Yelp Inc (YELP) 2016 Q4 法說會逐字稿

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  • Operator

  • Good day, ladies and gentlemen, and welcome to the Yelp Inc.

  • Q4 2016 earnings conference call.

  • (Operator Instructions)

  • As a reminder, this conference is being recorded.

  • I would like to introduce your host for today's conference, Mr. Ron Clark, Head of Investor Relations.

  • Sir, please begin.

  • - Head of IR

  • Good afternoon, everyone, and thanks for joining us on Yelp's fourth-quarter and year-end 2016 earnings conference call.

  • Joining me today on the call are CEO, Jeremy Stoppelman, and CFO, Lanny Baker.

  • Our Chief Operating Officer, Jed Nachman 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 this, the date of this call, and we undertake no allegation to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events.

  • In addition, we are subject to a number of risks that may significantly impact our business and financial results.

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

  • During our call today, we'll discuss adjusted EBITDA and adjusted EBITDA margin, which are non-GAAP financial measures.

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

  • And with that, I'll turn the call over to Jeremy.

  • - CEO

  • Thanks, Ron, and welcome, everyone.

  • Our strong 2016 results reflect the successful execution of our priorities for the year.

  • We grew local revenue 39%, compared to 2015 by driving strong productivity in our local SMB business, while also expanding our go-to-market strategy.

  • We unlocked significant potential in the self-serve channel, doubling revenue with better marketing and improved merchandising.

  • International, and multi-location business, tailored ad solutions, and salesforce growth drove client spending higher.

  • We also made excellent process in building our transaction capabilities.

  • The number of Yelp Eat24 orders, Yelp platform transactions, and Yelp reservations bookings grew 40% in 2016, and transactions per user increased by more than one-third.

  • Across Yelp, we expanded the number of transaction-enabled businesses and categories, and improved conversion through efforts such as streamlining the check-out process.

  • With the integration of Nowait, we also added the ability for consumers to remotely join wait lists at approximately 3,600 restaurants.

  • We were particularly excited to facilitate more than 4.5 million consumer inquiries through Request-A-Quote in its first full year.

  • Increasing awareness and engagement was another important goal for 2016, and we saw great results.

  • Our ad campaigns drove awareness and familiarity to their highest levels, and reached over 200 million consumers on television and online.

  • On the product side, surfacing the best content, and providing actionable suggestions and reminders contributed to a more engaging user experience.

  • Our ad campaign and focus on product helped propel Yelp into the top 30 in Apple's App Store by the end of the year, with app unique devices up 25%, and page views per user growing approximately 20% compared to 2015.

  • Executing well on these priorities sets Yelp up for continued growth in 2017, and we're excited about the potential we see in the year ahead.

  • Local advertising dollars continue to shift online at a fast pace.

  • In fact, a recent BIA/Kelsey report forecasted that within the next two years, local ad spending in digital media will surpass local print media for the first time.

  • To capture more of this large opportunity, we're focusing on three priorities for 2017, driving usage and engagement, increasing transaction activity, and broadening our sales strategy.

  • To drive usage and engagement, we plan to invest in product and performance advertising.

  • Coming into the year, we've started allocating a greater proportion of our advertising budget to direct marketing, with the objectives of increasing app usage, spurring transaction volumes, and attracting new business customers to Yelp.

  • With mobile users already generating the majority of new content and ad clicks, driving mobile activity should also increase the value of Yelp to consumers and businesses.

  • To do so, we are focusing on in-app messaging to bring consumers closer together with businesses.

  • We're also providing app users with refined search options, and adding social features that better facilitate sharing.

  • Growing transaction activity remains a top strategic objective this year.

  • A recent Nielsen study indicates Yelp is the review site consumers used most often to find great local businesses in over a dozen large categories.

  • To get more of these consumers to take the natural next step, and transact directly with the business they discover on Yelp, we plan to further embed transaction functionality throughout the user experience.

  • As I mentioned a moment ago, we're testing performance marketing to promote awareness around our transactions capabilities.

  • Since the start of 2017, we've begun to extend Request-A-Quote to logged out traffic, providing millions more users with the seamless ability to connect with the merchants and service providers they're looking for.

  • While we are still in the experimental stages of Request-A-Quote monetization, we're learning quickly about consumer needs, and business center preferences.

  • Finally, we're broadening our sales strategy to tap into more of the revenue opportunity from existing customers, new advertisers and new products.

  • In 2016, our efforts around self-serve and national helped drive revenue growth, while improving the efficiency of our model, and we're pursuing a number of initiatives to continue to drive profitable long-term growth.

  • For years, we have provided our national and multi-location advertisers with client partners.

  • We now have client partners serving our large and growing base of local SMB advertisers, helping them get better results.

  • To provide large- and medium-sized advertisers with greater access to Yelp ads, we've started to work with select agencies and resellers.

  • Lastly, we're piloting new products for national multi-location advertisers to improve their ad targeting.

  • I'm extremely proud of what our employees have accomplished, not just in 2016, but over the nearly 13 years since our founding.

  • When we went public in 2012, one of our goals was to achieve ubiquity, and we've made great progress, from being featured in segments on the Tonight Show and Ellen, to powering local search in Apple's iOS, to being used as a verb in everyday conversation, consumers have come to know and rely upon Yelp.

  • As a leader in local search, and with the trust we have established along the way, we have a tremendous opportunity in front of us.

