Yelp Inc (YELP) 2019 Q3 法說會逐字稿

Good day, and welcome to the Yelp Third Quarter 2019 Earnings Conference Call.

(Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Ron Clark, Head of Investor Relations.

Please go ahead.

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

Joining me today are Yelp's CEO, Jeremy Stoppelman; our Interim CFO, James Miln; 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 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.

These measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with generally accepted accounting principles.

In our Shareholder Letter released this afternoon and our filings with the SEC, each of which is posted on our website, you'll find additional disclosures regarding these non-GAAP financial measures as well as historical reconciliations of GAAP net income to both adjusted EBITDA and adjusted EBITDA margin.

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

Thanks, Ron, and welcome, everyone.

Yelp had a strong third quarter.

Consistent with our outlook, we reaccelerated year-over-year revenue growth to 9%, up sharply from the 5% we reported in the second quarter.

At the same time, we continue to significantly improve the underlying profitability of the business.

Third quarter adjusted EBITDA margin increased 140 basis points from the third quarter of last year to 22%, also in line with our outlook.

We achieved these strong results by executing several key initiatives in our long-term strategic plan that we laid out at the start of the year.

Number one, we improved local advertising retention by driving more ad clicks to our clients.

Number two, we increased local sales productivity by expanding our product portfolio and retaining more veteran sales reps.

And number three, we drove strong growth in our multilocation business by delivering compelling new advertising solutions and expanding client coverage.

The execution of our strategy is also yielding stronger business economics.

In the third quarter, we delivered faster revenue growth on lower sales head count than this time last year.

We also continued to generate healthy double-digit growth in-app usage by leveraging Yelp Waitlist and Yelp Reservations, allowing us to significantly reduce consumer marketing expenses.

The successful execution of our strategy has also generated significant cash flow, enabling us to return $475 million to shareholders in the form of stock repurchases since the start of the year.

I am proud of our team's focused execution and the encouraging results we have achieved thus far.

While we are still in the first year of our multiyear plan, the momentum we see today gives us confidence in our ability to achieve our long-term financial targets and to drive significant shareholder value in the years ahead.

And with that, I will turn it over to our interim CFO, James Miln, for details on the businesses' performance.

Thank you, Jeremy.

Our third quarter results were indeed strong, and they show how the initiatives we are executing as part of our long-term strategy are driving sustainable and more profitable growth.

Increasing ad clicks by 42% year-over-year helped this local advertiser retention by a mid-teens percentage compared to the third quarter of last year and drive strong incremental margins in the third quarter.

Launching new products increased local sales productivity.

This enabled us to accelerate advertising revenue to 9% year-over-year and add 14,000 paying advertiser locations versus the prior quarter while shrinking local sales head count by 5%.

The new products also helped deliver the fourth consecutive acceleration in year-over-year growth in our most profitable sales channel, self-serve.

In our multilocation business, delivering attribution insights, introducing new ad formats and expanding national coverage helped attract new national clients and increased existing client spend by a mid-teens percentage, helping deliver a 21% year-over-year increase in revenue from multilocation advertisers.

Propelling mobile app usage with unique experiences such as Yelp Reservations and Yelp Waitlist also helped generate healthy double-digit year-over-year growth in app unique devices, while allowing us to reduce user acquisition spending.

Together, these gains contributed to growing adjusted EBITDA by 16% year-over-year to $58 million.

We also returned $77 million to shareholders through stock repurchases in the third quarter.

The execution of our long-term strategic plan is also generating momentum.

For the fourth quarter, we expect revenue growth to accelerate once again, driving an 11% to 13% year-over-year increase as we exit the year.

We also anticipate strong incremental profitability in the fourth quarter, with adjusted EBITDA margin expanding by 2 to 3 percentage points compared to the fourth quarter of 2018.

We believe the strengthening fundamentals of the business will not only drive stronger growth in the fourth quarter, but also set us on a course to achieve the long-term financial targets we laid out at the start of the year.

With that, operator, I would like to open up the call to questions.

