Yelp Inc (YELP) 2016 Q2 法說會逐字稿

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  • Operator

  • Good day, ladies and gentlemen, and welcome to the Yelp Inc. second (quarter 2016 earnings conference call.

  • (Operator Instructions)

  • As a reminder this conference is being recorded. I would now like to hand the floor over to Wendy Lim, Vice President of Investor relations. Please go ahead.

  • Wendy Lim - VP of IR

  • Good afternoon, everyone, and thank you for joining us on Yelp's second-quarter 2016 earnings conference call. Joining me on the call today are CEO Jeremy Stoppelman, and CFO Lanny Baker. Our new newly appointed Chief Operating Officer Jed Nachman, and our outgoing COO Geoff Donaker will also 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 of these forward-looking statement 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 will find additional disclosures regarding these non-GAAP financial measures and a reconciliation of historical net income to adjusted EBITDA and non-GAAP net income and GAAP EPS to non-GAAP EPS.

  • And with that I will turn the call over to Jeremy.

  • Jeremy Stoppelman - CEO

  • Thanks, Wendy, and welcome everyone. Second-quarter results were strong, highlighted by local revenue growth accelerating to 41% year over year. Revenue exceeded our expectations driven by upside across all sales channels, as well as slightly better-than-expected revenue retention.

  • That revenue outperformance helped grow adjusted EBITDA by 24% year over year, even as we invested for the long term. And based on these results we are increasing our outlook for the year.

  • Our strong financial performance reflects Yelp's pursuit of one simple and powerful mission -- connecting consumers with great local businesses. In the second quarter we connected consumers and local businesses more than 300 million times through mobile calls, clicks for directions and map views, food orders, restaurant reservations, and new reviews, and many other ways.

  • The number of Yelp power connections is growing faster today than it was a year ago, and it's this robust activity that drives our business model. With over 108 million reviews, our unmatched content and compelling product experience bring millions of consumers to Yelp every day. And our high purchase intent users are exactly what business centers are looking for -- potential customers.

  • In pursuit of our mission we made great progress on our three priorities for the year. And, as a reminder those are, driving awareness and engagement, building a large and diverse base of local advertisers, and developing our transactional capabilities.

  • To drive broader awareness of Yelp, we are investing in TV and online video advertising, as well as direct marketing. As we typically do with sizable investments, we are rigorously testing and measuring the effectiveness of these campaigns. And our tests in the second quarter show lifts in over a dozen different metrics. While we're still analyzing results from numerous tests we are encouraged by what we've seen so far.

  • To drive engagement with consumers and business owners, our product and engineering teams are focused on innovation. Our Request a Quote feature facilitated more than 1 million consumer inquiries in the second quarter alone. And we introduced to several enhancements that helped fuel this growth. We rolled out this feature to more categories, and we made it easier for consumers to find the most responsive businesses. We also recently began testing functionality to allow consumers to share pictures with their quote requests.

  • Another area of focus is the business owner app, which contributed about one-third of all logged-in traffic to Yelp business owner accounts in the second quarter. Traffic on the business owner app has doubled since the start of the year as we launched new reporting, messaging and advertising management features.

  • Our second priority for 2016 is growing our core local advertising business. This starts with delivering compelling returns through Yelp advertisers. To achieve that objective we are providing performance-based solutions for advertisers of all sizes, from independent small businesses all the way up to national brands. And we're working to maximize the efficiency of our ad technology to drive advertiser ROI.

  • To better demonstrate the value of Yelp, we are also investing in business owner tools and sales and account teams.

  • The results from all of these efforts have been encouraging. Over the last year we generated over $0.5 billion in local revenue and grew our base of local advertising accounts by 32%.

  • A great example of how we are delivering results for advertisers is our work for Regal Entertainment Group, one of the largest cinema operators in the US. Regal began advertising on Yelp last year and experienced dramatic increases in website traffic and high converting leads. In fact, they've seen consumers who find Regal theaters on Yelp spend more time on their site and buy tickets at a much higher rate than through any of their other online advertising channels. To drive even more value, our national account team is working directly with Regal to identify new opportunities, such as complementing their program with targeted local advertising around new releases.

  • Our final priority for the year is expanding our transactions offering. And we're also achieving great progress in this increasingly important part of our business. Total transaction volume grew almost 50% year over year in the second quarter, totaling nearly 6 million transactions and bookings via Yelp 24, Yelp Reservations and Yelp Platform.

