Yelp Inc (YELP) 2017 Q4 法說會逐字稿

完整原文

使用警語:中文譯文來源為 Google 翻譯,僅供參考,實際內容請以英文原文為主

  • Operator

  • Good day, ladies and gentlemen, and thank you for your patience.

  • You've joined Yelp's fourth quarter and fiscal year 2017 earnings conference call.

  • (Operator Instructions) As a reminder, this conference may be recorded.

  • I would now like to turn the call over to your host, Head of Investor Relations, Mr. Ron Clark.

  • Sir, you may begin.

  • Ronald Clark

  • Good afternoon, everyone, and thanks for joining us on Yelp's Fourth Quarter and Fiscal Year '17 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'll make certain statements today that are forward-looking and involve a number of risks and uncertainties that could cause actual results to differ materially.

  • Please note that these forward-looking statements reflect our opinions only as of the date of this call, and we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events.

  • 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 earnings 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 is posted on our website, you will find additional disclosures regarding these non-GAAP financial measures as well as historical reconciliations of GAAP net income to adjusted EBITDA and GAAP net income margin to adjusted EBITDA margin.

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

  • Jeremy Stoppelman - Co-Founder, CEO & Director

  • Thanks, Ron, and welcome, everyone.

  • In pursuit of our long-term strategy, we laid out 3 priorities for 2017: driving usage and engagement, increasing transaction activity, and expanding our go-to-market strategy.

  • Over the year, we achieved each of these important objectives.

  • We delivered a 20% year-over-year increase in app usage by introducing engaging product features, such as personalized recommendations and by adding a more robust performance advertising capability to our marketing mix.

  • We also made significant strides in transactions in our most important categories, Restaurants and home and local services.

  • Our long-term partnership with Grubhub, a leader in the online food ordering and delivery space, will significantly upgrade our consumer experience by increasing the number and quality of deliverable restaurants across the country.

  • In home and local services, we more than doubled the number of requests sent via Request-a-Quote compared to 2016.

  • Finally, we expanded our go-to-market strategy achieving what we expect will be sustainable gains in our ability to attract and retain advertisers, which fundamentally strengthens our core business.

  • We grew revenue in the self-serve channel by nearly 50% in 2017 with more targeted marketing and by providing advertisers greater flexibility over their ads and how they purchase them.

  • Scaling our client success initiatives was another important objective going into 2017.

  • Developing our teams and processes around both account retention and client upselling improved revenue retention levels year-over-year.

  • Combined, these initiatives contributed to healthy account additions of 7,500 or higher in each of the last 3 quarters.

  • We also took advantage of strong sales rep retention, ending the year with 800 more sales reps than last year.

  • The execution of these 3 strategic objectives in 2017 drove revenue growth of 20%, excluding the impacts from the sale of Eat24 and the acquisitions of Nowait and Turnstyle.

  • We also increased reported adjusted EBITDA by 30% compared to 2016.

  • In 2018, we're continuing the execution of our long-term strategy and have prioritized 4 important objectives: driving monetization; generating strong usage and engagement; strengthening our competitive position in restaurants; and building out our home and local services offering.

  • To drive increased monetization, we're building upon our achievements in self-serve and client success.

  • Self-serve's convenience and flexibility in terms helped attract thousands of new advertisers in 2017.

  • Our client success efforts helped improve revenue retention rates significantly.

  • Thanks to the success of these initiatives in generating increased demand and improving retention, we've begun to offer advertising with flexible terms through our sales force.

  • We believe this will stimulate trial activity, remove friction from our selling process and yield more revenue.

  • While it's still early, client response to greater flexibility has been promising, particularly for advertisers where a 12-month contract wouldn't make sense.

  • Our second priority is continuing to drive usage and engagement.

  • Yelp is built on unique content that consumers trust, and that starts with our over 148 million reviews of local businesses.

  • In addition to introducing engaging new product features and leveraging performance marketing to attract more users, we're also focused on ensuring the quality and integrity of our content.

  • We've always been serious about customer protection.

  • In fact, we only recommend 3/4 of the reviews we receive to help ensure the consumers can rely on Yelp's ratings and reviews when they're evaluating local businesses.

  • Recently, we've taken a strong public stance against review solicitation and abuses by reputation management companies, and the industry had begun to follow our lead.

  • This effort is vital to protecting the review ecosystem that brings consumers to Yelp and fosters loyalty and trust.

  • Our third priority is strengthening our competitive position in the Restaurants category, which brings millions of users to Yelp every day.

  • To do so, we're expanding the number of transactions-enabled restaurants.

  • In 2018, the Grubhub partnership is expected to nearly double the number of restaurants available for online ordering, and we have ambitious plans to grow the number of bookable restaurants through Yelp Reservations and Nowait.

  • Over the last 12 months, we've more than tripled the number of businesses connected to Yelp Reservations, Nowait and Yelp WiFi to more than 14,000 locations, which generated approximately $11 million in subscription revenue in 2017 while creating a more engaging restaurants experience.

  • To make even more of these connections, we're improving the functionality of Yelp Reservations and Nowait and weaving these and Yelp WiFi into our core user experience.

  • Our final priority is building out our offering in home and local services.

  • Since its launch just over 2 years ago, Request-a-Quote has been met with an enthusiastic response from consumers and service professionals.

  • Consumers are generating more than 1 million requests each month, and the majority of requests are receiving responses in under an hour.

  • Request-a-Quote is also driving our largest and fastest-growing revenue category, home and local services.

  • By leveraging our existing cost-per-click ad model, Request-a-Quote is generating $18 million in annualized revenue based on December results.

  • To unlock the full potential of these high-converting leads, we're working on the next generation of monetization features.

  • We're focused on better matching consumers with businesses and are exploring a take rate product that will allow us to participate in the gross merchandise value running through Request-a-Quote.

  • In summary, our team's focused execution helped us finish the year in a position of strength.