(Operator Instructions) The first question today will come from Shweta Khajuria of RBC Capital Markets.

Two questions, please.

One on retention.

Can you talk about what has helped drive leads?

Is it better targeting that has, hence, driven retention?

And where do you see that trend over the next few quarters?

And what can continue to drive that?

And second, on multilocation business.

Could you please remind us what will continue to drive growth there over the next few quarters?

Is it better -- is it more verticals?

Is it product improvement, your sales strategy?

Shweta, this is Jed.

I'll take both questions.

So on the retention side, we were really pleased with the third quarter performance, which was in line with what we did in Q2 and a mid-teens improvement over this time last year.

We continue to drive value for our advertisers.

Clicks are up 42% year-over-year, and CPCs are down 22% year-over-year.

And that really starts to just come out in the value that our customers feel every day.

This is really the first year that we put kind of the full firepower of our engineering and product team behind delivering that value.

And we believe there's still plenty in the hopper in terms of the future moving forward.

And in terms of the multilocation opportunity.

It's been -- we're really, again, happy with that performance, 21% plus year-over-year on the revenue side.

It's been a combination of a few things.

Attrition continues to play a big role.

We've grown the national sales force by over 1/3 over the course of the last year and had wins, both in new logos into Yelp as well as expanding the revenue that we have with our existing clients.

I think if you look back to advertisers who are advertising with us a year ago, we've had a 15% growth within just that segment.

So it's really coming from 2 places.

And our product team continues to deliver for this segment as well.

We have showcase ads, which have really resonated in the marketplace, allow people to kind of talk about specials that they have, menu items, seasonal campaigns that are specific to certain initiatives that these folks are trying to get out into the marketplace.

And in fact, just recently, we launched video ads within those showcase.

It's actually not in search results.

It's on the business page.

But anybody organically will see those ads and anybody who's driven from an ad itself.

So obviously, video is a big untapped opportunity for us, and we're starting to dip our toes there as well.

Our next question today will come from Lloyd Walmsley of Deutsche Bank.

This is Chris on for Lloyd.

I think one of the key trends that we've heard this week is that the SEO environment has become more challenging.

Could you guys just talk a little bit about some of the trends you guys saw in the SEO environment this quarter and, same vein, your decision to cut advertising spend as ad -- app devices continue to slow?

Lloyd (sic) [Chris], this is Jeremy.

I'll take that.

We, over the years, have certainly seen a lot of fluctuations on the SEO side.

Also, we have had a lot of engagement and pushback on the regulatory front against Google.

But that said, we've also spent about a decade sort of getting ready for this environment.

And so really focused on our app and the direct relationship that we have with consumers because of our successful app.

And in particular, we start spending 3 or 4 years ago on restaurant services, that started with Yelp Reservations and has also morphed into a Yelp Waitlist product.

And those are actually driving distribution.

So as part of using those products, you end up downloading the Yelp app very frequently.

And so that's actually allowed us to cut back on our consumer marketing spend and still maintain a healthy double-digit growth rate for our MAUs.

So we feel pretty good.

Obviously, there is always going to be some volatility on the SEO side as Google tweaks algorithms, but we feel great about all the engagement we see on our Yelp app and continue to see overall engagement at a healthy rate.

Our next question today will come from Brent Thill of Jefferies.

This is John Colantuoni on for Brent.

Growth in app unique devices was up double digits, although this does represent a deceleration to nearly an all-time low.

Considering these are, on average, your most engaged users, could you discuss the top 1 or 2 consumer-facing initiatives you're working on to continue increasing Yelp's relevance and usefulness for consumers?

Yes.

Brent (sic) [John], this is Jeremy.

We're really happy with the continued growth rate of our app at this stage in the game, healthy double digits.

And also, it's driven organically through our restaurant services products, Yelp Waitlist, Yelp Reservations, as well as from our SEO traffic, app store downloads and just relationship with consumers.

So overall, we feel really good about it.

And there is always an opportunity to accelerate if we wanted to spend on consumer marketing.

But at the same time, we try to be really careful with that, make sure that it's high ROI for the business.