  • We believe expanding Yelp's reach, and creating deeper connections between consumers and business owners will help us capture even more of that opportunity in the years to come.

  • With that, I'll turn it over to Lanny to take you through the numbers.

  • - CFO

  • Thank you, Jeremy.

  • Yelp had an excellent 2016, in which local revenue growth was in the high 30% range, and our advertising revenue engine grew stronger as national and self-serve added to customer reach and sales efficiency.

  • [Connection] revenue grew by 40% in 2016, and we achieved substantially higher levels of overall cash flow, even as we cycled past the phase-out of our brand ad product, upped our marketing investment, and advanced the Yelp product experience for both consumers and business.

  • We look to build on these accomplishments in the coming year, with a focus on the priorities Jeremy just outlined.

  • Turning to the results, Yelp's total revenue grew 27% year-to-year in the fourth quarter to $195 million, bringing full-year 2016 revenue to a total of $713 million.

  • Excluding brand ad sales, revenue grew 33% in the fourth quarter, and rose 37% for the full-year of 2016.

  • Local revenue grew 36% year-to-year in the fourth quarter to $171 million, propelled by a 24% year-to-year increase in the number of active advertisers.

  • Breaking local revenue down by sales channel, our core local SMB revenue grew roughly 30% year-over-year.

  • National revenue growth accelerated into the high 30% range, and self-serve revenue doubled versus the fourth quarter of 2015.

  • I think it's important to note how Yelp's advertising revenue engine began to evolve in 2016.

  • The national and self-serve channels account for a greater proportion of total ad revenue today than ever before, and these channels are adding to our market penetration, and our sales efficiency.

  • The gap between the growth in sales headcount and growth in advertiser accounts was wider in the fourth quarter than it's been in nearly two years, and the same is true of the gap between the growth in advertiser accounts and ad revenue.

  • I'll describe some of the investments we're making to propel these trends in a few minutes.

  • Transaction revenue was $16.6 million in the fourth quarter, bringing the total to $62 million for the year, and 9% of total Company revenue for both periods.

  • Transaction revenue grew 19% year-to-year in the fourth quarter, which was slower than in recent quarters.

  • The key factor here is order volume at Eat24, which grew 20% year-to-year in the fourth quarter.

  • Throughout 2016, we made a number changes to the marketing plan at Eat24, which negatively impacted order volume.

  • We've continued to refine our approach, and began to increase Eat24's marketing spend in the fourth quarter.

  • Below the revenue line, cost of revenue was 8% of revenue in the fourth quarter, in line with the last couple of quarters, and down a couple of percentage points from a year ago, reflecting our scale and purchasing power.

  • Excluding restructuring charges, operating expenses grew 15% year-over-year in the fourth quarter, roughly half as fast as revenue growth in the same period.

  • We realized significant operating leverage on the sales and marketing line in the fourth quarter.

  • Sales and marketing expenses grew 7% year-to-year, and equated to 48% of revenue in the fourth quarter of 2016, compared to 57% of revenue in the year ago quarter.

  • That improvement in sales and marketing efficiency has a number of sources.

  • Growth in self-serve revenue explains about one-quarter of the improvement, as does revenue leverage against marketing expenditures.

  • The remainder of the improvement reflects lower commission expenses in the fourth quarter, as well as scale against fixed costs.

  • Current development expense was $37 million for the quarter, just under 19% of revenue, and relatively consistent with our investment here in recent quarters.

  • General and administrative costs were $27 million for the fourth quarter, up 32% from a year ago, reflecting higher employee compensation, and increased bad debt expense this quarter.

  • Consistent with the business outlook provided last quarter, we also incurred a $3.5 million restructuring charge in the fourth quarter associated with winding down sales and marketing outside the United States and Canada.

  • The affected areas generated approximately 1% of fourth quarter revenue, and we expect that revenue to taper off rapidly in 2017.

  • Operating income for the fourth quarter was $9 million, compared to loss of $6 million a year ago.

  • GAAP net income for the fourth quarter was $8 million, or $0.10 per share.

  • Adjusted EBITDA for the quarter was $45 million, and the adjusted EBITDA margin was 23.2%, the highest quarterly level in the Company's history.

  • For the full year, adjusted EBITDA was $120 million, a 74% increase over 2015, and equating to an adjusted EBITDA margin of 17%.

  • For the full year of 2016, 31% of revenue growth flowed through to an increase in adjusted EBITDA, and our incremental profitability was even stronger in the second half of the year.

  • This operating leverage is an important attribute of the Yelp business model, providing an indication of the Company's underlying earnings power, as well as a source of investment resources to help drive long-term revenue growth.

  • Before I turn to 2017 and our business outlook, I want to touch on the balance sheet and capitalization.

  • First, cash flow from operations was $[127] million for the full-year of 2016, compared to $57 million in 2015.

  • As a result, we ended 2016 with $497 million in cash and short-term investments, an increase of $110 million during 2016.

  • Our healthy balance sheet and growing cash flow provides flexibility to pursue strategic investment opportunities, as we did with our investment in Nowait last year.

  • We also watched non-cash compensation, and the dilution that arises from equity compensation.

  • We recognized $[86] million in non-cash compensation in 2016, up from $61 million in 2015.

  • Non-cash compensation was 12% of total revenue in 2016, and the total number of outstanding shares, options and RSUs, increased 7% during the year.