  • User growth remains strong, and we increased net account additions by a healthy rate.

  • We also signed an exciting long-term partnership with Grubhub; closed the sale of Eat24, doubling our initial investment; and acquired Nowait and Turnstyle to strengthen Yelp's restaurant offering.

  • I'm proud of our team's accomplishments in 2017 and look forward to executing against our strategy in 2018.

  • With that, I'll turn it over to Lanny.

  • Charles C. Baker - CFO

  • Thank you, Jeremy.

  • Our financial story aligns with the strategic and operational one Jeremy just described.

  • Improvements in revenue retention in 2017, combined with sales force and sales channel expansion, contributing to advertising revenue growth of 20% for the year.

  • Meanwhile, investment in Yelp Reservations, the acquisition of Nowait and Turnstyle, which we rebranded as Yelp WiFi, and establishing the partnership with Grubhub elevated our transactional capabilities.

  • Adjusted EBITDA grew 30% from 2016 to 2017, reaching a record $156 million.

  • Adjusted EBITDA margins expanded by about 2 percentage points year-to-year, and we ended 2017 with over $845 million in cash and marketable securities and no debt.

  • Heading into 2018, the growth of our mobile app and our record increase in the number of new businesses claiming their page on Yelp in 2017 provide leading indicators of the broadening appeal of our product offering.

  • Other key business metrics are also encouraging.

  • Compared with the year earlier, we ended 2017 with sales force growth up, revenue churn down and advertiser account growth improved.

  • Our business outlook for 2018 anticipates revenue growth of 18% to 22% over 2017, adjusted for the sale of Eat24 in the fourth quarter of '17.

  • We expect to grow adjusted EBITDA by a high-teens rate in 2018.

  • I'll get into the outlook details in a few minutes, but first let me briefly review fourth quarter and 2017 results.

  • Fourth quarter revenue of $218 million was $2 million above the high end of our expectations, driven by stronger local advertising revenue and higher-than-expected revenue per order from Eat24 in the transaction -- transition to Grubhub.

  • Advertising revenue of $208 million in the fourth quarter was up 18% year-over-year, with the self-serve channel growing fastest, followed by national then local.

  • Paying advertiser accounts grew by 7,600 for the -- from the third quarter to the fourth quarter, reaching 163,000 for the fourth quarter, up 21% from fourth quarter 2016 on an easier year-ago comparison.

  • As we've indicated previously, we turned a corner on local revenue retention at the end of the first quarter of 2017.

  • In each successive quarter, we built a wider gap between 2016 and 2017 revenue retention levels.

  • In fact, December was the most improved month of the year, and the gains in revenue retention were important contributors to fourth quarter and full year ad revenue growth.

  • Turning to non-advertising revenue, we generated Transaction revenue of $5 million in the fourth quarter of 2017 and $60 million for the full year.

  • Both of those numbers include revenue from Eat24 for periods prior to its sale on October 10.

  • For the fourth quarter, approximately $2 million in Transaction revenue came from Eat24 prior to sale.

  • For the full year of 2017, Eat24 contributed $54 million in Transaction revenue prior to sale.

  • Quarter-by-quarter revenue figures for Eat24 are shown in a table at the end of our fourth quarter earnings release.

  • One final point of clarification.

  • We're temporarily recognizing a small amount of extra revenue per order from the Grubhub partnership.

  • This relates to the pass-through of certain Eat24 payments processing fees and amounted to roughly $1 million of additional revenue and $1 million in additional cost of sales during the fourth quarter.

  • We expect to see a final $1 million in revenue and $1 million cost of sales from this source in the first quarter of 2018.

  • After that, we will continue to generate Transaction revenue under the standard terms of our 5-year partnership with Grubhub.

  • Finally, other services revenue for the fourth quarter was $4.6 million, reflecting an increase in the number of restaurants and local businesses who've become customers of Yelp Reservations, Nowait and Yelp WiFi marketing.

  • On the expense and profitability side of the fourth quarter, total expenses were up 16% year-to-year with gross margins up about 1 percentage point quarter-on-quarter, primarily reflecting the sale of Eat24.

  • Operating expenses were $196 million for the fourth quarter as sales and marketing costs rose 19% year-to-year and product development expenses grew by 30% year-to-year.

  • Meanwhile, we reduced G&A expenses year-to-year.

  • Depreciation and amortization was roughly flat, and stock-based compensation was up 6% over the fourth quarter of 2016, reflecting purposeful management of these items.

  • Where expenses rose more quickly in the fourth quarter, the primary factor was an increase in employee numbers.

  • We grew our advertising sales force by roughly 250 people during the fourth quarter.

  • And at the end of the year, we had 3,300 people in ad sales and customer success, up 32% from the year-end 2016.

  • Although this investment increased sales and marketing expenses relative to revenue in the fourth quarter, we now enter 2018 with a larger team focused on ad revenue growth and additional resources to funnel toward our other sales teams.

  • To be clear, we remain strategically committed to growing our self-serve, national and partner sales channels, and we expect to capture an increasing proportion of our opportunity via these avenues in coming years.

  • At the same time, the effectiveness and economics of our core local sales rep model are compelling, and we view our multichannel strategy as a competitive advantage that is an and question rather than an either-or.

  • Adjusted EBITDA for the fourth quarter was $41.6 million at the high end of our business outlook range.

  • As anticipated, adjusted EBITDA margins were down year-to-year in the quarter, reflecting the hiring and investments I spoke of a moment ago.

  • During 2017, we took steps to rein in stock-based compensation and slow the rate of growth in Yelp share count.

  • At the end of 2017, we've repurchased and retired $13 million of Yelp's stock under a $200 million share repurchase authorization agreement in July.

  • Our fully diluted share count averaged 89 million during the fourth quarter, up 5.5% from the same quarter of 2016.

  • We've managed our share repurchase authorization conservatively thus far, and we plan to be opportunistic about repurchases in 2018.

