Yelp targets $250M annual run rate in other revenue by end of 2028 amid “challenging” local business environment

Earnings Call Insights: Yelp (YELP) Q1 2026

MANAGEMENT VIEW

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"Yelp continued to accelerate its AI transformation in the first quarter" and "our progress in the quarter resulted in the recent rollout of more than 35 new features and updates, including a new Yelp Assistant that now works across all categories" (Co-Founder, CEO & Director Jeremy Stoppelman).

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"First quarter net revenue increased by 1% year-over-year to $361 million with a net income margin of 5% and an adjusted EBITDA margin of 22%" and "Services Ad revenue increased by 1% year-over-year and RR&O ad revenue decreased by 11% year-over-year" (CEO Stoppelman).

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"Other revenue grew 75% year-over-year" as Yelp increased focus on "AI-driven revenue streams" including "Yelp Host, Hatch and data licensing" (CEO Stoppelman).

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"Yelp Assistant connected more consumers and service pros than ever before, with its growing adoption accounting for approximately 15% of Request-A-Quote projects" (CEO Stoppelman).

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"Our team continued to scale Yelp Host, our AI-powered call answering service for restaurants, which surpassed an annual run rate of 1.5 million calls handled in April, more than doubling from January" and "we estimate there is a market opportunity of over $1 billion in the United States for Yelp Host" (CEO Stoppelman).

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"We also accelerated our strategy in this area for Services businesses through the acquisition of Hatch in February" and "Hatch's annual run rate revenue exceeded $34 million in March, up 92% year-over-year" (CEO Stoppelman).

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"Other revenue increased by 75% year-over-year to a record $29 million" and "in the first quarter, we repurchased $125 million worth of shares at an average price of $24.58 per share" (Chief Financial Officer David Schwarzbach).

OUTLOOK

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"We anticipate second quarter net revenue will be in the range of $363 million to $368 million" and "for the full year, we continue to expect net revenue will be in the range of $1.455 billion to $1.475 billion" (CFO Schwarzbach).

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"We anticipate second quarter adjusted EBITDA will be in the range of $70 million to $75 million" and "for the full year, we continue to expect adjusted EBITDA will be in the range of $310 million to $330 million" (CFO Schwarzbach).

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"We expect expenses will increase sequentially as we invest in our AI transformation and increase marketing spend" (CFO Schwarzbach).

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"As these accretive revenue streams continue to gain traction, we are targeting an annual run rate of $250 million in other revenue by the end of 2028" (CEO Stoppelman).

FINANCIAL RESULTS

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"Net revenue increased by 1% year-over-year to $361 million" and "net income decreased by 27% year-over-year to $18 million" (CFO Schwarzbach).

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"Adjusted EBITDA decreased by 7% year-over-year to $79 million" (CFO Schwarzbach).

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"A decrease in both services and RR&O locations resulted in an overall decline of 6% year-over-year in paying advertising locations to 485,000" and "ad clicks declined by 10% year-over-year" (CFO Schwarzbach).

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"Average CPC increased by 8% as advertiser demand outpaced consumer demand" (CFO Schwarzbach).

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"We reduced stock-based compensation expense as a percentage of revenue by 2 percentage points year-over-year to 8%" and "we continue to expect that we will reduce stock-based compensation expense to less than 6% of revenue by the end of 2027" (CFO Schwarzbach).

Q&A

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Sergio Segura, KeyBanc Capital Markets Inc., Research Division: "Just curious why the guide was maintained here?" CFO Schwarzbach: "we did see a dynamic in the March month around the conflict in the Middle East, which had an impact on budgets from advertisers" and "we are operating under the expectation that, again, these dynamics are going to continue to play out over the course of the year."

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Sergio Segura, KeyBanc Capital Markets Inc., Research Division: "elaborate on kind of the drivers" behind the $250M run-rate target. CFO Schwarzbach: "we see three components" including "transaction revenue," "licensing" and "Hatch." CEO Stoppelman: "With Hatch and with Host, those are really greenfield opportunities" and "one of the major unlocks we've got coming very soon is food ordering over the phone."

