Yelp Inc (YELP) 2019 Q1 法說會逐字稿

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

You've joined Yelp's first quarter 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, Ronald Clark.

Sir, you may begin.

Good afternoon, everyone, and thanks for joining us on Yelp's first quarter earnings conference call.

Joining me today are Yelp's CEO, Jeremy Stoppelman; CFO, Lanny Baker; and COO, Jed Nachman.

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 shareholder letter for a more detailed description of risk factors that may affect our results.

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

In our shareholder letter released 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 adjusted EBITDA margin.

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

Thanks, Ron, and welcome everyone to Yelp's first quarter earnings conference call.

As we discussed with you on February, Yelp has begun undertaking a series of important business transitions designed to accelerate growth, drive stronger profitability and create shareholder value.

We're encouraged by the progress we've made in the first quarter.

Our new business products are resonating with customers, we captured more of the national opportunity and, approaching the end of the quarter, we began to drive significantly more value to our advertisers.

We are pleased to share more detail on the progress we outlined in our shareholder letter as well as provide you with some additional color on our first quarter results, which were consistent with our business outlook.

We expect these early wins, along with our continued focus on our 2019 initiatives, to accelerate revenue growth.

Accordingly, we are reaffirming our business outlook for the full year.

As we look ahead to the next 5 years, our plan is to make Yelp stronger and more valuable by increasing our focus on serving the needs of advertisers and business owners, leveraging product and marketing alongside sales to enhance our go-to-market strategy and delivering a mid-teens percentage compound annual revenue growth rate, coupled with consistent margin expansion and disciplined capital management.

Our first quarter results reflect several of the benefits of our focused execution.

And at the same time, we're still in the early days of a significant business transition.

We anticipate that the full benefit of the work we are doing today won't be measured in this quarter or the next one but rather will play out over the next several years to return Yelp to strong revenue growth with a more leveraged and profitable business model.

Now I'll turn it over to Lanny to touch on the key points for the quarter, and then we'll open the call to your questions.

Thank you, Jeremy.

Total revenue grew 6% year-to-year in the first quarter led by healthy growth in our multilocation and national businesses.

This is an area of strategic priority where we believe Yelp is -- remains very underpenetrated.

Net income in the second quarter was $1 million or $0.02 per share.

Demonstrating once again the operating leverage in Yelp's business model, we delivered 50% of the first quarter revenue growth down to the adjusted EBITDA line, with adjusted EBITDA margins rising 2 percentage points year-to-year in the first quarter.

During the first quarter, we repurchased $102 million in Yelp's stock.

And as of last night, we bought back a total of $205 million year-to-date or 5.7 million shares, reducing the fully diluted share count by approximately 6% since the start of 2019.

Looking ahead to the rest of the year, we're reaffirming our full year business outlook for 8% to 10% revenue growth over 2018 and 2 to 3 percentage points of adjusted EBITDA margin expansion versus last year.

Our second quarter business outlook anticipates higher revenue in the current quarter than in the first quarter of 2019 with year-over-year revenue growth in the range of 4% to 6% compared to the second quarter of 2018.

We also expect adjusted EBITDA margins to rise from the first quarter to the second quarter with 2019 adjusted EBITDA margins anticipated to be even with, to 1 percentage point higher, than what we reported in the second quarter of 2018.

Within our outlook, for both the second quarter and the full year, we reflected current business trends as well as some anticipated impact from the opportune initiatives begun last year and which we advanced during the first quarter.

Specifically, we anticipate stronger second half revenue growth based on at least 3 key priorities, and these are areas in which we've already seen early signs of progress.

First, we believe revenue growth in the multilocation and national advertising business will remain strong and gather momentum in the second half based on the expansion of our sales force, the introduction of new products and winning new customers and growing revenue from existing customers.

Second, the introduction of new revenue-generating business owner products and effective marketing and development of those we've already launched is expected to add to growth across the remainder of 2019.