  • Now let me turn to 2017, and our business outlook.

  • As Jeremy stated, our primary operating objectives for 2017 are driving usage and engagement, increasing transaction activity, and broadening our sales strategy.

  • We believe these are the right strategic and investment priorities, not only for 2017, but also in light of the longer term opportunity in our market.

  • Looking to 2017, our current outlook is that total revenue for the year will be in the range of $880 million to $900 million, representing a 25% increase at the midpoint of the range.

  • In order to make our financial reporting more transparent, and to better match how we manage the Company, we're fine-tuning the revenue presentation you will see in 2017.

  • We'll now report revenue in three categories, advertising, transactions and other.

  • The advertising category includes revenue from local businesses, agencies, and partners who are purchasing or reselling the core marketing services provided by Yelp.

  • We expect advertising revenue to grow in the mid 20% range in 2017.

  • The transaction category includes revenue arising from local purchases that are supported and enabled by Yelp.

  • Eat24 accounts for the majority of this revenue today, with the remainder originating from products like Yelp Deals, and from transactions flowing through the Yelp platform to partners.

  • We expect transaction revenue to grow at or below the overall Company growth rate in 2017.

  • Other revenue is a bit of a catch-all, and includes subscription fees for products like Yelp reservations, licensing payments for access to Yelp data, and other non-advertising non-transaction services.

  • This line was only $5 million in 2016, and we expect it to grow by a few million in 2017.

  • Based on our current revenue outlook and planned investment activity for 2017, our outlook for adjusted EBITDA for the year is in the range of $150 million to $165 million.

  • At the midpoint of that range, our outlook anticipates adjusted EBITDA growth of just over 30% in 2017.

  • I think it might be helpful to add a little more color on our expense and investment plans for 2017.

  • First, we expect cost of revenue to remain in the high single-digits as a percentage of revenue, consistent with 2016 and with our long-term model.

  • Next, we expect sales and marketing expenses to grow in line or slightly faster than revenue in 2017, reflecting continued investment in our local and national sales teams, and the expansion of account management.

  • Also within this line, we're planning for important marketing initiatives intended to drive self-serve, elevate performance marketing, and promote the Yelp app.

  • We plan to shift the marketing mix toward performance-oriented programs in 2017, while modestly reducing the total amount invested in branding.

  • Product and development spending is expected to grow significantly in 2017, though at a slower year-over-year rate than in 2016.

  • We're investing in mobile, transactions, and increasing the activity across Yelp.

  • General and administrative expenses are expected to grow at a double-digit rate in 2017.

  • However, we expect G&A expense to decline relative to revenue again this year.

  • Depreciation and amortization expenses are expected to be between 4.5% and 5.0% of revenue for 2017.

  • Stock-based compensation expense is expected to be $110 million to $112 million for 2017.

  • Finally, we expect the full-year share count to be in the range of 86 million to 88 million on a diluted basis for 2017.

  • As indicated in our press release, our current outlook for first-quarter 2017 revenue is a range of $195 million to $199 million, an increase of 25% year-to-year at the midpoint.

  • Adjusted EBITDA is expected to be $25 million to $28 million for the first quarter, up from $13 million in the first quarter of 2016.

  • In conclusion, we're excited about how the Company is positioned as 2017 starts.

  • Last year's achievements, not only strengthened our product, brand and business model, they also opened the door to new areas of investment and growth.

  • We're encouraged by opportunities we see in places like performance marketing, transactions, account management, and our newer sales channels.

  • We look forward to pursuing these priorities in 2017, as we continue on our mission of connecting consumers to great local businesses.

  • Let's now open up the call for your questions.

  • Operator

  • Thank you.

  • (Operator Instructions)

  • Mark Mahaney, RBC Capital Markets.

  • - Analyst

  • Okay.

  • Just one question then, on the -- in terms of the margin guidance for 2017, would you say there's anything structurally changed in the business, or are these mostly elective investments, particularly in the product development.

  • And I guess, what I'm trying to tease out, has some of the areas really built out transactions for example?

  • Does that have a sustainably dilutive impact on the profitability margins of the business?

  • Thank you.

  • - CFO

  • Sure, Mark.

  • I don't think there's anything structurally changing in the business.

  • We had kind of a 30%-plus incremental profitability in 2016, which I think is the best in four or five years for the Company, and you saw in the second half, the incremental profitability north of 50%, even while the revenue is growing pretty well.

  • So we were, in a year in which we were increasing our brand spend in 2016, a year in which we're walking away from brand advertising revenue dollars, and showed that kind of leverage.

  • And I think that's inherent, and unchanged in the model.

  • But when we turned, and we looked at the opportunity ahead of Yelp, $700 million of revenue is sizable, but we're still pretty small in terms of the long-term opportunity we believe.

  • We've got 138,000 advertisers in a market that is 20 million local businesses, and I'd point out, 3.4 million claimed businesses on Yelp.

  • So we've got a strong brand.

  • We've got a great product experience for consumers and businesses, and we think it makes sense to continue to invest in that.

  • So we're making elective decisions to invest in our product, in our marketing, particularly around performance marketing, and in our sales channels.

  • But the goal is to driving users, businesses and new ways to make money.

  • So I think that the trade off of maybe another few margin points we might otherwise deliver this year, is for more revenue growth in the long-term, rather than any kind of structural thing.

  • - Analyst

  • Okay.

  • Thank you, Lanny.