  • With the strength of our balance sheet, we feel well positioned to manage dilution while preserving strategic flexibility.

  • Let me now turn to our operating plan and our business outlook for the coming year.

  • Based on the product, sales and customer success groundwork laid in 2017, we believe Yelp is positioned to achieve strong growth in advertising accounts and advertising revenue in 2018.

  • And we expect increased profitability within the core Yelp advertising business again in 2018.

  • As Jeremy indicated, we're giving advertisers more control over their ads, and we've begun to offer contract terms that are more dynamic without multi-month or annual term commitments.

  • Business owners have responded favorably to these and other changes.

  • We have begun to see an uptick in new advertiser acquisition.

  • We plan to move cautiously, recognizing that changes such as these are likely to increase trial purchases and may prompt greater on-and-off activity amongst some of our advertisers.

  • At the same time, our experience and our analysis indicate that the sales productivity and revenue benefits of moving in this direction will be clear net positives for the business.

  • Furthermore, we believe our expanded customer success function has the capacity to respond to changes in revenue retention that may emerge.

  • You'll see some of our caution expressed in a wider range of expected revenue outcomes within our 2018 business outlook.

  • Turning to the next piece of our plan for 2018.

  • We intend to invest in Yelp Reservations, Nowait and Yelp WiFi with the objective of increasing user engagement and transaction activity within the Restaurant category as well as generating additional subscription revenue.

  • These strategic investments are expected to initially dampen adjusted EBITDA growth and margin expansion in 2018, while solidifying our competitive position and setting up stronger financial growth in the long term.

  • To grow these businesses and increase the value they bring to the Yelp user experience, we're going city by city to build local density.

  • The salespeople taking these products to market are separate from the advertising sales team we report on each quarter, and we plan to staff these teams from the ranks of our core Yelp ad sales team over time.

  • We expect to incur operating losses in these businesses of $20 million to $25 million in 2018, and this is reflected within our business outlook for the year.

  • Finally, we expect to grow advertising revenue in the home and local category faster than in other categories in 2018, partly as a function of the heightened appeal of Request-a-Quote.

  • Our experiments to develop a take rate model through Request-a-Quote will move rapidly throughout the year.

  • However, we've not incorporated a revenue contribution from take rate into our current 2018 outlook.

  • Taking these items together, we expect full year 2018 revenue in the range of $935 million to $965 million.

  • On an apples-to-apples basis, excluding Eat24 from the 2017 base year, we expect revenue growth in the range of 18% to 22% for 2018.

  • On a reported basis, revenue growth is expected to be in the 10% to 14% range for the year.

  • Going one level deeper, we currently anticipate ad revenue growth in the high teens to 20% range for 2018, fueled by the recent growth of our local sales force, the launch of our new Washington, D.C., office and another year of strong gains in the self-serve channel.

  • On the Transaction line, revenue is expected to be in the $10 million range for 2018, with the bulk of that coming from the Grubhub partnership.

  • We expect Grubhub supply of orderable and deliverable restaurants to be integrated into Yelp by midyear.

  • Other services revenue is expected to grow in the mid-30% range year-over-year to roughly $20 million for 2018.

  • Based on our current plans and business outlook, we expect overall operating expense growth in the low to mid-teens for 2018 versus 2017.

  • Product development and sales and marketing are expected to drive the vast majority of expense growth in 2018, and both of these are driven by headcount.

  • We expect depreciation and amortization to be 5% of revenue in 2018, and stock-based compensation is anticipated to be approximately $115 million.

  • For the full year of 2018, our business outlook is for adjusted EBITDA of $175 million to $187 million, including the investments I mentioned a moment ago.

  • At the midpoint, this range would represent 16% growth over 2017.

  • Although we anticipate positive pretax income in 2018, our tax provision should remain small in the coming year, and we do not expect a material benefit from the change in corporate tax rates this year.

  • Turning to the first quarter of 2018.

  • We currently anticipate revenue of $218 million to $221 million.

  • Adjusting for the disposition of Eat24, the outlook range implies revenue growth of 22% year-over-year on a comparable basis.

  • We expect adjusted EBITDA of $29 million to $32 million for the first quarter of 2018 versus $29 million in the first quarter of 2017.

  • As with the full year, investments in our restaurant strategy will reduce operating leverage as will the recent growth in our sales headcount during the first quarter.

  • Looking into future quarters, we anticipate that the sales force expense effect will reverse itself as reps come up the normal production curve.

  • Other details of our first quarter outlook are laid out within the earnings release published today.

  • Wrapping up, we concluded 2017 with encouraging business momentum and having made tangible progress against our primary strategic objectives.

  • With the growth of the Yelp mobile app to nearly 30 million unique devices per month, we've extended our leadership in local and expanded the highly engaged community of consumers and businesses connecting with each other on Yelp.

  • As we go into 2018, we expect to capitalize on our accomplishments of the prior year in areas such as customer success, performance marketing, sales hiring and product innovation, to deliver strong and consistent revenue growth in the coming year.

  • We also plan to evolve our tactics and pursue new investments in 2018 that we believe will deliver financial and strategic benefits long into the future.

  • And with that, we'll take your questions.

  • Operator

  • (Operator Instructions) Our first question comes from the line of Mark Mahaney of RBC Capital Markets.

  • Mark Stephen F. Mahaney - MD and Analyst

  • Okay, 2 questions please.

  • First on this take rate transition or experimentation with Request-a-Quote.

  • So what's the timing like on that?

  • Is that something that you're going to feel your way through?

  • Or are you already set on when you're going to roll that monetization model out?

  • And then if you think about the EBITDA margin ramp this year, you went through a couple of reasons why the EBITDA margin expansion this year in '18 is going to be a little bit -- somewhat depressed.

  • Is the way to think about the model, is the 200 bps that you did in '17 kind of a normal Yelp EBITDA margin going against your long-term range of 35% to 40%?