  • In the second quarter we made it easier for consumers to find and transact with local businesses by improving the search filters and streamlining checkout. We also added five new partners to Yelp Platform. Now consumers can transact directly with more than 100,000 local businesses through Yelp Platform, across a growing array of categories.

  • Today we're also announcing a partnership with, and small investment in, Nowait, a mobile platform that allows restaurants to manage their wait lists, and lets diners get in line remotely. With over 4,000 restaurants using the product, the Company has already seen considerable traction. Our partnership with Nowait enables us to continue to expand our consumer offering in restaurants, one of our most important and highly trafficked categories. In the coming months, Nowait will be integrated onto the Yelp platform, enabling our consumers to see current wait times at thousands of restaurants and get in line via the Yelp app when there is a wait.

  • In summary, we are making great progress on capturing the enormous opportunity in the local markets. Our strong second-quarter results demonstrate the vitality of our products and our relevance with both consumers and merchants. By focusing on product innovation and growing awareness, we are confident that we will continue to expand on and deepen the millions of valuable connections between consumers and local businesses that will drive our business today and for the years to come.

  • Before I turn the call over, I'm pleased to announce that Jed Nachman has been appointed as Chief Operating Officer effective today. Since joining Yelp in 2007, Jed has grown the revenue organization from 10 people to over 2,400 team members, and has brought a tremendous amount of energy, leadership, and accountability to the Company. Jed is already an integral member of the executive team and I'm confident he will build on the great work he and Geoff have done to create a high-performing revenue and operations organization.

  • As Jed takes on this new role, Geoff Donaker will be retiring from the COO position. Geoff will continue as a strategic advisor to the Company and retain his seat on Yelp's Board of Directors. I'd like to thank Geoff for all of his contributions over the last 11 years, as he has played a crucial role in Yelp's growth and success. I value his advice and our partnership, and I look forward to Geoff's continued involvement in Yelp's future.

  • Now I'll turn it over to Lanny.

  • Lanny Baker - CFO

  • Thank you, Jeremy. I'm delighted to be here and really excited to be working with everyone at Yelp to fulfill our mission. Before I discuss the second quarter and our updated outlook, I think it might be helpful to share a couple of my initial observations about Yelp's business.

  • First, I've been impressed to see how well diversified and therefore defensible Yelp's core business is. No single customer represents more than 0.5% of total revenue; no single geographic market is more than 15% of revenue; and even our largest category, home and local services, comprises less than one-third of local revenue.

  • When you look at where our revenue growth is coming from, Yelp is still producing annual revenue growth rates of 30% to 40% on average, even in our longest-standing markets. To me, that makes Yelp a broad-based and very local business, one with significant operating scale and nationwide reach that would not be easily or inexpensively replicated.

  • Second, the mechanics of Yelp's business and its business model provide significant near-term revenue visibility. As we enter the second quarter, Yelp had advertising commitments representing nearly three-quarters of the local revenue we expected to generate in the quarter. And that is similar for the third quarter. That near-term visibility and revenue predictability allows Yelp's sales, marketing and product development teams to focus on pursuing growth well beyond the current quarter.

  • Third, as you may have heard me say before, Yelp's sales engine has multiple cylinders driving overall revenue growth. The vast majority of our sales organization is dedicated to broadening Yelp's local coverage by selling to small independent businesses.

  • This core local sales organization of 2,000-plus reps is a large and effective team, and our local sales model delivers attractive and highly predictable rates of return on the investments we're making there. In the second quarter the core local team generated more than half of the year-to-year increase in local revenue, and grew small business advertisers in the segment by nearly 30% year over year.

  • Next is the national and multi-location segment, where our smaller, specialized sales team is pursuing new blue chip advertiser accounts, like 24 Hour Fitness and TGI Friday's, which we added in the second quarter. In this advertiser segment, account penetration is an important driver of growth, accounting for three-quarters of the segment's revenue increase in the second quarter. This is a big opportunity since even with our largest national accounts, Yelp's share of wallet remains very small, with low single-digit or even fractional shares.

  • Revenue per customer, revenue per sales rep, and revenue renewals in the national segment are larger than in the core local business, and we're expanding our national sales team to address the opportunity here.

  • And then there is the self-serve channel where revenue more than doubled from the year-ago quarter, powered by Yelp's marketing and product efforts. While it represents a small portion of local revenue today, self-serve is already achieving strong growth in advertiser accounts, as well as increased spend per advertiser.