And right now leaning into our restaurant services products for additional growth is where we're investing.

Great.

I have one more.

With high single-digit revenue growth in 2019 as a backdrop, what are the 1 or 2 key drivers of accelerating revenue growth to your mid-teens long-term target?

And also, can you give us a bit more detail on how you're thinking about the cadence of revenue growth over the next few years?

John, this is James.

I'll take that.

Obviously, we'll share more details on the 2020 outlook when we report in February.

But I think you're right.

At the end of 2019, we're very pleased with the progress we've made on our initiatives to reaccelerate growth.

And as we expect to end this year growing revenue at double-digit rate, I think that sets us up well for 2020 and moving towards those longer-term targets.

We've got a lot in the pipeline, which is really on the same themes that you've seen this year and in line with our longer-term strategy.

So improving value to our advertisers to drive continued improvements in retention, continue to expand those product offerings, and I think with opportunities to bundle and package to better fit to our most important segments.

And then we'll continue to evolve our go-to-market, penetrating that multilocation opportunity and onboarding more advertisers through the self-serve channel.

I think those are going to be the key drivers.

(Operator Instructions) Our next question today will come from Tom Champion of Cowen.

It's Henry on for Tom.

How are you guys thinking about the cadence of new product launches for the remainder of the year?

And I think you briefly touched on this, but we noticed that some of the recent product updates like Waitlist and Connect, they fall within the restaurants vertical.

And just curious of the reason is that you guys are seeing the most demand or monetization opportunities in that category?

Henry, this is Jeremy.

I can take that one.

We've had a pretty exciting year on the product and engineering front, launched a whole host of new products, business highlights, verified license on the multiloc side, improved attribution as well as new ad formats.

And you mentioned, more recently, there's been additional products that we've announced, portfolios to showcase businesses offering as well as Yelp Connect, which initially is more targeted at the restaurant vertical.

But we do see that there are lots of businesses that have kind of a social media presence and like to put their voice out there, put their images out there, put menu items or maybe it's a salon or a spa that has images as well.

So anything visual, I think, will play well with that functionality.

And so we're just getting started as far as go-to-market for those new products, and we'll see how it goes over the coming year.

But the early reception is strong, and we're pretty proud of all of the work product and engineering has delivered this year.

It's really made a difference, I think, in our results.

And our next question today will come from Elliot Alper of D.A. Davidson.

So on the 42% growth in clicks, that was partly driven by the better customer targeting.

Can you talk about what you're doing differently on the targeting front and where there is room for continued growth?

And then secondly, you touched on this already slightly, but kind of with this new video feature that will be within the business profiles, what will the experience look like for the consumer?

And kind of where is the balance between the video advertisement and the organic search within the profile?

I'll go take the first one here, Elliot.

So on the targeting front, we have a deep pipeline of improvements that we're working on.

Some of the things that can help our geographic targeting, targeting specific service offering to improve matching, more efficiently using the inventory that we've got, different types of auctions.

There's a lot of technical work that goes into that.

But you could see, I think, by ad clicks moving up 42% and CPC is dropping that we're having real impact.

And we have reason to believe that there will be more impact to come.

And then maybe on the video front.

Jed, do you want to take that?

Sure.

So the video product is relatively new for us.

It came out at the last part of the third quarter.

Obviously, video is a big place where folks want to spend money these days.

And I think if you look in the Shareholder Letter, we've got an example of a client that's actually using those video ads.

And so when you hit the profile page, whether on mobile, you'll see kind of below some of the information a video ad that plays and really allows those advertisers to tell a deeper story.

And we've had good feedback from the marketplace thus far.

It's still very early days in terms of getting out to market, but we're encouraged by the early signals.

(Operator Instructions) Our next question today is a follow-up from Lloyd Walmsley of Deutsche Bank.

Chris again here.

Just looking at the revenue guide, any one-timers to call out for that in 4Q?

And just kind of looking ahead towards 2020, any early color that you guys could share there would be great.

Yes.

Chris, it's James again.

So yes, as we look to 4Q, I think we're looking at, again, the same trends, the same execution that we've seen driving us in 3Q.