  • Operator

  • Thank you.

  • Matthew Thornton, SunTrust.

  • - Analyst

  • Yes, hey, good afternoon, guys.

  • Thanks for taking the question.

  • I was hoping to get maybe an update on the Request-A-Quote initiative.

  • I think you did [100], excuse me, [1.2] million inbounds last quarter, if I'm not mistaken.

  • I'm kind of curious how that tracked in the fourth quarter.

  • And then, as we look out to 2017, I'm just wondering if guidance kind of embeds any Request-A-Quote type revenue, or how you're thinking about the kind of monetization time line going forward there?

  • Any color would be very helpful.

  • Thank you.

  • - CEO

  • This is Jeremy.

  • I can take the first half, and maybe Lanny, you can touch on the second half of the question here.

  • But Request-A-Quote continues to be a new and robust and exciting offering.

  • In the year, we did north of four million messages from consumers to business owners.

  • And so, we're looking forward to seeing even more momentum carrying into 2017.

  • On the monetization side, we're still in the experimental stages right now.

  • We're taking about half of traffic, and that is becoming monetized.

  • We're doing some ad experimentation there.

  • And so, we'll keep you apprised on our progress.

  • It's still early days, but we're seeing promising signs.

  • - CFO

  • From a business outlook perspective, there have been some attempts to sort of quantify a specific dollar amount, of an incremental product revenue stream from Request-A-Quote.

  • And we're not yet at the stage, where we're fully baked on what the exact monetization by category, by advertiser type, national versus local is going to be around this product experience.

  • And so, we're not quite yet thinking about it that level.

  • I mean, there's a bit of revenue coming from Request-A-Quote for sure, but it's not sort of as a discrete standalone line item at this time.

  • Operator

  • Thank you.

  • Douglas Anmuth, JPMorgan.

  • - Analyst

  • Hi, this is Cory Carpenter on for Doug Anmuth.

  • Thanks for the question.

  • Maybe as we think about the 2017 revenue guide of $150 million to $165 million, could you help frame, just some of the factors that could drive the outcome, maybe either to the lower end, or the higher end of the range there?

  • And maybe as a follow up, sales count, sorry, sales headcount ticked down last quarter, I think for the first time in a while.

  • Could you just help us frame how you're thinking about that growing next year, in the context of the guide?

  • Thank you.

  • - CFO

  • Sure.

  • Let me give you little context around the EBITDA outlook, I think, because you said revenue, but you referenced numbers that are EBITDA.

  • Which were you more curious about, revenue or cash?

  • - Analyst

  • Oh, sorry.

  • I meant EBITDA, yes.

  • - CFO

  • Yes.

  • Well, I think -- one of the big levers is, we're going to make some shifts in our marketing spending, to elevate performance marketing.

  • And we're -- it's something we've been doing a bit of at Yelp, but it has been the minority of the dollars that we spent historically.

  • And our hope is to have performance marketing be the majority of our spending in the coming year.

  • And as we do that, there is, the goal there is very much to drive users into transactable flows, it's to drive users into our most valuable product experiences.

  • And there can be over time, flywheels developing around that performance marketing.

  • We're building on capabilities that we have at this point.

  • So there isn't a high expectation from us about the performance, sort of the return on those performance dollars.

  • We're committed to building that capability within our marketing arsenal, and overtime, I think we'll see the revenue return build from that investment.

  • - COO

  • And hi, Cory, this is Jed.

  • In terms of the headcount, I think in the beginning of the year, we called for kind of 20% to 30% headcount growth across year, and ended up coming in quarter-over-quarter at around 11%.

  • A couple of factors to consider there, that did not include the international shutdown on the sales and marketing side.

  • And so, that certainly contributed to portions of the shortfall.

  • And then, we did a lot of shifting from our account executive position over to our local client partner position.

  • And those were in fact, [shelling heads] that contribute to kind of production.

  • If you kind of factor those two together, we're more in the range of that 20% that we had indicated.

  • In terms of our hiring and retention right now, feeling really strong about that going into the new year.

  • That being said, and it's a trend that I think will continue, we are decoupling a little bit from kind of headcount growth, and our ability to drive revenue.

  • When you look at some of those initiatives, certainly, self-serve is not dependant on the headcount growth, both our LCP team, and our national client partner team.

  • And then, we're doing some exploration around kind of the reseller channel and the agency channel as well.

  • And so, while headcount certainly will be important to grow, and we expect that to kind of move into double-digit zone, over 2017, you're also going to continue to kind of see that decoupling over time.

  • - Analyst

  • Great.

  • Thank you.

  • Operator

  • Thank you.

  • Rob Sanderson, MKM Partners.

  • - Analyst

  • Yes.

  • Thank you.

  • I'd like to ask a question about the local active accounts.

  • It's a metric that, a reporting metric that a lot of people focus on.

  • I think, personally it's losing a little bit of meaning, as you have different vectors at the national account level, versus the low-end self-service level.

  • But how should be thinking about that metric going forward, as you are sort of pushing agendas, that sort of either end of that spectrum of account type?

  • And then the second part, the international, the step down of marketing and sales efforts internationally, how many of that affected the local active account metric this quarter?

  • Thank you.

  • - COO

  • Yes.

  • I can take that one, Rob.

  • This is Jed.

  • So on the local accounts side, certainly we're happy with the revenue side of the equation in Q4.