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Cory Carpenter, JPMorgan Chase & Co, Research Division: "elaborate a bit" on "strong growth in EBITDA margins." CFO Schwarzbach: "we do feel optimistic on our ability to generate incremental margin over the next few years" and "we also saw some benefits around capitalized software development." CEO Stoppelman: "something that would maybe take three months has taken more like three weeks."

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Colin Sebastian, Robert W. Baird & Co. Incorporated, Research Division: asked about Yelp Assistant conversion/ROI and AI-surface partnerships. CEO Stoppelman: "15% now are driven by Yelp Assistant, and that's up from about 5% last year" and on licensing, "it's extremely early" and "there is also opportunities for traffic back where it's relevant and is helpful to the consumer."

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Nitin Bansal, BofA Securities, Research Division: asked about ChatGPT visibility and what needs to change. CEO Stoppelman: "we can't really comment on that nor do we have all the details of their plans." Bansal also asked about other-revenue trajectory. CFO Schwarzbach: "we do continue to sign up licensing agreements and entering into new partnerships" and guidance reflects "the degree of uncertainty" for local businesses.

SENTIMENT ANALYSIS

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"slightly negative" analyst tone centered on macro durability and AI partnership visibility, including "why the guide was maintained" and "Yelp content appears relatively limited" (Segura; Bansal).

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"slightly positive" management tone in prepared remarks emphasized AI product velocity and new revenue streams, including "We're confident in our plan for the year" (CEO Stoppelman) and "we do feel optimistic on our ability to generate incremental margin" (CFO Schwarzbach).

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Compared with Q4 2025, management maintained confidence but added more near-term uncertainty language, including "the challenging economic environment for local businesses will persist" (CFO Schwarzbach) versus Q4’s "we continue to believe in the significant long-term growth opportunities ahead" (CFO Schwarzbach).

QUARTER-OVER-QUARTER COMPARISON

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AI product narrative shifted from Q4’s "more than 55 new products and features" and an expectation to "fully roll it out by the end of the first quarter" (CEO Stoppelman, Q4) to Q1’s "more than 35 new features and updates" and "We just launched that in April" for cross-category Yelp Assistant (CEO Stoppelman, Q1).

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Advertising pressure stayed concentrated in RR&O, with Q4: "RR&O revenue" down "12%" (CFO Schwarzbach, Q4) and Q1: "RR&O ad revenue decreased by 11%" (CFO Schwarzbach, Q1), alongside a larger decline in paying locations disclosed in Q1.

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Other revenue emphasis increased from Q4: "Other revenue accelerated significantly, up 17%" (CEO Stoppelman, Q4) to Q1: "Other revenue increased by 75%" and a new 2028 run-rate target (CEO Stoppelman; CFO Schwarzbach, Q1).

RISKS AND CONCERNS

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"Local businesses have continued to face a challenging economic environment" and Yelp expects it "to remain challenging this year" (CEO Stoppelman).

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Management tied guidance caution to geopolitics: "the conflict in the Middle East... had an impact on budgets from advertisers" and "some of that March softness does persist into the second quarter" (CFO Schwarzbach).

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Platform-partner execution risk was left open-ended: "we can't really comment" on OpenAI’s product plans following the announced partnership (CEO Stoppelman).

FINAL TAKEAWAY

Yelp management described Q1 as continued AI-driven product expansion and portfolio reweighting toward “other revenue,” while keeping full-year targets unchanged due to continued local-business advertising uncertainty. Leadership highlighted scaling Yelp Host, integrating Hatch, and expanding data licensing (including OpenAI) as key levers, alongside ongoing share repurchases and a longer-term goal to reach a $250M annual run rate in other revenue by the end of 2028.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/yelp/earnings/transcripts]

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