Third, we anticipate that our efforts to enhance the control, service and value delivered to advertising customers, headlined by a significant increase in leads delivered and matched with reduced CPC prices, will increase customer satisfaction and improve revenue retention as we progress throughout the year.

With that, let's turn the call over to questions.

(Operator Instructions) Our first question comes from the line of Shweta Khajuria of RBC Capital Markets.

Two questions please.

On product expansion, Verified Licenses, that's up to 5,000 from 3,000.

And I believe now you have another product.

So how deep is your new product offering pipeline today?

And have you been testing some of the new products already that you've not launched?

And could you talk a little bit about that for the rest of the year?

And then second, in home and local, you plan to double the number of leads to paid advertisers this year.

What are you doing differently on the platform to drive this growth?

$5 million leads in Q1, up 50% revenue from Request-A-Quote.

Shweta, so this is Jeremy.

I'll take your question here.

So the first thing we did on the product side was improve the ad units, better merchandising, better targeting, which we saw a lot of success with driving more clicks and lowering prices, lowering CPCs.

So that was a great win for our advertisers, drove them more value.

Starting kind of midway, we really started to see the impacts midway through the quarter.

We also, as you mentioned, have seen some success, early success, with Verified licensing.

For businesses that have a licensing regime, they can showcase that now on their business profile and in search results, and we've really seen healthy uptake there, continues to be a bright spot.

And then more recently, we just started rolling out Business Highlights, so highlighting different characteristics of your business, how many years you've been open, whether you do offer free quotes and things like that.

And that's seeing really healthy early signs but just launched as we closed out the quarter, as we started Q2.

On the national side, we also have a new product offering that started to be [out in the wild,] which is limited time offers.

And we're seeing a strong market response from the national enterprise segment.

That's something that we knew that they wanted.

We got close to the customer, and they were telling us they have seasonal campaigns and things, and they'd like a way to showcase that on Yelp.

And so we were able to provide a product specifically tailored to help them with that.

And then your second question was on home and local, talking about leads and how are we going to drive more leads to our advertisers.

And some of that has already really begun.

I think we were up over 60% in leads driven to advertisers.

And the big opportunity there is we have a lot of, what we call, organic leads flowing through the system, and we have a big opportunity to channel those more towards our paying advertisers.

And that's through things like ad units and better merchandising and new ad placements and so forth.

And so we've taken some real impactful first steps, but we have a whole lot of additional features and launches that will be coming throughout the year.

Our next question comes from Michael Ng of Goldman Sachs.

Great.

It was encouraging to see the progress on national accounts in the quarter, winning some of the new mandates and budget increases from some of the advertisers.

I was just wondering if you could give us a few more details about some of these new wins and if there is any way to quantify the contribution to revenue growth from these national accounts throughout the rest of the year?

And secondly, could you just talk about your confidence level in the revenue growth accelerating in the back half?

Sure, Michael.

I can take the first one.

This is Jed.

We had a strong quarter in Q1.

In the fourth quarter, we actually signed a bunch of new national advertisers.

Some of those programs were seasonal or short term in nature, and we're starting to get more seasonal in that business.

And the beginning of the year tends to be a little bit of a seasonal lull, so we're actually really encouraged by the back half of the year.

We certainly contemplated that rate in our outlook for the quarter.

We see several encouraging signs as we enter into a stronger spending season.

50% revenue growth in our top 100 accounts.

About half that growth came from existing customers, which is a good sign, and half from new customers.

As Jeremy mentioned, the LTO product is just kind of getting out into the wild right now, and it's had strong initial response.

And really, we've grown that team by 30% year-over-year and are starting to have the real conversations that we have to.

We're a real viable option based on the other competitors out there, very far down the funnel in the eyes of national advertisers.

There is a lot of intent-driven consumers out there looking at Yelp.

So we're encouraged by what we're seeing on the national business, and we look forward to the rest of the year.

And then your second question was about sort of the shape of the year, our confidence level, various drivers and the like.

In the first quarter, from a revenue growth perspective, the enterprise business was -- and the national accounts were really important drivers, very strong growth in that category, as Jed just described.