  • You look at things like an accelerating national business, self-serve being up 100% year-over-year.

  • If I were to point to a weakness and a slowness, it's potentially around kind of the local salesforce in the fourth quarter.

  • And particularly, it was a modest slow down that -- quite frankly, we think the election and a period around the election, both from an output and productivity perspective from the salesforce, and that kind of bled into vacation time.

  • It's not something where we're super concerned about kind of coming in 2017, and feel like the fundamentals are in place and really strong.

  • And then, there's some other factors that contribute to that as well.

  • Certainly, national and self-serve have different dynamics, as it relates to local advertising accounts.

  • - CEO

  • And I think from the international advertisers, we're probably in the neighborhood of [400] or [500] that are not -- that's a pretty small portion of the business, remember, international revenue is about 1% of the total.

  • We did, I think about $2 million of revenue from international in the fourth quarter.

  • And I can -- just scaling of the advertiser base there.

  • - Analyst

  • Just a follow on, if I could?

  • Is it wrong to think about your success in the self-serve channel as being potentially a meaningful driver of that metric?

  • Or is that something we should be looking to, sort of gauge success in the self-serve portion of the business?

  • - CEO

  • Yes, it is.

  • You made an interesting point about the start, which is this metric is -- as the business evolves, we're [still] -- evaluating the metrics that we have.

  • We do see there, I would say the majority of our self-serve customers actually wind up looking pretty similar in their behavior to our rep sold customers.

  • And they come in differently obviously, they tend to buy Yelp, and stay with Yelp.

  • There is a little bit more of a pattern in the self-serve channel, of what I'd call kind of an episodic or seasonal buyer, where somebody will come in for month or two.

  • And then, they'll be out, off, not advertising.

  • And their season comes back around Valentine's Day, or tax day, or summer time or whatever it may be.

  • So there's a little bit more sort of transactional velocity in the local advertiser account on the self-serve side.

  • But I don't think it is big enough at this point to really merit a change, but you're right, it's coming.

  • - Analyst

  • Thank you, Jed, thank you, Lanny.

  • Operator

  • Thank you.

  • Lloyd Walmsley, Deutsche Bank.

  • - Analyst

  • Hey, guys.

  • This is Chris Contarich on for Lloyd today.

  • If we could go back to the Request-A-Quote tool, and from a categories perspective, as you guys roll out the Request-A-Quote tool to more categories, are you seeing any sort of interesting trends, positive, negative around user engagement with the product?

  • And then, from more of product development perspective, have there been any recent product enhancements to the Request-A-Quote module within existing categories that have driven higher engagement?

  • - CEO

  • Sure.

  • Hi, Chris, this is Jeremy.

  • So we did spend some time last year working on category expansion for Request-A-Quote, and we have seen a success there, and some of the increase in volume has come from that effort.

  • I think there's still probably categories out there, that might need to be enabled and haven't been, but for the most part, I think we're now covering a wide variety.

  • And that's really exciting, that's one of the most powerful things about the future, it is relatively simple to build.

  • We turn it on, and then both customers can flow in, and it can really impact businesses across the entire spectrum of Yelp.

  • And then, your second question was around product features that would drive engagement in Request-A-Quote.

  • And one of the newer ones that we just started rolling out, was being able to communicate by attaching photos, and potentially documents like PDFs and invoices and so forth.

  • And so, that's just started rolling, and so far we're seeing some uptick in that, and we think that's really great.

  • We want the conversation to happen on Yelp, and ultimately we'd love to have calendar appointments drop on, and transactions potentially happen.

  • So there's a lot that we can do with this messaging functionality, to take it much deeper with business owners and consumers.

  • - Analyst

  • Great.

  • And, hey, if I could just follow up, more on some of your older cohorts that are using the Request-A-Quote tool.

  • Have you seen trends as far as from a repeat basis?

  • Are they using it across more and different categories, or are some of the users, just not coming back altogether?

  • - CEO

  • I don't have hard numbers in front of me for that, but from what I remember, definitely user satisfaction is high.

  • The response rate on a typical risk Request-A-Quote is very high.

  • And the speed of response is very high, because we created incentives for business owners, specifically around showcasing their response time.

  • So there is an element of encouraging business owners to be very responsive.

  • And that results in a more positive consumer experience.

  • - Analyst

  • Okay.

  • Thanks, guys.

  • Operator

  • Thanks.

  • Brian Fitzgerald, Jefferies.

  • - Analyst

  • Hi, good afternoon.

  • This is Stan Velikov for Brian.

  • Thank you for taking my question.

  • We have seen that repeat rates keeps increasing, actually it looks like it hit an all-time high.

  • But still from those local advertisers that do not [continue their] relationship with Yelp, what do hear as the most common reason for that?

  • - CEO

  • I can take that one.

  • On the repeat rate, obviously, repeat rate is a mix of folks who have advertised with us in the past, and that's at an all-time high right now.

  • And while, we're really encouraged by our kind of strong, embedded client base, and that's a really kind of healthy number to understand that those folks are coming back, it's double-edged sword, because we also think that making sure that we get enough new clients into the pipeline is really an important initiative for the Company.

  • And so, we're not alarmed in any way, about where we are in the repeat rate side, but you'd love to see -- again, adding the number of local advertising accounts.

  • Even if we were up in the 7,000, 8,000, 10,000 range, based on the opportunity that we actually have in this marketplace, with millions of businesses that have claimed their presence on Yelp, we think we're still the very early stages.