  • Was that depressed itself?

  • Or was that greater than what we should normally expect?

  • Like how do we think about what a normal EBITDA margin should be like in order to get to your long-term margin expansion?

  • Jeremy Stoppelman - Co-Founder, CEO & Director

  • Mark, this is Jeremy.

  • I'll take the first half, and Lanny will take the second half of your question there.

  • So with Request-a-Quote, we continue to be really excited about the growth there.

  • We saw volume up about 100% year-over-year.

  • And as you know, we had been playing around with monetization.

  • December, we exited with an $18 million run rate using essentially our existing ad product, CPC-based product.

  • And we're looking for ways to potentially capture more of the GMV that's flowing through Yelp, and so take rate seems like an interesting proposition.

  • We have some experiments that we're just at the beginning stages of.

  • So it's something that we'll keep working on throughout 2018, and we'll keep you posted.

  • Charles C. Baker - CFO

  • On the margin front, Mark, there certainly are 2 main components.

  • There's the core Yelp advertising business, where just looking at that business in isolation, if you were able to do that, it would -- I think you'd see 40% to 50% of the revenue growth year-over-year dropping down to the bottom line.

  • And so that sort of main central engine of Yelp, our core advertising product, has very attractive incremental profitability and can drive, certainly, the margin expansions you talked about and maybe even a little bit more year-over-year.

  • Balanced against that are investments that we make and sort of the timing at which those investments return back to us.

  • Two come to mind right away.

  • One is this investment that we're making in the Restaurant category, where restaurants are very central to the value proposition of Yelp.

  • They're central to our model.

  • They're central to our strategy.

  • And we plan to make a pretty significant investment in that -- in those businesses at Yelp Reservations, WiFi and at Nowait this year with the view that, that sets us up for a significantly larger subscription revenue business down the road.

  • It drives new and repeat users to the business.

  • It closes some of the loop on attribution.

  • There are a whole lot of very important strategic benefits.

  • And so we're in a position where we can sort of balance the growing profitability of the core business to be able to make those really important strategic investments.

  • Request-a-Quote's an interesting one on the other side, where we're making product investments to build what we've got today at Request-a-Quote and to take it to the next level.

  • But then also, it could be one that turning on the take rate could have very attractive margin characteristics.

  • So I guess what I'd say in answer to your question is that we think we can make steady, consistent margin progress.

  • The core business has that 40%, 50% incremental margin characteristic to it, and it's a matter of what other investments we're making around that.

  • Operator

  • Our next question comes from Paul Bieber of Crédit Suisse.

  • Paul Judd Bieber - Director

  • First off, can you provide a little bit more detail on the key areas of investment in the Restaurant category?

  • I think the $20 million to $25 million of incremental investment implies that you're investing in more than sales people.

  • And then just a quick follow-up on capital allocation.

  • Can you provide us just with your strategy and how you think about M&A opportunities in this environment, given the large cash balance?

  • Charles C. Baker - CFO

  • Sure.

  • Let me talk first about the investments we're making at those very important Restaurant businesses.

  • The bulk of the investment is in sales and marketing.

  • There is product work in those areas for sure, but the bulk of the incremental investment is really salespeople to take those products out to local businesses, aiming for business density in specific geographies where there starts to be sort of a bit of a network effect, where the benefits to the user really become tangible, the benefits to the businesses, once the users are there for reservations or for waitlists, really start to mount.

  • We've seen that in San Francisco.

  • We've seen that in other cities that we've focused upon.

  • And so we're going to be making concerted efforts in concentrated places there.

  • It will be mostly sales and marketing.

  • On your second question in terms of capital allocation, we're fortunate I think, when we look at our mobile app user compared to the number of people who use Yelp on the desktop, we see a lot of room to continue go to grow our mobile app user base.

  • When we look at the number of restaurants that we have, the subscribers in the businesses I just mentioned at -- counting -- totaling them all up, we're at 14,000 today.

  • We think there's a much bigger market in total and bigger market for each one of those services over time.

  • It's another internal investment we can make.

  • And then we continue to see positive returns investing in our core local ad product.

  • So we're at a place where there still seems to be a -- and we believe there is, a tremendous amount of organic internal growth opportunity.

  • And so as we look at capital allocation, it's a high bar relative investing in an acquisition versus investing to further strengthen what we've got.

  • We keep an active eye on the market.

  • We have specific priorities that we're thinking about that would drive user growth, that would add new components to our model, that would add monetization in certain categories where we see real high monetization capabilities.

  • But we don't have anything else to say beyond that on the acquisition front at this point.

  • And in the meantime, we also have a share repurchase program to put us in position for being opportunistic and sort of doubling down on our own investment in Yelp.

  • Operator

  • Our next question comes from Matthew Thornton of SunTrust.

  • Matthew Corey Thornton - VP

  • I guess first one just on Request-a-Quote.

  • I want to peel that back a little more.

  • When you look at the growth, are you seeing more on the user side, more and more inbound requests?

  • Or is it more on the advertiser side, more advertisers engaging with the product and responding?

  • And then relatedly, those users that are using the product, are you seeing any data that would suggest they're visiting more often?

  • And again, on the advertiser side, are we seeing statistical evidence that those advertisers are showing better and better retention?

  • And then just as a second question, if I could, around business development.

  • I guess, obviously, you've got the Grubhub transaction this year.

  • We think it was well received.

  • Is there any appetite to do more along those lines?

  • Or do you see any opportunities out there along those lines?

  • Jeremy Stoppelman - Co-Founder, CEO & Director

  • So on Request-a-Quote, you were asking about whether it's really the consumer that's driving it or businesses and their uptake.

  • And I would say it's a little bit -- or a lot of, actually, both of those.

  • So we're seeing really nice volume growth, which is obviously driven by consumers.

  • It was up 100% year-over-year.

  • And then another encouraging stat that comes more from the business side is we're seeing really robust responses.