And as we look across the rest of the year between the sales force expansion, the products that we have that go -- there are some attribution things that we continue to do beyond the limited time offer, we feel like we've got a very strong product slate that's going to allow us to continue to get good advertiser response, both new accounts and then growing the accounts that we have.

We are in the middle of a transition year.

We've described it that way.

And after the end of the first quarter, we've seen progress in many of the key areas that we prioritize for this year, be that self-service, new products, customer retention, lowering CPCs, enterprise growth.

And those are all the formulation that go into our full year outlook.

So we're reaffirming that outlook today, and we're very focused on achieving the goals we have set out.

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

And I apologize if these have been asked already, but maybe 2 quick ones, kind of housekeeping.

Noticed that I believe the ad clicks in total grew faster than advertising revenue.

Correct me if I'm wrong, but if that's the case maybe if you could share a little bit of what causes that to occur?

And then secondly, in terms of some of the new products that you're rolling out, verified License, Business Highlights and it sounds like more to come, are these -- do you have to be an existing advertiser to purchase these products?

Or if not, are those -- what's sort of the strategy around -- is that meant to kind of allow a sort of a little bit of a lower price entry level and then to upsell?

Just kind of curious about how you're selling those products and the strategy behind that.

Sure.

I'll talk first about the revenue and the ad clicks and what's going on there.

You're right.

Ad clicks grew faster than advertising revenue in this quarter.

And as we've said and as Jeremy talked about earlier, a big focus for us has been to increase the value that we're delivering to our paying customers.

And as we do that, we're driving more -- by improving the ad units, by improving the efficacy, by improving the way they stand out within search results, by giving advertisers more control over the way that those ads look and where they show, we are able to drive an increasing volume of our consumer activity to our paid advertisers.

And effectively, what that does is it reduces the -- improves their gas mileage.

Per dollar spent, they get more advertising result, it reduces the cost-per-click.

And we know and we believe that will continue to contribute to advertiser satisfaction and ultimately to advertiser retention rate.

So there's a very purposeful activity there to increase the ad volume delivered to our customers, and that's kind of what's behind that dynamic.

Mark, this is Jeremy.

I'll talk a little bit more about Verified and our profile product strategy there.

You're asking is this -- do you have to be an existing advertiser buying CPC to purchase a product?

The answer is no.

And so we do see a mix of both existing as well as new advertisers.

One of the ideas behind this product was looking at our overall offering.

We didn't have something that was really at the entry level.

So most of our efforts were focused on getting you as a potential advertiser to spend $300, $400 with us.

And so we saw it was worth exploring some entry-level options, and this is essentially our first foray.

And it's getting a really strong reception from both the big spenders, the ones that are spending $400-plus with us.

And in fact, we do see some improved retention characteristics when they pick up the product.

So it does seem to make them more committed to Yelp.

But then we're also seeing a healthy mix of new ad -- new spenders that maybe wouldn't have bought from us before or just dipping their toe in and exploring.

And we do think there's opportunity to experiment there with selling -- starting with some of these new customers that are coming in on Verified and then upselling them later.

We do have a client services team and a local client partners team that is really focused on upselling and providing extra value to our advertisers.

So we see additional opportunities and experimentation there.

One other -- one of the key elements of the strategy around the products is really how they dovetail with self-serve.

I don't want people to miss that.

Verified License, half of the customers that are currently subscribing to Verified License were self-serve buyers of the product and that we believe that lower price point, based on our market research, competitive analysis, customer feedback, we believe that these lower-priced products are going to be an important sort of ignition point for our self-serve product and channel over time.

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

Great.

I just wanted to dig into home and local a little bit.

We're seeing a lot more interest in on-demand products and companies moving from high up the funnel leads to giving service providers leads that are ready to book today.

From that perspective, how do you think about the ability of Request-A-Quote to deliver customers very ready to transact to more of your service providers?

Are there any more product developments or changes in traffic acquisition you need to make?

Justin, this is Jeremy.

Certainly, in specific categories, there can be emergency services or something that you want right away.

