction-based] pricing for us is, while no longer new -- we've been doing this for a couple years now -- it's something that obviously there's a lot of expertise out in the marketplace.

And now, with 90,000 advertisers and even more than that in terms of locations, there's just a lot to be done to continue to make sure we're doing the best we can for all our advertisers from both the self and full-serve perspectives.

As to the question about why couldn't we go even faster on self-serve -- it's growing quite fast, as is our full-serve channel.

We feel good about our 55% revenue growth overall.

And I think at the end of the day, while we will continue to invest in our self-serve channel, what we continue to find in the marketplace is that local business owners actually want to talk to us on the phone.

They want to be hand-held through that experience, whether they ultimately choose to do some of that work on a self-provisioning basis, which we think of as sort of assisted self-serve, or from a pure full-serve basis, which is, of course, where we do all the setup for them.

These are, in many cases, not marketing experts.

They're folks who are out running their businesses every day.

And they actually want to speak to somebody on the phone who can actually walk them through it.

Brian Fitzgerald, Jefferies.

Maybe a follow-up to Ron's question on the CPCs -- 40% of local now.

Where do you think that can go, longer-term, end of year?

Can you remind us -- that's been 100% rolled out to the sales force?

If not, what's the cadence there?

Then one last one.

In terms of your own advertising or marketing formats, to what degree are you using app install ads?

Are you increasing that or decreasing that?

Are you seeing any pricing elasticity, in terms of those?

Thanks.

Hi there.

Geoff again.

On the first question -- 40%, where could that go?

In the long-term, my suspicion would be that most of our advertisers shift over to a CPC-based pricing format for their advertising.

What is the timeframe for that?

I can't really say.

It has shifted faster than we expected, and so we don't have a particular target for it in mind.

Over a couple years, I would expect it to be most of advertisers are shifting in that direction.

But again, don't know in the short-term.

As for the question about ad formats that we're exploring -- as we purchase advertising elsewhere, there have been a range of both on and offline formats.

And we have tried some app install ads.

Some of those looked fairly promising.

And there has been quite a bit of elasticity in there.

The good news is we know what we're willing to pay that's profitable for us, so we can tend to sort of stick there.

And as prices go up, then we just spend less.

And Brian, to your question about whether -- how much of the CPC product has been rolled out to the sales force -- it's been fully rolled out to the sales force.

We did that [going into] December of 2014.

Rob Sanderson, MKM Partners.

Thanks.

A few questions.

Just want to start with how much did the brand advertising miss, versus your expectations?

I'm just trying to reconcile the comment related to the impact on EBITDA, which you missed your midpoint by almost $4 million.

And you also missed your hiring expectations.

I'm just trying to figure out how much of this is really related to brand or other.

Thanks, Rob, for the question.

We'd say the majority of the brand advertising drove the EBITDA miss.

So there was probably a couple million dollars worth of brand advertising.

And because it's such a high-margin business, it really drove the adjusted EBITDA.

There is, obviously, a component to local because of the territory change that we made at the beginning of the year, which we reverted back to in March -- obviously, had some impact.

But when you're talking about what was the majority of the reason for adjusted EBITDA, it's really the brand advertising.

But there was other items that affected it.

Okay, got it.

And then you mentioned seasonality in Eat24.

I assume this means slower summer, bigger holidays.

Could you expand on that?

And how much higher in the Q4 period?

Or just some sense of [progressives] for the year would be helpful.

And tying, again, on the second-half acceleration question, I think the sales force -- or you feel the sales force geography change is behind you.

You're getting a full quarter of Eat24 in Q2, versus the stub in Q1.

And your Q2 guidance is 48% to 51% of revenue growth, if I'm doing the calculation right.

But your full-year guidance implies back half would be, then 52 % to 54%.

What should we be thinking about in the second half?

How much is seasonality Eat24, and what other factors, including step up and marketing spend?

How does that all fit together?

Thanks.

So a couple question s there.

So in terms of seasonality for SeatMe -- let me start there.

We did about $5 million in the quarter of Q1.

If you do -- that was on a stub period basis, so if you do it on a full quarter basis, it's about $9 million.

You can kind of expect the same in Q2, and that's kind of how we're thinking about it.

We're not going to specifically guide to individual line items of other, brand, or local, but that's, at least for Eat24, that's how we're thinking about it.

I think it does ramp in the fourth quarter, as you said, as well as first quarter next year, given the seasonality of the business.

But generally speaking, at least what we've seen from other competitors and in the market, Q2, Q3 is a little bit softer than Q4, Q1.

In terms of the question about second-half acceleration -- yes.

We believe that sales force misstep and productivity is behind us.

So we've reverted back to the geographic allocation, and we saw very strong return in March and continued strength in April.

So we think that's behind us, and that will, obviously, help drive acceleration throughout the rest of the year.

Plus, there's a piece of CPC that's modeled in here, as well.

As our business shifts to CPC, as Geoff was saying, there's a lot of product enhancements, if you will, that we can do.

We're not optimized right now because of the, I'd say, inventory nature of the business.

Given the fact that it's grown so fast, I think there's a line of opportunity there to help that product along and realize better realization on a bidding platform.

So I think that's why we're confident in the business.

And brand -- I think we entered the quarter, Q2, with a more robust pipeline than we did in Q1.

So there's some confidence behind our brand expectations for the rest of the year.

Thank you, ladies and gentlemen.

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