  • Our self-serve advertisers have different spending patterns than those we serve by our local sales team. They have lower budget commitments and tend to advertise more opportunistically. We are still experimenting to find the optimal mix of products in marketing and self-serve, and yet we believe self-serve can be a meaningful source of customer growth, operating leverage, and profitable growth over the long run.

  • Now, I'll turn to the second-quarter results and then the 2016 outlook. As Jeremy mentioned, we had a strong second quarter with revenue and adjusted EBITDA both exceeding our expectations. The upside came from a number of sources, most of which we believe were related to internal execution rather than external trends.

  • Our core local ad business was stronger than we anticipated, and that upside flowed through to adjusted EBITDA, as expenses were consistent with our expectations. Total revenue for the second quarter of 2016 was $173 million, a 30% increase from the second quarter of 2015.

  • Excluding the elimination of brand advertising on Yelp, the underlying revenue growth rate was 38% year to year in the second quarter. Local revenue was $152 million for the second quarter. And new account growth among small local businesses was the biggest driver of the increase from $108 million in the prior year.

  • Relative to our expectations, revenue in the local, national, and self-serve channels all modestly outperformed. And we saw slightly higher than expected revenue retention across our customer base.

  • Transactions revenue was $15.5 million for the second quarter of 2016, up 37% from the same quarter of last year as we have now lapped last year's acquisition of Eat24. And other revenue was $6 million for the second quarter, in line with the first quarter.

  • Turning to expenses, cost of revenue was up 16% year to year in the second quarter to $15 million. We leveraged Yelp's scale and architecture to increase gross margins by 1 percentage point relative to a year ago, despite the elimination of brand advertising at the end of last year.

  • Sales and marketing expense was $94 million in the second quarter of 2016, up $26 million or 39% from the same quarter of 2015. Our $12 million investment in advertising accounted for $7 million of the year-over-year increase in the second quarter. The rest was related to higher commissions and sales compensation, reflecting higher revenue levels as well as growth in our sales force.

  • Sales and marketing expense as a percentage of revenue was 54% in the current quarter, down from 60% in the first quarter of this year and up from 51% in the second quarter of last year. Nearly all of that year-to-year increase is tied to our marketing investments.

  • Product development expense was $33 million for the quarter, up 26% from a year ago, reflecting new hires and investments that are propelling Yelp's sustained product momentum. As a percentage of revenue, product development expense declined to 19.1% in the second quarter, down 60 basis points from the prior year, and 120 basis points lower than the first quarter of this year.

  • General and administrative expenses were $23.5 million for the second quarter, up $4 million or 22% year over year. Depreciation and amortization and grew 19% year to year, totaling $8.6 million for the second quarter. Both G&A and D&A declined as a percentage of revenue, and together provided a little more than 1 point of margin leverage year to year.

  • GAAP net income was $450,000 or $0.01 per share in the second quarter compared to GAAP net losses of $1.3 million and $0.02 per share in the second quarter of 2015. Yelp's second-quarter 2016 adjusted EBITDA was $28 million, up 24% from $23 million in the second quarter of 2015. And we ended June 2016 with no debt and $398 million in cash and short-term investments on the balance sheet, up $27 million from the end of 2015.

  • Let me now turn to our business outlook. Based on the strong first-half performance and the breadth of momentum within the local advertising business, we are increasing our outlook for 2016. We now anticipate revenue for the fiscal year to be in the range of $700 million to $708 million, which equates to 28% growth from 2015 at the midpoint.

  • Given the increased revenue outlook for 2016 and the upside in adjusted EBITDA in the second quarter, we are also increasing our adjusted EBITDA outlook for the year. We now anticipate adjusted EBITDA in the range of $100 million to $108 million for 2016 versus $69 million in 2015, which represents a 50% increase at the midpoint of our outlook.

  • Stock-based compensation is expected to be in the range of $85 million to $87 million. And depreciation and amortization is expected to be approximately 5% of revenue for the year.

  • We're also providing an outlook for the third quarter, as outlined in the earnings release. We expect revenue to be in the range of $180 million to $184 million in the third quarter, up 27% year over year at the midpoint. As in the first half, we expect local revenue to continue to be the leading contributor to revenue growth in the third quarter.

  • We expect adjusted EBITDA for the third quarter to be in the range of $24 million to $28 million. Stock-based compensation is expected to be in the range of $21 million to $23 million. And D&A is expected to be approximately 5% of revenue in the third quarter.

  • In closing, Yelp had a strong second quarter propelled by solid execution in our core local advertising business. We also made investments in product, marketing, and in our sales force, while beginning to reaccelerate year-over-year growth in adjusted EBITDA this quarter.