  • So the majority -- over 50% of requests get a response from a business in less than an hour.

  • And so we see that as really strong demand from the business side.

  • Hey, these leads are valuable.

  • They're worth responding to.

  • And so I think that bodes well for the functionality overall.

  • We're also seeing that the business in home and local services is growing very nicely, in fact, faster than I think just about every other category from a revenue standpoint.

  • And so I think that reinforces the idea that Request-a-Quote is driving a lot of value here, and so we're excited about it in the coming year.

  • Charles C. Baker - CFO

  • I'll address the business development thing.

  • I'd just go a little beyond what you said on the advertising side on the home and local services category.

  • The review content and the volume of reviewed businesses in home and local services is growing 1.3, 1.4x faster than all other categories.

  • So the investment we're making behind the product experience in home and local services seems to really be resonating with both consumers and the businesses they're contacting.

  • On the BD side, I think what we've said is there's a pretty concrete test that we run every business development kind of idea through, and that is number one, is it materially better for the user experience?

  • And when we looked at the Grubhub transaction, the quality of the restaurants, the number of the restaurants, the order -- the deliverability of the restaurants meant that bringing that onto Yelp was just sort of unequivocally going to be a better user experience in the food ordering category than we were delivering at the time.

  • The second one is, does that partnership have an opportunity to be sustainably better for Yelp shareholders?

  • And we looked at the economics of being in that business, of taking on the challenge ourselves to try and deliver -- do all those restaurants.

  • We look at the network that Grubhub had built, their leadership in the category and said, this is a relationship that we're able to really negotiate a win-win for both of us.

  • It'll be better for our shareholders.

  • So in any other category, with any other partner, those are the 2 gates.

  • It is first and foremost, and it's got to clear the consumer user one first.

  • Does it improve the consumer experience?

  • If it does that, do we have conviction that it could be better for the shareholders?

  • And if so, then we're very open to those ideas.

  • Operator

  • Our next question comes from the line of Mark May of Citi.

  • Mark Alan May - Director and Senior Analyst

  • Two questions, please.

  • In terms of the next step forward with local and home services and the take rate product, is that an area where you will primarily focus on trying to cultivate and develop a monetization solution in-house?

  • Or will you also be looking for partners, à la kind of what you've done with Grubhub and others in the Restaurant category?

  • And secondly, in terms of your expectations this year, what are you -- what is your target for growing the sales force during the year?

  • Jeremy Stoppelman - Co-Founder, CEO & Director

  • So talking a little bit more about home and local services and Request-a-Quote and take rate, I think we're at the early stages of experimentation here.

  • There's a lot of different levers that we're going to be playing with this year.

  • I think your question is still down to, hey, is there a Grubhub-like deal opportunity?

  • And we get asked that a lot.

  • I think we remain open to business development deals.

  • Lanny kind of laid out the framework in the previous question of how we're thinking about that.

  • But right now, we just see an incredible amount of potential right on our own platform just by building out the product.

  • And so that's kind of the #1 priority.

  • Something falls into our lap that makes us shift gears, that's always possible.

  • And in fact, with Eat24, we were very much focused on growing that business, and then an opportunity presented itself.

  • So directions can change.

  • But right now, all signs point to this product being a really nice hit for us and has a pretty clear path to strong monetization, which we're already on with $18 million in annualized revenue attributable back as of December to Request-a-Quote.

  • Joseph R. Nachman - COO

  • Yes.

  • And this is Jed.

  • In terms of where we're going to peg that kind of growth for 2018, it's going to be right kind of in the mid-teens range or in the mid-teens range.

  • We saw, obviously, very strong growth in sales headcount through the back half of the year, and that was a purposeful decision, when we started to see retention trends that were very favorable compared to historicals.

  • And so at some point in the third and fourth quarter, we kept our hiring plan in place and kind of grew through the original plan, and that was by design.

  • When -- we mentioned the other businesses that we're investing in, including WiFi, Nowait and Yelp Res.

  • And a lot of those folks are picked out of the local sales force, and we drop them into those various -- come into the year with that buffer and being able to fund them without kind of hitting the core Yelp local business was really important.

  • Also gets us a nice head start to the year.

  • And finally,we have this Washington, D.C., office and decided to kind of get ahead of the hiring.

  • It's a combination of both new reps as well as veteran reps that we have in that office.

  • So I think we'll get back to a mid-teens level over the course of 2018.

  • Operator

  • Our next question comes from Chris Merwin of Goldman Sachs.

  • Christopher David Merwin - Research Analyst

  • So I guess -- I think at one point, you gave a statistic that 80% of Yelp users weren't aware that they can order food on Yelp.

  • So just curious what you're doing to drive awareness among your user base that they can now order food on Yelp.

  • And maybe related to that, if you could just tell us what the contribution from the Grubhub partnership, what contribution is contemplated in your 2018 guidance?

  • And then just a second one on sales.

  • Jed, you offered some color there on the pace of hiring.

  • Can you talk about just how the sales force productivity has been trending in general and sort of what your expectations are for productivity for the heads that you're adding now?

  • Jeremy Stoppelman - Co-Founder, CEO & Director

  • I'll start off talking about awareness of food ordering.

  • It continues to be an opportunity for us.

  • There are a lot of ways that we can educate consumers that are using Yelp.

  • So we've got e-mail channels that we're still building out.

  • We've got search functionality, obviously, surfacing, food ordering possibilities in more innovative ways within search there.

  • When you open the app, you typically land on nearby screens.

  • There's some opportunity there.

  • And there's also notifications.

  • So we've got a lot of different tools to play with, and we've had success growing volume leveraging all those, and so we're going to continue to push on that in 2018.

  • Charles C. Baker - CFO

  • On Eat24, I think we had about $5 million of revenue in the quarter on the Transaction line.

  • $2 million of that was from the period where we owned Eat24.

  • So sort of underneath that, there was $3 million of Transaction revenue.