  • And we've got to look at both sides of the coin here, making sure that we're driving new business, and taking advantage of kind of the existing client base that has very nice trends behind it.

  • - CFO

  • But I think, from stuff that we have seen in terms of advertiser's sentiment about Yelp products, it's funny, that the reason that people stay with us for three and four and five years, is the same reason that another advertiser might decide to stay with us for three or four or five weeks.

  • And that is, they all ask the question of, am I seeing a return on the advertising?

  • And we have got 80% of them who are saying, I am repeating because I see the value.

  • And we've got another chunk who we haven't yet documented well enough for them, the value of the Yelp advertising.

  • And we're working on that from a product perspective all the time.

  • - Analyst

  • Got it.

  • Thank you.

  • Operator

  • Thank you.

  • Mark May, Citi.

  • - Analyst

  • Hello?

  • - CEO

  • Hello?

  • - Analyst

  • Hi, thanks.

  • A couple of questions.

  • Sorry if these were already addressed.

  • I know that you're winding down I believe your -- some of your international operations.

  • Can you give us a sense of how much of that is going to benefit your EBITDA earnings this year?

  • And then, just a question on local ad business, can you update us on the kind of rough mix of revenue and local advertising, between kind of more recurring subscription, and more variable kind of CPC-based advertising, and how you expect that mix to evolve this year?

  • Thanks.

  • - CEO

  • Sure.

  • I think on the former question of international, as we said, it's about 1% of revenue in 2016, and we expect that to trail off pretty quickly in 2017.

  • Our net EBITDA loss in international in 2016 was in the high teens, millions of dollars.

  • And those -- sort of the difference between that revenue and those losses overseas, are investment dollars that we plan to put into product, into sales and into marketing.

  • And really one of the sort of push factors for us, in making the decision on international, was feeling a growing number of opportunities to invest domestically, and comparing that to the appeal of continuing to invest in international at this time.

  • And we decided to shift those resources to what we think are more urgent, promising and lucrative opportunities here domestically.

  • In terms of the revenue mix of recurring subscription versus CPC, the way we are delivering advertising services today, is almost entirely on a CPC basis.

  • There are perhaps a very small number of old legacy, CPM type advertising relationships out there.

  • But nothing new is being sold that way, and sort of the entirety of our revenue model is, an advertiser provides the budget that they're willing to invest with Yelp.

  • And as we deliver clicks in that, against that budget, we recognize that revenue on a CPC basis.

  • Operator

  • Thanks.

  • Jason Helfstein, Oppenheimer.

  • - Analyst

  • Hi, this is [Alex] filling in for Jason.

  • Thanks for the question.

  • From a big picture perspective, you are in Request-A-Quote, you're in transactions, advertising, and self-service.

  • Do you think at some point you become more of a full back-end enterprise tool for small businesses?

  • And then I have a follow-up.

  • - CEO

  • Hi, Alex.

  • I can take this.

  • I think certainly, as we deepen our relationship with local businesses, there will be an opportunity for us to provide more and more kind of the back-end.

  • But I think this is still the early days, so that might be a truly long-term vision, a five or 10 year horizon before we get that -- that all of the systems required to really feel like, wow, we're able to power the whole platform of the local business.

  • Right now, we're just focused on what are the touch points where we can really provide value.

  • And so, on the consumer side, we've got Request-A-Quote because those users are doing searches, and they want more information.

  • We've got transactions, because they found the business that they want to order from, and they want to just tap into the menu right there.

  • And then, we've got ads for business owners that want to amplify the word-of-mouth that's already on Yelp.

  • So we're really trying to reach out to the needs of both our consumers and business owners, with the assets that we've got today.

  • But I think on a 10 year horizon, yes, I think that's the natural direction.

  • - Analyst

  • Okay.

  • And then, I guess, on a bit of an unrelated note, as you look to spend against app downloads, app unique devices, do you find that it costs more today than it did a year ago, to drive incremental download?

  • And how is your outlook on that for 2017?

  • - CEO

  • I don't think we're seeing any negative trends there, meaning I don't think app downloads are getting more expensive.

  • If anything, we're developing the muscle required to be more efficient there.

  • And in addition to that, the vast majority of downloads of the app that we're getting, are organically driven.

  • And so, through our large mobile web footprint, for example.

  • Also there's desktop traffic, where we have a chance to convince users to go and download that app.

  • And then, our relationship with iOS and Apple also drives downloads.

  • And then, we feel that there's a lot of different levers there for us tune, to keep app growth nice and healthy.

  • - Analyst

  • Okay.

  • Thank you

  • Operator

  • Thank you.

  • Youssef Squali, Cantor Fitzgerald.

  • - Analyst

  • Thanks, hey, guys.

  • Two questions, or well, I guess they're somewhat related.

  • The -- I guess, given that the local ad account metric may start losing some of its meaning over time, can you just help us maybe quantify the contribution of the national accounts and the self-serve initiatives for the quarter, either terms of contribution to growth, or contribution in dollars?

  • And how big can these businesses grow over time?

  • Is it realistic to assume that they may actually account for the bulk of the business over time, obviously in the next couple of years?

  • And just to clarify something here, on the metrics data sheet, can you just talk about the app unique devices, why were they down?

  • And I think, even the mobile web unique visitors were also down, maybe you can touch on those?

  • Thanks.