  • As we look ahead, we see enormous opportunity within local advertising and transactions, and we remain focused on attracting more consumers and more businesses to Yelp, and making the connections between them that are at the heart of our mission and our business model.

  • With that we will open up the call for questions.

  • Operator

  • (Operator Instructions)

  • Brian Nowak, Morgan Stanley.

  • Brian Nowak - Analyst

  • Thanks for taking my questions. I have two. The first one, I think last quarter you called out some ad budget fulfillment changes that led to faster revenue per account growth. How big of a tailwind was that in the second quarter? What would the revenue per account have looked like excluding that?

  • And the second one, the users came in a little bit later than we expected. I think desktop fell off quite a bit. Can you just talk about your thoughts on long-term customer acquisition and a way to reinvigorate user growth? Thanks so much.

  • Jed Nachman - COO

  • Hi, Brian. This is Jed, on the budget fulfillment question. There were no step function improvements in budget fulfillment, similar to the ones we saw in Q1. From an ARPU perspective, as we've stated in the past, that's not something we managed to directly, save for the fact it impacts revenue in general.

  • We did see slight improvement across all segments. And it's important to dig a little bit deeper on the various segments that includes, which would be self-serve, national. Clearly national is going to have a higher ARPU, self-serve generally a lower ARPU. So, no silver bullet there in terms on the ARPU side.

  • Jeremy Stoppelman - CEO

  • This is Jeremy. I will touch on the user growth question. Really, what's happening there is the continued shift to mobile. So, you can see mobile growth remains strong at 27% year over year, with 23 million app uniques.

  • And if you look at our overall penetration, it's 38% in the US, which is great but leaves a lot of headroom. So, we feel like there's still a lot of room to grow. The web is mature and so desktop is in a slight decline, and mobile web growth is a little soggy there, as everyone moves over to apps.

  • Brian Nowak - Analyst

  • Thanks.

  • Operator

  • Thank you. Mark May, Citi.

  • Mark May - Analyst

  • Thanks a lot. I think this one is directed probably at Lanny. I'm not sure if you commented last quarter but previously there was some guidance or expectations, the target goal or whatever you want to call it, for $1 billion in revenue. I think it was for next year. I'm wondering what your thoughts are around that previous target. Is that something you would still feel comfortable with?

  • And more of a housekeeping question, I wonder if you could update us on your YP partnership, how that's going? Maybe give us a sense of how much it's contributing to revenue. And remind us where that's looked. Is that in local advertising? Thanks.

  • Lanny Baker - CFO

  • Sure. Let me take the first one, the long-term targets for the Company. I think with the size and scale that Yelp has today and the momentum that we've got, I think getting to $1 billion is something that we feel really confident about, the timeframe of which we haven't provided an outlook for next year. We've given an outlook of $700 million to $708 million for this year in revenue.

  • We will get to $1 billion. We're moving along at a pretty quick clip right now, ex the brand, winding down the brand. The Company's growing at 38% and we've been accelerating in the main wheelhouse, which is the local business. That's the outlook we provided today and we feel good about getting there in due time.

  • On the topic of the YP partnership, they are a very valuable partner to us. They are a portion of the revenue that you see reported in the other revenue line. It's a healthy partnership. It's been in place for a while and we continue to be excited about working with them. Finding ways to distribute Yelp's valuable local business service products as widely as we can is something we are all about and they are helping us do just that.

  • Operator

  • Thank you. Mark Mahaney, RBC.

  • Mark Mahaney - Analyst

  • Thanks. I was wondering if you could talk a little bit more about those transactions accounts. I think you said it's over 100,000, or there are over 100,000 businesses that are enabled for transactions on Yelp. Of those, how much overlap is there between that and the local advertising accounts?

  • Can you give us a sense of how big that number could be in the future? If you think about the total number of claimed local businesses, how many of those could be transactions partners, something to help us gauge how early stage you are in building out that transactions capability. Thank you.

  • Lanny Baker - CFO

  • Great question, Mark. There are 20 million-some businesses in the Yelp index. There are 3 million-plus that have claimed their presence on Yelp. There are 128,000 that are active advertisers. And now there are 100,000 businesses that are connected for transaction capability.

  • And I think that you should think of our market opportunity along those lines in terms of the total addressable market, our ability to market ourselves into a presence and a relationship with businesses and then to bring them into our suite of services that can help them find, acquire and transact with their customers.