  • $1 million of that, as I said, was the sort of extra revenue per order that we're recognizing.

  • So that's where we were in the fourth quarter.

  • As I said for the coming year, we anticipate the Transaction revenue will be in the neighborhood of $10 million.

  • That's incorporated within our outlook.

  • And the bulk of that will come from the Grubhub partnership, though there are other platform partners in there and few other smaller business lines as well.

  • Joseph R. Nachman - COO

  • And then on the ramp productivity question, basically, it's been in line with what we've seen over the course of 2017.

  • Certainly, we're going through a transition into a -- more of a flexible noncontract world, and so we're watching that very carefully as we go into 2018.

  • The -- it's certainly a change for the sales force, but we feel pretty confident in both the testing that we've seen on our own kind of pilot teams as well as a bunch of data that we've seen through our own self-serve channel over the years and feel confident that, that will move productivity in the right direction.

  • And part of that is that we continue to see benefits out of our customer success team.

  • Which we've kind of built muscle up over the last 18 months and feel like we're in a position that we're able to kind of handle a wider funnel than we had previously, and ultimately expand the pie for Yelp in terms of the number of advertisers that we can interact with.

  • Operator

  • Our next question comes from the line of Brent Thill of Jefferies.

  • Brent John Thill - Equity Analyst

  • Lanny, I just want to go back to Mark Mahaney's question around EBITDA.

  • The investments this year that you're forecasting are slightly higher than the Street.

  • I just wanted to follow up.

  • I think you mentioned there were 2 reasons.

  • One was the investment in Restaurants and second was Request-a-Quote.

  • I want to make sure that there wasn't any other category that we need to consider that's in that mix.

  • Charles C. Baker - CFO

  • No.

  • The -- we are making investments in our product team.

  • You see the growth of that line in the fourth quarter.

  • That goes -- the bulk of that is against the core Yelp product.

  • That would incorporate what we talked about in Request-a-Quote.

  • There's really a sort of a different sales investment, sales and marketing investment behind those restaurant subscription businesses that we called out.

  • Operator

  • Our next question comes from the line of Lloyd Walmsley of Deutsche Bank.

  • Christopher Louis Kuntarich - Research Associate

  • This is Chris on for Lloyd.

  • A few if I can.

  • Can you talk about the performance for cohorts retained from the retention team's earliest efforts about a year ago?

  • And then are you guys really seeing any of these customers continuing to renew?

  • Charles C. Baker - CFO

  • I'm not totally clear on what you're talking about, but I think you might be referring to the retention issues that we had in the first quarter of 2017 that were really, when you trace it back, related to cohort of advertisers that we brought on in 2016, earlier this year -- earlier last year in 2017, we'd shared with you the notion that there were -- advertisers brought on in the early part of 2016 never really established the normal level of engagement with their Yelp advertising program.

  • We anticipated that they would churn off, and they churned off at the end of the year at a higher rate than we'd anticipated, and that set us back at the start of 2017.

  • That was a sort of swamping of the boat that came through at one point in time for a few months.

  • And then what you saw was more of a reversion of the trend line, which is Yelp making steady progress improving our account retention.

  • So that issue feels, at this point, like it's pretty far behind us.

  • Christopher Louis Kuntarich - Research Associate

  • Got it.

  • And maybe just one real quick one on the timing of the Nowait, Yelp Reservation and WiFi losses.

  • Are those going to build throughout the year in 2018?

  • Or should we expect those to be relatively even?

  • Charles C. Baker - CFO

  • I think they're pretty steady across the year.

  • Operator

  • Next question comes from Deepak Mathivanan of Barclays.

  • Deepak Mathivanan - Research Analyst

  • So first, are there incremental ongoing costs associated with Grub integration efforts on the Yelp platform in your 2018 guidance?

  • Should we expect that to sort of wind down over the course of the year?

  • And then second, can you elaborate on the flexible terms for sales force doing contracts you discussed in the prepared remarks?

  • It sounded like it was largely related to specific contract terms.

  • Is there flexibility on the pricing volumes as well?

  • And is it -- for any specific category?

  • Charles C. Baker - CFO

  • On the product investment related to transitioning with Grubhub, there's nothing abnormal there.

  • There's an amount of work that's being done right now.

  • The team is addressing that with purpose.

  • But that, to a large degree, is happening all the time.

  • We've got an initiative in a different category with a different product.

  • It may be the mobile app.

  • It may be the desktop.

  • And we're moving around resources.

  • And today, there are resources focusing on that integration.

  • You should not expect that those expenses go away.

  • They'll be reallocated to the next opportunity and priority that we have when we get done with that work.

  • Joseph R. Nachman - COO

  • Yes, and on the non-term, there is, in fact, a contract.

  • It's just a non-term contract.

  • This is a decision that, as we kind of got data points back from the market on kind of what our customers wanted in flexibility and control in their advertising products, and then actually looked at our own data on the self-serve side where we saw behavior that indicated you're going to get a lot more volume with a less-considered purchase.

  • If you think about the -- an advertiser potentially spending $300 or $400 as a commitment versus $3,500 to $4500 over a 12-month period of time, that's a much -- we've kind of lowered the hurdle in getting involved with Yelp advertising.

  • And in fact, when we looked at the data with our test teams, we can see that overall, Yelp's going to be in a much better position revenue-wise with those cohorts flowing through.

  • So really, it's a broad-based change.

  • We are going to be cautious about the rollout given the size of the change and make sure that we're very deliberate in how we get it out to the sales team.

  • And so that caution is reflected in kind of where we are on the numbers side.

  • Operator

  • Our next question comes from Douglas Anmuth of JPMorgan.

  • Douglas Till Anmuth - MD

  • Lanny, I just wanted to go back to the leverage in the core business that you discussed.

  • The 40% to 50% flow-through is helpful.