  • - CEO

  • Sure, let me talk first about those two sales channels.

  • And from a source of growth in terms of the dollars, the majority of the dollar growth is still very much coming from our sort of wheelhouse engine, that is our local sales team.

  • And we think there is a lot of track ahead of that team, to continue to penetrate the marketplace.

  • But right now, the national and the self-serve are contributing a greater percentage of revenue in the fourth quarter, than they ever have before.

  • And when we look at the -- the self-serve is an interesting one.

  • The self-serve contribution year-over-year, in terms of its role in the revenue is, it's almost twice as big of a revenue contributor year-over-year.

  • And in terms of its contribution to the growth, it's still significantly bigger in terms of its contribution to the growth, than it is to the base.

  • So I think all of those trends say to us, that self-serve and national have the opportunity and the momentum to continue to be more of our mix going forward.

  • And we have -- that's not just happenstance, that's the function of investments, and plans, and product, and marketing work, and sales work that we're doing to drive those, that sort of layer on top of -- that sort of -- the main line part of the business, which is our local team.

  • So I think in the future, it will continue to grow.

  • How far it goes, really remains to be seen?

  • There's an awful lot of this local market that we have not yet penetrated.

  • These two vehicles are helping us find new parts of the market, and address it better, and more quickly, and more efficiently.

  • And I look at some of the competitors out there, or other companies, whether it's some of the people that I'm familiar with in the vacation rental marketplace, or the recruitment marketplace, or where LinkedIn got to.

  • And I think there's still a lot of upside for us, for these two channels.

  • - CFO

  • On the second part of the question, Ron, app uniques, and sequential growth pattern there, what we typically see is towards the end of the year, there's a seasonal effect.

  • And so, earlier in the year is generally where we peak out, as far as traffic.

  • And so, that's something that we've seen virtually every year.

  • Overall, up 20% year-over-year, we feel good about that, page views follows similarly, with 20% year-over-year transactions similarly.

  • And one of the things we're most encouraged by, we broke in the last quarter, top 30 most downloaded apps in the iTune store.

  • And so, we're doing quite well with our rankings there.

  • So we feel great about how app downloads are going, and we'll see how it goes in 2017.

  • - Analyst

  • Thanks, Jeremy.

  • - CFO

  • Sure.

  • Operator

  • Thank you.

  • Heath Terry, Goldman Sachs.

  • - Analyst

  • Great.

  • Thanks.

  • I was just wondering, if you could just give a sense of what kind of pricing you're seeing on the self-serve channel as it matures?

  • And to the extent that you're seeing more adoption around self-serve, and just CPC in general, how competitive the ad environment is among your base?

  • - COO

  • Yes.

  • I can take that one, Heath, this is Jed.

  • So we were really encouraged on kind of the spending habits within the self-serve channel.

  • In fact, we're really approaching parity with our full-serve programs, when you look at kind of ad buckets that are getting put forward to the self-serve channel.

  • And in fact, we think we have a lot of room to grow there.

  • When you look at some of the things that we're doing, and certainly better merchandising, better experience, where that self-serve advertiser when they're provisioning, and continue to be clients with us.

  • We moved from the monthly to daily budgeting, and on the merchandising side.

  • And we continue to optimize on all of the flows, I think when we look at self-serve today, we're still in the early innings of kind of conversion, and making sure that we're taking that 3 million business pool of claimed businesses, and making sure that they're getting the proper exposure to what we can offer on the self-serve side.

  • So we're certainly going to put some efforts around product, as well as on the marketing side towards converting, first of all, more folks into claimed businesses, and more of those claimed businesses into paying advertisers.

  • So overall, really happy with the trends there.

  • - Analyst

  • Great.

  • Thanks very much.

  • Operator

  • Thank you.

  • Justin Post, Bank of America.

  • - Analyst

  • Great.

  • I apologize, if you've already talked about this.

  • But last year, was a nice driver of margin improvement across a lot of areas.

  • And I was just thinking out maybe two or three years, where do you see the opportunities there?

  • Can you still grow like you have been?

  • And is that really driving the new sales areas that have maybe have lower sales intensity?

  • And then, on the Request-A-Quote side, we've seen some ads around those pages, but have you discussed at all, how you're thinking about monetizing all that activity?

  • Thank you.

  • - CEO

  • We talked about just a little bit -- a few minutes ago, so I'll be kind of brief.

  • I think that the margin levers that we saw last year, I think gives you a really good representation of sort of the inherent earnings power of the business.

  • And it also gives us, in thinking about the long-term, a great pool of resources to continue to invest.

  • So I think we had a year, in which 30% of the revenue went down to the bottom line.

  • We had a second half of the year, in which 50% of the revenue went down to the bottom line.

  • So our long-term prospects for profitability at Yelp are outstanding.

  • And real -- we turned, and we look at the opportunity ahead of us, and think it just makes all the sense in the world, to continue to invest in our product, our marketing, and our sales to get after that.

  • - CFO

  • And on the Request-A-Quote monetization side, yes, the first step that we took, was the one that was essentially the low-hanging fruit, which is considering Request-A-Quote, after you submit your initial request to a business, you land on a page.

  • And there's essentially an opportunity to provide inventory, which is the other businesses that might receive that quote.

  • So that's how we're thinking about pricing it.

  • And so, it takes the form -- it's very similar to advertising in how we would bill.