Like you can imagine, if you crack your iPhone screen, you want to get that replaced sooner rather than later, and there are actually mobile services that will come right to you.

So Request-A-Quote does handle those types of offerings, and we do provide response times since that can help consumers get what they're looking for really quickly.

But I think there is product opportunity to go even deeper and make it even more responsive, and so we'll continue to chip away at that and explore.

Our next question comes from Lloyd Walmsley of Deutsche Bank.

This is Chris on for Lloyd.

Maybe a few if I can.

Just maybe a quick one to piggyback on what Mark had asked.

Are advertisers that are just using the likes of Business Highlights, Verified License or the limited time offer, are they being included in the PAA number or the paid local number?

And if so, how many advertisers were just using those products?

And then maybe one on the national for us.

Just curious, how are you thinking about the vertical makeup on a go-forward basis of your top 100 advertisers?

Sure thing.

Yes, the Verified License customers, Business Highlights customers and other new products that we're rolling out will be included in our paying advertising account, paying advertising locations statistics.

As we rolled those services out, they are promoted within the claims flow.

As I talked about, the importance of these products from a self-serve perspective, they are promoted within the business owner account.

And we've had strong uptake from both new customers, brand-new to Yelp as well as existing customers saying, "Oh, that's a nice feature.

That's a nice upgrade.

I'm going to add it to the package that I already have."

So the 5,000 customers that we have on Verified License today are a combination of brand-new customers who are only buying that, brand-new customers who are buying that and also upgraded to advertising at the same time or shortly thereafter as well as existing advertisers who have bought the Verified product.

So all these things will be in the account, and they are today.

The 5,000 accounts relative to the grand total of 193,000 advertising accounts that we have, there's not a huge impact from the net brand-new Verified License only within that number yet.

Though over time, our belief is that low-priced products are important for getting us to a wider distribution in the marketplace.

On the national front, Jed?

Sure.

In terms of verticals that we're going after, I'd say that the major focus is on restaurant and retail, the limited time offers specifically for a restaurants, and we're going to continue to kind of work on that product through the retail sector as well is -- really resonates.

You see a lot of these national clients going through 1-, 2-, 3-month campaigns where they want to promote a specific menu item or a specific deal, all-you-can-eat buffet at Olive Garden.

And so we really think restaurants are a great place to focus.

And also, it should be noted that our attribution studies that we do with third parties as well as our own first-party data works really well in high-volume categories where obviously people are walking into stores.

And so you see a big focus on restaurant and retail.

That being said, we do have a nice services national business as well and less on the limited time offer side, but they find a lot of value in the Request-A-Quote product as well.

(Operator Instructions) Our next question comes from the line of Tom Champion of Cowen.

This is Henry on for Tom.

How do you feel about sales force productivity so far this year?

And what steps are you taking to increase it?

And also curious if you could talk about how your cost-savings initiatives are tracking.

Sure.

I'll take the first one, Henry, in terms of sales force productivity.

The bottom line is at the top of the funnel, we feel really healthy right now.

Oftentimes, when people are calculating sales force productivity, they're looking at some sort of combination of net revenue and additions, which doesn't really accurately reflect kind of sales productivity.

We were encouraged with the gross account additions driven by the sales force in Q1.

That number was stronger than the prior 2 quarters, and metrics like deals per rep are right in line with our targets.

A lot of the action on the productivity side, which doesn't actually have to do with salespeople, is on the retention side.

And so we're still feeling some of the effects of the transition in long-term contracts, and short-term customer retention is lower than it was a year ago.

And that's what's kind of impacting the overall productivity number.

But as we mentioned previously, we're keenly focused on delivering more value to our customers and driving more product into the channel out with the intended effect that we're improving the retention side of the equation, but our top of the funnel is as healthy as it's ever been.

And Henry, on the -- with respect to cost savings, the -- we have a plan there that is proceeding on pace and on plan.

A couple of the highlights that we've called out right now that we'll talk about are, we've sublet a portion of our space in San Francisco, leasing 3 floors today with plans to let more space in our San Francisco facilities go as we progress throughout the year.