  • Was just curious if you have a comparable number for 2017 to the $20 million to $25 million investments that you're talking about in '18.

  • Charles C. Baker - CFO

  • It was lower investment.

  • Remember, we didn't own those businesses until -- we didn't own them at all in the first quarter.

  • And then there's a period of sort of getting them on board, get them integrated and stabilized before we, really, we're able to shift into gear.

  • We have said -- I think last quarter, we let you know that the sales force at Yelp WiFi is significantly bigger today, probably an order of magnitude, bigger than it was at the time of acquisition.

  • So there've been investment ramping up there, but the number that we called out for this year, and particularly, the expenses -- because remember, the revenues are growing there.

  • But the expenses between the revenue we're generating and the losses that we told you about, the investment we're making, that's a big investment there.

  • Douglas Till Anmuth - MD

  • And just to clarify.

  • The investments that you're talking about for '18, the $20 million to $25 million, did I hear right?

  • You're saying that's mostly sales and marketing.

  • I'm just trying to understand where those dollars are going across those emerging businesses.

  • Charles C. Baker - CFO

  • Yes, it's sales and marketing.

  • Operator

  • Our next question comes from the line of Tom Champion of Cowen.

  • Thomas Steven Champion - VP

  • Can you talk a little bit about how you compete in home and local as a space generally?

  • Based on the number you gave us last quarter, it seems like a lot of SPs are using Request-a-Quote.

  • How do you differentiate relative to Angie's and HomeAdvisors?

  • And as for PAAs, they came in a little bit stronger than maybe we thought, and I was just curious if there's any particular callout there, whether it's your larger sales force or product improvements or a generally improving economy.

  • Jeremy Stoppelman - Co-Founder, CEO & Director

  • On the home and local question, how do we compete in this space, I think one of the neat things about Yelp is that we're particularly strong in high-frequency categories that draw in users, particularly Restaurant, food and nightlife.

  • And so from a customer acquisition standpoint, a lot of those people just show up, and we don't have to spend tons of money shouting from the rooftops that you can find a plumber on Yelp.

  • You kind of start in the high-frequency categories, and then it's on us to educate you over time about what are some of the other categories that might be useful to you.

  • And that's reflected in the usage as well as content growth.

  • So consumers are really finding their way to these other categories, and we're seeing a really nice rise in home and local services reviews, not to mention the Request-a-Quote volume.

  • So we feel pretty good about our competitive position, and it's playing to our strengths.

  • And we're kind of building out a new area of functionality, riding off the backs of something that we were already winning at.

  • Charles C. Baker - CFO

  • On the paying advertising accounts growth, it was pretty consistent with what we've seen the last couple of quarters.

  • A year ago, we had a pretty soft fourth quarter.

  • So that comparison year-over-year was a bit better.

  • There's a contribution in there for sure from our improved customer retention, client success efforts.

  • There is not, at this point, a big benefit in that number from sort of the rookie hires that we've made over the last few months.

  • Those people are -- many of them are in training and just coming up to speed.

  • Operator

  • Our next question comes from the line of Ryan Goodman of Bank of America Merrill Lynch.

  • Ryan Chusid Goodman - Research Analyst

  • Two questions for you.

  • So one, you touched on this a bit about some of the organic initiatives you've had over the last year in terms of driving user growth and user engagement, and it sounds like that's going to continue in '18.

  • Just curious how we should be thinking about incremental spend, if any, to really drive user growth as well as in engagement growth.

  • And then the second question, you did mention commitment to the self-serve model in 2018.

  • Can you just talk about some of the things that you are doing there to drive new accounts to the platform and whether those tend to be new to Yelp?

  • Or are you're looking to migrate out of the local business or a bit of both?

  • Jeremy Stoppelman - Co-Founder, CEO & Director

  • I'll take the first half there.

  • On our strong app growth, which was about 20% year-over-year, it's driven by things like create notifications that are personalized to you, continued progress with SEO.

  • But as you alluded to -- so the vast majority of the growth we're seeing is organic.

  • But as you alluded to, there is an outperformance layer, and so there is some marketing spend there in finding sources of paid traffic as well.

  • But we're really careful about spending in a smart way and making sure that those users are high quality and engaged with Yelp.

  • It's not just putting points on the board.

  • For vanity's sake, we've also found success with some BD partnerships, so going to handset manufacturers and carriers and doing preload deals.

  • And those have generated high-quality users as well.

  • Charles C. Baker - CFO

  • On the self-serve front, looking into 2018, I'd say that the biggest change driving self-serve is that during 2017, we had a big priority to build the performance marketing capability.

  • And the sandbox in which we really developed that marketing capability was to focus first on user growth.

  • As we roll over to 2018, we're starting to point that performance marketing capability more in the direction of business acquisition and advertiser acquisition through the self-serve channel.

  • That probably starts with driving businesses to claim their page on Yelp, and we're encouraged to see the last 12 months have been the record 12 months in the history of Yelp in terms of businesses, for the first time, claiming their page on Yelp.

  • That's a real promising indicator, early indicator of the opportunity we have to drive the self-serve channel.

  • As I said, we'll be doing more on the marketing front there.

  • Operator

  • Our next question comes from the line of Justin Patterson of Raymond James.

  • Justin Tyler Patterson - Internet Analyst

  • I was hoping you'd talk at the cohort level of the Nowait and Turnstyle customers.

  • Are there any notable behavior differences there with respect to advertising, revenue retention?

  • Just anything you could say to help flesh out the investment a little bit more.

  • Jeremy Stoppelman - Co-Founder, CEO & Director

  • Yes.

  • I think it's too early in the integration and growth in these products to have a whole lot to report there.

  • We do think that they're going to be great, and there are some signs already on the consumer side.

  • They're driving a lot of value, and that's a big part of the story for us, is being able to skip the line from the Yelp app is a really wow moment from a consumer standpoint.