  • And it allows us to turn on Request-A-Quote as a product for our thousands of advertisers.

  • We may approach it differently, and sell it in other ways in the future.

  • But this is kind of our first stab, and was the easiest to do.

  • So we're running that test at about 50% right now, and we're still evaluating the performance.

  • Operator

  • Thank you.

  • Brian Nowak, Morgan Stanley.

  • - Analyst

  • Thanks for my questions.

  • I have two.

  • The first one, just go back to Request-A-Quote, and then the 2017 outlook.

  • Can you just talk to kind of the blocking and tackling [or any] investments that are needed for Request-A-Quote throughout this year?

  • Is that a material part of the overall investment this year, and what are the main steps that still have to be put into place to scale that?

  • And then secondly, some of the other leaders in the sector have talked about GAAP earnings, and treating stock-based comp as a real expense.

  • I guess, Lanny, I would be curious about kind of how you think about stock-based comp, and just potential processes that you could put in place to maybe manage stock-based comp?

  • Thanks.

  • - CEO

  • So the first question, this is Jeremy, for Request-A-Quote, it is an area of investment for us, but we have quite a large engineering team.

  • So I wouldn't say it's a massive investment.

  • I think the things that we have to do, are relatively straightforward.

  • And the initial product was fairly simple, sort of a bare-bones, minimum viable product, messaging, back-and-forth between consumers and businesses.

  • And so, we started really beefing that up, in ways that are pretty obvious, things like being able to attach invoices, documents, photos.

  • When a consumer and business are messaging back and forth, there's a whole bunch of messaging infrastructure we'd like to build, to bring it up to par with something like you would find on an iOS messaging experience, for instance, delivery, receipt, et cetera.

  • So there's a whole laundry list of exciting features in a pipeline that we'll get to.

  • From a scaling up standpoint, we continue to see really healthy usage trends there.

  • There's also new things that we're able to turn on, that we haven't before -- things like, even if the consumer doesn't have a registered Yelp account, they can still submit a Request-A-Quote.

  • And so, we'll see the impact of those in the quarters to come.

  • - CFO

  • From a GAAP earnings perspective, we're not shy about that.

  • We had $0.10 of positive GAAP net income in the fourth quarter, and that includes a restructuring charge that's a one-time event within that.

  • So Yelp has GAAP earnings power, no doubt about it.

  • Now the stock comp question is a little bit different.

  • We are competing for talent, in a part of the economy in which equity compensation is very, very important, to be able to attract and retain the best -- best talent that we can have, to help us grow this business.

  • And so, I think that's going to continue to be an element of our overall compensation package.

  • Now as companies grow, and they go through transitions in their development, maybe there are periods where equity comps are earlier on is really, really important as you become sort of more solidly, and reliably cash generative, as the company is, you have a lot of other options from compensation perspective.

  • And those are all open to us today, and we're thinking about those.

  • And I think that, as we think about the value of Yelp to our shareholders, it probably at the end of the day, it comes down to some free cash flow per share kind of calculation, as the real bedrock of driving value that grew -- you can run your own calculations, to find your own free cash flow, it grew really handsomely over the last year, and the last two years.

  • And so, we'll continue to evaluate that.

  • And as investor and analyst preferences move from one metric to another, we'll make sure that our financials are readily readable for you, in the way that people want to consume and evaluate companies.

  • - Analyst

  • Great.

  • Thanks.

  • Operator

  • Thank you.

  • Sam Kemp, Piper Jaffray.

  • - Analyst

  • Thanks, guys.

  • So we've heard a lot from some pretty large tech companies, in terms of the importance of voice and messaging for consumer interactions in the future.

  • And I was just wondering, if you could detail your strategy around that, and how you plan to address that shifting funnel?

  • And then secondly, on the Eat24 market, can you go into a little bit more depth, on what you mean by marketing?

  • Is it going to be performance-based marketing, and if so, how are you thinking about the returns for that vertical?

  • Thanks.

  • - CEO

  • Hi, Sam, I'll take that first part of the question around voice.

  • We do find it to be a compelling way to interact potentially with Yelp content.

  • Right now, the use case on mobile is a little bit limited, but it is baked into things like Siri.

  • And so, if you ask Siri for anything having to do with local, certainly domestically, you're very likely to get a Yelp answer.

  • Also Amazon, as I am sure you're aware has a big hit on it's hands with their Alexa.

  • And they chose Yelp content to respond to all the local queries that come in.

  • And so, we feel good about initial position there.

  • We're obviously very interested in this space, and we'll continue to see where we can play a role.

  • But for right now, for all of the obvious places where our content should show up, it is showing up.

  • - CFO

  • Yes, and from Eat24, for the marketing plans there, yes performance marketing will, is very much part of our mix there.

  • The Eat24 is also historically been pretty successful, with sort of outdoor and brand advertising, sort of non-performance stuff.

  • We've been working with that throughout the year, and I think as we look into 2017, probably we -- the growth area for us in Eat24 will be performance marketing.

  • And the return characteristics for that business, there's usually a pretty fast payback on customer acquisition, in terms of that initial order comes in, and returns quite a bit of what the initial outlay is.

  • And then, the repeat orders are where the economics get very, very attractive.

  • - Analyst

  • Good.

  • Thanks.

  • Operator

  • Thank you.

  • Ladies and gentlemen, that concludes today's Yelp conference call.

  • You may all now disconnect.

  • Everyone, have a great day.