So we continue to expect the delivering more value with continued improvements in retention and the benefit of the new products as well as the ongoing growth of multilocation, which this is an important quarter for them in terms of some of the seasonal spend.

Those are what's behind our outlook for the fourth quarter.

And as I said earlier, they're a big part of what we see driving continued growth into 2020 and over the long term towards those targets.

Got it.

And anything -- any more color specific to 2020?

Or anything -- yes, again, anything in the comp as far as the 4Q '18 (sic) [4Q '19] number that we should be thinking about?

No.

No, there isn't, and I think we'll be able to talk more about 2020 at the -- yes, when we come back in February.

Sure.

And then, sorry, maybe just one question on some of the advertising products stuff that you guys have called out in the local and home segment.

You guys talked about giving more control on the leads that advertisers will be getting going forward.

Just curious how we should be thinking about this.

It seems like an interesting opportunity.

But as you kind of introduce new functionality going forward, like do you guys see a potential risk of this disrupting ad spend trends here in this key segment?

Chris, this is Jeremy.

On the ad product side, yes, we have been testing out various control features that advertisers are interested in, things like what keywords do they want to be associated with, not associated with, geography, what ZIP codes do they service, et cetera.

And obviously, especially for the high spenders, there's real interest in having more control over your advertising, you really want to match to the customers that they can service.

So this is an area that we'll continue experimenting in.

Our next question today will come from Justin Patterson of Raymond James.

I wanted to go back to click volumes versus click prices.

You've had a lot of success there driving retention, setting more clicks to advertisers.

I'm just curious now that you're further along with it, are you seeing evidence of more spending from those advertisers, and how we should think about monetization growing against that?

So that's question number one.

And then question number two, in home services, we've seen a lot more companies start moving towards fixed price transactional products.

How do you think about the puts and takes of rolling that out onto your platform?

Justin, this is Jeremy.

As to click volume and pricing, does it have impact?

I think we have seen what we believe is impact in retention, and so that's fantastic.

It says that, hey, when we deliver more value for our advertisers, they tend to stick because they feel that value.

And so that's why we're confident in continuing investing in that area.

And we do have a healthy portfolio of different projects to continue to impact those numbers favorably.

On the home services front, you mentioned fixed prices, our fixed pricing and how we think about that.

Certainly, it's interesting.

I mean dependent -- it's really going to be dependent on the various types of jobs that are coming through.

And so in some cases, it's really hard to give a fixed price because that service provider might have to come out and take a look.

But there very well may be some room to have certain services that are fixed price.

It will be something that I'm sure that we'd look at, but nothing to announce today.

Our next question today will come from Tom Champion of Cowen.

It's Henry again.

I was wondering if you could give some more color on sales force efficiency.

It looks like it really improved year-over-year.

The sales head count ticked down slightly, but net adds increased.

So just any more color there would be super helpful.

Yes.

I will -- I'll take that, Henry.

It's Jed speaking.

Yes, we've seen really nice gains in sales force productivity, even in the face of -- in the local, specifically a shrinking sales force.

And there are a number of factors that play into it.

And so when you look at the improved retention, that's obviously going to have a factor in the efficiency there, a higher percentage of veteran local reps due to a lot of focused retention efforts.

New products, ultimately, when we introduced verified license and business highlights, really energized the sales force.

And you can think about -- they have a lot more to talk about with their customers and prospective customers when they're on the line.

And it's really a wider portfolio to go to market with.

And that has the effect of, number one, having market fit; and number two, actually energizing the sales force as well.

And so we continue to have a vision into additional products coming into 2020, and we're really happy with that sales force production.

And then, I guess, last but not least, self-serve continues to kind of be an important factor in what we're doing.

It's up nearly 40% year-over-year.

And that's obviously going to factor into that local revenue number as well.

Ladies and gentlemen, this will conclude our question-and-answer session and also conclude Yelp's Third Quarter 2019 Earnings Conference Call.

We thank you all for attending today's presentation, and you may now disconnect your lines.