  • Being able to hop on WiFi at a local business that is Yelp WiFi and get high-speed Internet and not blow out your cellphone plan is a great consumer experience.

  • So that's the starting point, but we definitely see opportunity there to integrate these products into the full Yelp suite and be able to deliver value to advertisers, like how are your ads performing because we're gathering more data.

  • But that's kind of farther out.

  • Operator

  • Our next question comes from the line of Bradley Erickson of KeyBanc Capital Markets.

  • Bradley D. Erickson - Research Analyst

  • Just wanted to circle back on the Q4 EBITDA.

  • You've touched on this in bits and pieces but just want to get it completely direct.

  • You called out retention being really strong but, obviously, offset by increased hiring.

  • Seems like you had called out the hiring expectation last quarter.

  • So between the churn, the hiring and, I don't know, any Eat24 margin drag or any other material factors, can you just kind of unpack the puts and takes that went into the Q4 EBITDA relative to what you guided last quarter?

  • Charles C. Baker - CFO

  • Well, I think the biggest change there was that we, as Jed said, we made a decision in the third quarter that we affirmed in the fourth quarter to continue to grow the local sales force, as we saw rep retention trending really well, keeping our gas -- our foot on the pedal of hiring people into Yelp.

  • And that drove products -- or sorry, sales and marketing expense -- really, sales expenses higher relative to our original plans.

  • We had a little bit of upside on revenue.

  • We had a little bit more expense there and came out kind of at the high end of the EBITDA outlook range when we put those pieces together.

  • Bradley D. Erickson - Research Analyst

  • Got it.

  • That makes sense.

  • And then just on the flexible spend you called out as, obviously, learning the hurdle did invite some, I guess, new pent-up demand, which is a net positive, you said.

  • What are your expectations based on the testing you've done in terms of what will happen to the existing cohort spending as you roll out those new flexible terms?

  • Joseph R. Nachman - COO

  • I guess you're referring to existing customers that we have that are not under those flexible terms.

  • Yes.

  • Listen, we had a similar type of product out in the marketplace with self-serve to date and have not seen a lot of kind of corrosion of that as a result.

  • Certainly, something we're keeping our eye on and doing that kind of in a very deliberate way.

  • But we've not seen that kind of come to bear as of yet, but we're not fully rolled out yet.

  • I don't believe that there is a full communication between all of our products and in terms if you're a self-serve user, you come on with no terms.

  • We haven't seen it so far, and I don't anticipate it, but certainly something we're aware of.

  • Charles C. Baker - CFO

  • Yes, the one point I'd add to that is that our customers that we have sold historically on a 12-month contract, when they get to the end of that 12-month contract, they go into a perpetual renewal, month-by-month, month-by-month basis.

  • So effectively, a pretty large portion of our advertiser base -- our most satisfied advertiser base is already on that sort of month-to-month term.

  • So I appreciate what you're talking about.

  • There could be people saying, oh, I want to be on a different schedule.

  • But as Jed said, we've seen this before.

  • That option's been available to them.

  • And it's one of the things we have under our watch, but I don't perceive that to be a huge issue sitting in front of us.

  • Operator

  • Our next question comes from Peter Stabler of Wells Fargo Securities.

  • Peter Coleman Stabler - Director & Senior Analyst

  • Two if I may.

  • One for Jeremy.

  • On Request-a-Quote, and as you guys migrate to or experiment with the take rate model, would you anticipate significant changes to the user experience?

  • And then on the second one, for Lanny, it looks like ARPU or revenue per paying ad account ticked down year-on-year slightly for the first time.

  • I'm just wondering if there's any color you can add on the drivers there.

  • Jeremy Stoppelman - Co-Founder, CEO & Director

  • So your question on Request-a-Quote, does the take rate direction send us off into any wildly different user experiences?

  • I think there's a number of implications on the product side but I wouldn't say that they're wildly diverging implication from where we're just generally headed.

  • And so there is product and engineering work to be done that's already kind of underway to continue our experimentation of fleshing out this direction.

  • But I'd call it sort of natural evolution, nothing dramatically different than where we've already been.

  • Charles C. Baker - CFO

  • The -- on the ARPU, let me break it down into 3 pieces.

  • The ARPU in the local, local business to the reps was up in dollars but basically flat year-over-year.

  • The ARPU in the self-serve channel was flat year-to-year.

  • And the ARPU in the national channel was down 1% or 2% year-to-year, and that reflects primarily the growth of some of the smaller multi-business and franchise customers within the mix there.

  • So the answer on ARPU is it's largely a mix shift issue, Peter.

  • Operator

  • And our next question comes from the line of Ron Josey of JMP Securities.

  • Ronald Victor Josey - MD and Senior Research Analyst

  • Maybe 2 quick follow-ups.

  • With the flexible ad approach, just wondering if what -- why now.

  • I think you talked about market demand yet having a -- being deliberate in the rollouts.

  • Wondering if this is something you've been thinking about for some time or maybe more of a response to overall demand.

  • And then Lanny on Grubhub, I think I heard you said -- say the launch would be sort of midyear.

  • I thought after 3Q or during 3Q.

  • You had mentioned 1Q.

  • So I wonder if there's a little delay on the Grubhub integration.

  • Charles C. Baker - CFO

  • No delay on the Grubhub integration, so no.

  • Joseph R. Nachman - COO

  • Yes.

  • And then on the why now question, I think we have a lot more confidence in our customer support function today, and both the improvements we've made with the team itself, how we're kind of splitting up the work there as well as in product efforts that have strengthened our attention.

  • So really, it's having the capability to kind of handle an expanded funnel and do that in the right way.

  • And the initial results are kind of proving out to be the way we expect them to be.

  • And again, we have a lot of data on that based on self-serve and kind of the test cohorts that we've run.

  • And now it feels like the right time to move more aggressively in that direction.

  • Operator

  • And ladies and gentlemen, this concludes Yelp's conference.

  • Thank you for your participation and have a wonderful day.