  • I think we have made probably the biggest push in our highest velocity and volume frequency category, being restaurants, with Eat24 for ordering and some delivery, for Yelp Reservations, for that whole side of things, and then also through the investment we made in Nowait, the whole wait list category. We see lots of opportunity to broaden that transaction capability beyond just restaurants.

  • Request a Quote, n a way, I think, it's like a glimmer of sunlight coming up over the horizon of where we go. Our users want to use Yelp to interact with businesses. We are enabling them today to evaluate -- can you serve my need, can you give me a quote. And in time we'll figure out what are the right ways that we can really support, facilitate, enable smooth and make convenient that transaction process.

  • We are, I think, in very early stages with the whole transaction opportunity for Yelp, and it's a matter of product, marketing and sales that will get us there.

  • Mark Mahaney - Analyst

  • Thank you, Lanny.

  • Operator

  • Thank you. Douglas Anmuth, JPMorgan.

  • Douglas Anmuth - Analyst

  • Thanks for taking the questions. One for Jeremy and one for Lanny. First, Jeremy, you mentioned the slightly better revenue retention. I think the 78% is the highest you've had in repeat rate. Can you just talk about what you attribute this to, if there is something specific there you can point to.

  • And then second, Lanny, you talked about commitments already in place for three-quarters of the 3Q guide. Can you just step back and give us a sense of when you typically get visibility into a quarter? And is there something different here about what you're seeing into 3Q versus what you've seen over the last few quarters going in? Thanks.

  • Lanny Baker - CFO

  • Doug, let me jump on the visibility comment. And, really, one of the things I'm trying to do as I've come into the Company and have a rare opportunity to speak with fresh eyes about what I see inside this business. One of the things that really is notable to me is that I think sometimes there is a perception that there's a lot of in and out, over and over, through our revenue base. And when you actually look at it there's quite a bit of predictability and visibility.

  • We have a lot of one-year annual contracts. We have a lot of less than one year but multi-month contracts. We have a really big volume of people who are coming through the self-serve channel and committing to business. And that gives us quite a bit of a mobility. So, we go into the quarter with pretty good amount of visibility, as I said.

  • I don't think that's wildly different than -- I'm not trying to note that that is higher or lower or moving up and down relative to the history. I'm just saying, that's a fact of this business that I think is an important one that allows us to be thinking about a little bit -- much further out, frankly -- than just the current quarter or next quarter.

  • Let me jump onto the other question about revenue retention. We did do a little better than we thought what we anticipated for this quarter. It was within historical ranges. We did not break into brand-new territory on account renewal and revenue renewal.

  • But I think that there are bunch of things at play there. There is certainly some upsell activity that's going on. There is product efforts that we have that are about delivering to our businesses things like request a Quote, and better visibility through the business owner app into the return on their marketing spending with us. There are things on the marketing front, such as email messages and other notifications, that we have going out to business owners about the performance of their Yelp advertising and their competitive presence within their category.

  • And then there are sales things were doing, as well. In our national account and multi-add account, for a long time Yelp has had client service reps who follow-up after the sale. And we've begun to experiment with that in the local market, as well, because we've seen success with it in the national multi-location. We've started experimenting with that a little bit in the local markets.

  • And all of those things, small improvements across sales, product, marketing, really helped us with the retention numbers we saw this quarter. And it turned out better than we thought.

  • Douglas Anmuth - Analyst

  • Great. Thank you. Very helpful.

  • Operator

  • Thank you. Lloyd Walmsley, Deutsche Bank.

  • Lloyd Walmsley - Analyst

  • Thanks. Two, really, for Lanny, if I can. First, you've had two quarters in a row of what looks like pretty nice Q-over-Q growth in local ad revenue dollars. Can you just give us an update on how sales force productivity looks across cohorts and what gains you think you can see going forward?

  • And then, just secondly, wondering if you can give us an update on category and geographically where your inventory sell out is. Is the top-line opportunity constrained by traffic growth, or do you have plenty of availability across key categories in key geographies? Anything you could share there would be great.

  • Lanny Baker - CFO

  • Sure, Lloyd. Since Jed is here, he's the man to talk about what's going on with the sales force.

  • Jed Nachman - COO

  • Sure. Thanks for the question, Lloyd. In terms of sales force productivity, obviously we're really pleased with the strong performance this quarter. The team basically executed really well against their targets. We saw it across multiple channels, moderately beating across multiple channels. There was no single silver bullet that actually contributed to the performance.