It's obviously a very high cost rental market and we're -- as we move some of our sales resources into other offices, that will allow us to get some savings we've talked about.

Another area where we found some pretty compelling, both savings and sort of strategic benefit, is that as we add more Only-on-Yelp product features to the mobile app, such as reservations and waitlist, we're finding a nice flywheel of users and locations driving mobile app user growth.

That's allowed us to back off on some of the customer acquisition spending that we might have done previously to propel user growth.

So those are in the area -- I believe, in the first quarter, we reduced our marketing spending by $4 million, $5 million relative to a year ago even while seeing an acceleration in mobile app users.

So that strategy on restaurants to be a source of our user growth really is making our company healthier and stronger and more profitable going forward.

So we're on track on the cost savings.

I appreciate the question.

Our next question comes from Sameet Sinha of B. Riley FBR.

On the CPC question, it's -- you decided to add more value to what your advertisers are paying you for now.

The question is did you have to reduce prices?

Or is it automated?

Did reducing prices also mean did you have to remove the floors on certain CPCs?

Or is this an automated process?

So it worked out that way, it's just the result?

And secondly, on Request-A-Quote, if I'm looking at the number, it seems like annualized revenue came up at about 50% year-over-year.

How much of that is also dependent on the CPC slowdown?

So on your first question -- this is Jeremy.

Around CPC pricing, it is a largely automated system.

We did improve the effectiveness as well as number of ad placements.

And so that has an effect on inventory, which drives down CPC pricing.

That's pretty much the main driver of why value went up and pricing, as a result, went down.

And then on Request-A-Quote...

Yes, on Request-A-Quote, yes, you're right.

You had the numbers right in terms of the attributable revenue growth.

And the things that we're doing to improve the delivery of Request-A-Quote consumers to paying advertisers has the same effect that Jeremy just described.

And so as we drive more value, i.e, more leads per dollar spend, it does reduce CPCs in the near term and we think improved customer satisfaction and retention in the intermediate and longer term.

Our next question comes from the line of Elliot Alper from D.A. Davidson.

So with data privacy becoming a hot topic, could you remind us about your policies and strategy when it comes to collecting and using customer data on your platform?

Yes.

This is Jeremy.

I mean, we obviously take data privacy very seriously.

I think we're not collecting the amount of data that a Facebook or a Google has.

So we're not really in the heart of the bull's-eye.

We don't sell off our data to third parties or anything like that when we're talking about things like attribution, which can be more sensitive.

We have first-party data that we collect ourselves.

We work with other third parties that do their own data collection, but we are very careful and thoughtful about user privacy.

Our next question comes from the line of Victor Anthony of Aegis Capital.

Just a question on the partnership paragraph in the shareholder letter.

You guys are stating that you're open to pursuing effective partnerships.

But the company ANGI Homeservices said that they are open to some sort of commercial relationship with you guys.

So you're open to partnerships.

They're open to partnerships with you.

What's holding you guys back?

It seems that's kind of a win-win situation.

Well, thanks, Victor.

As we've said in the past, when we look at partnerships, we're really looking at sort of a 2-gate process: one, does the partner enhance the customer experience that we have; and two, does the partner offer to our shareholders better economics than we can generate on our own?

We're still fairly early in the development of the home services category.

It's growing as fast as some of the -- if not faster than some of the apparent current leaders in the marketplace, and we've got a lot of new product coming for that area.

It's -- we're pretty excited about the growth we've seen and reviewed businesses are growing at a teens rate in the home and local category year-over-year, and then the number of reviews per business are growing at an even faster rate.

So our depth, breadth and coverage of this category continues to only get stronger.

We're open to partnerships.

We've still got -- we're always weighing that build versus buy versus partner equation that most companies do.

And at the moment, we're very committed to building our business, and we're always open to partnership ideas.

Ladies and gentlemen, that's the end of the Q&A session and today's conference.

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

You may disconnect your lines at this time.