  • It's also important to remember a lot of the stuff that's manifesting itself today is a result of stuff we did in prior quarters. When you look at all the input to that productivity number on a spreadsheet, it may feel like one single number. And the way we look at it is more the national segment, the franchise segment, the midmarket segment, the inbound, the self-serve. So, a variety of components that go into that and variety of tenure levels within those components.

  • But the team continues to get better and the products continue to get better, so we're really pleased with it.

  • Lanny Baker - CFO

  • Let me talk about the geographic concentration and inventory constraints. I think across the grand reach of Yelp, there is plenty of inventory to deliver to our advertisers. When you look at 23 million people on the app and over 100 million by the count of desktop and mobile web users, and then 128,000 advertisers across our categories, we've got a very deep pool of inventory to deliver to businesses. And that's one of the reasons we continue to invest in expanding our sales force.

  • When you look at the various categories, our biggest category, home services, that's a category that's growing 50% year over year for us. Even in some of the biggest areas where we've been most well penetrated, you can see it in the cohort analysis by markets, too, we still continue to generate lots of growth that reflects that there's a ton of opportunities still within the audience in the reach that we currently have.

  • Lloyd Walmsley - Analyst

  • Great. Thanks, guys.

  • Operator

  • Thank you. Stephen Ju, Credit Suisse.

  • Stephen Ju - Analyst

  • Thanks. Jeremy, I think in the past you've talked about app users searching more and being more engaged. And I think you called out once again on slide 8 of the deck. Are there any anecdotes you can share about the mobile web users' engagement levels, as well?

  • Secondarily, is the rate of contribution from the mobile app or web user higher than desktop, as well? Okay. Thanks.

  • Jeremy Stoppelman - CEO

  • Sure. Let me just write this last one down so I can track all your questions here. App user engagement, yes, we've said before it's about 10X what we see with web users. So, when we look at web users, I think web desktop and web mobile probably have more similar characteristics than comparing to app, which is to say users are coming in and coming out a little bit faster on mobile web, more likely to be logged out, as well.

  • And then on the mobile app contribution side, we got a large portion of our contributions, both reviews and especially photographic, I think about 90% of our photos are coming from mobile app. So, it is an incredible source of content and it's something that we were very thoughtful about.

  • I know you've followed the Company for a long time, but it took us a while before we were ready to put out mobile reviewing because we were concerned about content quality. But our hard work and taking our time paid off and the content quality there remains strong. So, we feel pretty good about contributions on mobile app.

  • Stephen Ju - Analyst

  • Thank you.

  • Operator

  • Thank you. Brian Fitzgerald, Jefferies.

  • Brian Fitzgerald - Analyst

  • Thanks. Curious -- you launched Yelp Knowledge with the likes of Medallia and Sprinklr and more. What's been the early feedback there? And is this another way to monetize your data or is it more about driving brand awareness and ultimately engagement and usage with the businesses? Thanks.

  • Jeremy Stoppelman - CEO

  • Thanks for the question, Brian. This is Jeremy. With Yelp Knowledge I think it's both. I think there is a business there, demand for high-quality Yelp data.

  • And what we've also found is it gives us exposure to companies that otherwise we might not have as easy a dialogue with. As you think about the complexity of our sales business, we're talking about where we have national segment, and we're very excited about some of these deals give us better access directly to talk to some of these national folks.

  • I think it hits multiple cylinders. It's not going to change the game or change the revenue picture for Yelp overnight. But I think there's real demand for the unique insights that Yelp can provide and it also opens up doors for us.

  • Brian Fitzgerald - Analyst

  • Got it. Thanks.

  • Operator

  • Thank you. Aaron Kessler, Raymond James.

  • Aaron Kessler - Analyst

  • Great. Thanks. A couple questions. First, international, if we think about monetization there, I think revenues picked up nicely in the quarter, about $500,000. Also, just any benefits you're seeing at this point maybe from the customer dashboard or the ROI dashboard in terms of customer retention. Thank you.

  • Jeremy Stoppelman - CEO

  • On international monetization we have made some progress there. In general, we obviously remain primarily focused on the domestic market, which is where the real majority, vast majority of the business remains.

  • On the consumer side things continue to be okay. Distribution, we've seen some issues there. So, we've been doing some experimentation on the distribution side.

  • But content growth remains quite interesting. We're about 20% year over year in increased content. So, it continues to be something that we make a modest investment in, but it's just a smaller part of the business right now.

  • And then your other question was impact of advertiser dashboards on ROI?

  • Aaron Kessler - Analyst

  • Impact on customer retention.

  • Jeremy Stoppelman - CEO

  • Yes. I don't know that I'd draw a direct correlation between the dashboards and showing of ROI to customer retention. Although we believe it can't be hurting. There's a very broad base of customers out there. Some are working off of an emotional basis, some are really interested in ROI.

  • Certainly the ability to separate organic from paid leads has been an important tool for both our account management team as well as our sales team. We're encouraged so far but I wouldn't draw a direct line to how -- I wouldn't say that's the reason why we've experienced to date the better revenue retention.

  • Aaron Kessler - Analyst

  • Got it. Thank you.

  • Operator

  • Thank you. Peter Stabler, Wells Fargo Securities.

  • Peter Stabler - Analyst

  • Good afternoon. Thanks for taking the question. Lanny, I wanted to go back to a couple of your comments, and if you could just clarify it for me a little bit. Moving fairly fast. You talked about the relative contribution of local advertisers versus national, and read out some numbers. Realizing it all rolls up into local ad revenue but just the different segments.

  • And then, secondly, a quick question for Jed. In terms of the contract duration, I know you guys have a lot of year contracts. As more advertisers roll off of their year contracts and go to month to month, do you see potential for the average contract duration rate to decline? Thanks so much.

  • Lanny Baker - CFO

  • Sure, hey Pete. I think that thinking about our local revenue, there are the three pieces in there. We've said in the past, I think we said a quarter ago, that the multi-location national piece is about 20%. Though we haven't given you a percentage, the self-serve is pretty small. So, you can get a sense there of how that lays out.

  • In the local piece where it's small individual businesses, the bulk of the growth that we are generating in that market is coming from adding new accounts. There's a little bit coming from revenue per account but mostly the vast majority of the growth is coming from adding new accounts.

  • In the national area it's the inverse. We're adding accounts at a great pace but there's such a big opportunity to penetrate the budget of those big national brands in lots and lots of locations.

  • And then in self-serve, it's almost evenly balanced between new accounts and some things that we're doing on checkout flows and marketing and promotion and the pricing, and all that, around that channel. So, the growth is really pretty evenly balanced between customer count and revenue per customer right now.

  • Jed Nachman - COO

  • And, Peter, in terms of contract duration we've been under the current structure for quite a while now. As you would imagine, as folks get towards that month 12, there is a natural customer attrition, although we continue to make improvements in that area.

  • We do, in fact, have 3- and 6-month contracts. I think a lot of the viewpoint is let's customer buy in the way they want to buy, and that's not only 12-, 60, and 3-month contract, it's also on the self-serve side, as well, which we're seeing nice growth, albeit not as a large part of our revenue right now.

  • A lot of really good signals coming from that segment. We'll be looking across all different durations in terms of how we allow Yelp to be bought. We don't want to be restricted in that in any way.

  • Peter Stabler - Analyst

  • Thanks, guys.

  • Operator

  • Thank you. Heath Terry, Goldman Sachs.

  • Heath Terry - Analyst

  • Great. Thanks. Can we dig a little bit more into the comments you had around international, just a bit of an update on how you think about your footprint internationally now from a user perspective, whether you want to talk about international app users or percentage of traffic that's coming from international? And then just where it sits in terms of your list of priorities, given the fact that you're starting to see some traction in some of the investments that you've made in domestic.

  • Jeremy Stoppelman - CEO

  • On the international side, we have to keep it in perspective where it's all part of our revenue picture. So, therefore, a lot of our focus is on deepening our relationship with advertisers and consumers in the US. That's where their business is.

  • We still feel encouraged by what we're seeing there with 20% contribution growth. But there's some distribution challenges and we're trying to unlock additional distribution. We've talked pretty openly about how Google made our life a little bit more difficult there starting a couple years ago, and we haven't seen a real change. We have material traffic internationally, but it's just not growing the way we would like it to, so we have some focused efforts there to try and unlock more.

  • Heath Terry - Analyst

  • Okay. Great. Thank you.

  • Operator

  • Thank you. Tom White, Macquarie.

  • Tom White - Analyst

  • Great. Thanks for taking my question. Just one on the guidance. It looks like the [pod] revenue outlook for the back half goes up nicely in excess of the beat in the second quarter. But it looks like you're holding the outlook for EBITDA, or the implied outlook for EBITDA, two quarters of the year. So assuming my arithmetic is right, any color there. Is that just maybe some of the client service rep investment in local that you touched on?

  • And then maybe just a bit more color around your early learnings from this marketing spend. Should we be surprised or are you surprised that maybe there isn't a more meaningful pickup in some of the usage stats, given the big year-over-year increase in marketing? Any early learnings or how you're thinking about that, maybe for the next couple of years, would be great. Thanks.

  • Lanny Baker - CFO

  • Sure, Tom. This is Lanny. On the adjusted EBITDA, I think we had, frankly, a stronger result than we anticipated for this quarter. As we look at the rest of this year and the outlook that we are providing, which, as you said it is increased, and as we said, it's a 50% increase at the midpoint of the range, it feels like there are numerous investment opportunities that are really compelling for us to continue to evaluate and pursue. And those are on our mind and our plan. That's how the outlook shakes out.

  • From a marketing perspective -- it is probably in some ways tied -- we've said at the start of the year that we would spend up to $50 million on advertising, TV and online video and direct marketing push. Through the first six months of the year we spent, I think, almost exactly $25 million, so we're on pace for that.

  • And that campaign, it's not really about driving mobile downloads. Is not about driving traffic today. It's really about, our primary objective has been awareness, familiarity, consideration of Yelp. And it's really been that brand identity push of Yelp as this utility to help you across all categories. That's been the focus.

  • I will say that as you launch these kind of campaigns in a company like this, where you have an online business, you're inclined to measure everything. And we've been measuring that marketing spending very carefully.

  • One of the things we've done in the last few months was we took five cities that we paired up -- five cities per marketing spend that we paired up with five cities where they were similar size, similar in nature, where we weren't going to do any marketing spend. And then we blew that marketing, invested it in those places, in those five cities, and we compared the results across a broad array of things that included awareness and familiarity and consideration, but also included traffic and page views and engagement and leads and everything. There were really significant impacts from that marketing effort in that experiment where we had to set of local controls to match against the markets where we really pushed it hard.

  • It's those kind of opportunities that are there in front of Yelp to make that tie back to your first question. We're really happy where we are. I don't think we've solved every last riddle with how you do marketing for a company like this, but we are really encouraged by what we're learning so far.

  • Tom White - Analyst

  • Great. Thanks for the color.

  • Operator

  • Thank you. Kerry Rice, Needham.

  • Kerry Rice - Analyst

  • Thanks a lot. Great quarter, guys. A question on sales force hiring. I think, Lanny, you had previously said you expected to hire at a growth of about 25%, 30% for the year. For the first half it's been considerably higher than that, closer to 40%. With the raised guidance, are you also thinking about an accelerated hiring phase in the second half or does it come down?

  • And then maybe just one clarification, a follow-up on the last question around marketing. I thought that previously it was stated that that $50 million, a larger chunk of that would be used in the first half of the year versus the second half. Has that changed a little bit? Have you moved things around or am I misunderstanding what was previously said? Thank you.

  • Lanny Baker - CFO

  • Let me take the marketing question. We're at $25 million on a plan to spend less than $50 million and there's been no change. So, those numbers I think are pretty much exactly what we anticipated.

  • Kerry Rice - Analyst

  • And in terms of headcount, Kerry -- this is Jed -- we saw 34% year-over-year growth in Q2. We're happy with that right now. Our retention and hiring trends are in line with historical. And we still feel really confident in the 20% to 30% range for the full year. And nothing has materially changed there. Thank you.

  • Operator

  • Thank you. Ron Josey, JMP Securities.

  • Unidentified Participant - Analyst

  • Hi guys, this is [Shweda] for Ron. Jed, congrats on the new role. How do you see your role as the year evolves over time given your background? Any change from the current structure? Thanks.

  • Jed Nachman - COO

  • Sure. Luckily I've been mentored by Geoff, who is sitting in the room here, for, I think it's close to 10 years now. We've worked very closely together. And increasingly I've been taking on more responsibility within the Company, and have been participating in other areas. Those would include marketing, our business operations team, the Eat24 business. So, I feel really comfortable.

  • I couldn't be more excited to be taking the role at this time. Our Company is in a really healthy place, both financially as well as the leadership team in place. And overall when I look at the TAM of this market, and the fact that we have guidance on $700 million in revenue in a $100 billion market, things are pretty encouraging.

  • We continually hear great feedback from our customers, the ROI they are receiving from Yelp. So, it's a really cool time to be stepping into the role and I thank Geoff for paving the path.

  • Unidentified Participant - Analyst

  • Great. Thank you.

  • Operator

  • Thank you. And that concludes our question-and-answer session for today. And it concludes our conference call. We thank you for your participation and you may now disconnect. Everyone, have a good evening.