YELP INC

Key Metrics

We regularly review a number of metrics, including the key metrics set forth below, to evaluate our business, measure our performance, identify trends in our business, prepare financial projections and make strategic decisions.

Ad Clicks and Average CPC

The amount of revenue we generate from our pay-for-performance advertising products is determined by the number of ad clicks we deliver to advertisers and the price we charge for each ad click (“CPC”).

Ad clicks represent user interactions with our pay-for-performance advertising products, including clicks on advertisements on our website and mobile app, clicks on syndicated advertisements on third-party platforms and Request-a-Quote submissions, among others. Ad clicks include only user interactions that we are able to track directly, and therefore do not include user interactions with ads sold through our advertising partnerships. We do not expect the exclusion of such user interactions to materially affect this metric. We report the year-over-year percentage change in ad clicks as a measure of our success in monetizing more of our consumer activity and delivering more value to advertisers.

Average CPC is calculated as revenue from our performance-based ad products — excluding certain revenue adjustments that do not impact the outcome of an auction for an individual ad click, such as refunds, as well as revenue from our advertising partnerships — divided by the total number of ad clicks for a given period. Average CPC represents the average amount we charge advertisers for each ad click.

We believe that ad clicks and average CPC together reflect one of the most significant dynamics affecting our advertising revenue performance: the interplay of advertiser demand and consumer activity. At the level of an auction for an individual ad click, advertiser demand — consisting of advertiser budgets and the number of advertisers competing to purchase the ad click — intersects with the supply of consumer activity — consisting of the predicted levels of relevant consumer traffic and engagement — to determine CPC, with higher advertiser demand putting upward pressure on the CPC and higher consumer activity putting downward pressure on the CPC. In aggregate, advertiser demand consists of the number of business locations advertising with us (which we refer to as paying advertising locations, as discussed below) and the aggregate budget they allocate to purchasing our advertising products. Aggregate monetizable consumer activity depends on the levels of consumer traffic and engagement with our ads, the numbers of locations where we can display ads and other monetizable features, and our click-through rate, which is the ratio of ad clicks to the number of times the ads were displayed to consumers. The relative strengths of these factors in aggregate are reflected in average CPC.

Ad clicks and average CPC also provide important insight into the value we deliver to advertisers, which we believe is a significant factor in our ability to retain both revenue and customers. For example, a positive change in ad clicks for a given period combined with lower growth or a negative change in average CPC over the same period would indicate that we delivered more ad clicks at lower prices, thereby delivering more value to our advertisers; we would expect this to have a positive impact on retention. Conversely, growth in average CPC paired with a negative or lower growth rate in ad clicks would indicate we charged more without delivering more ad clicks; we would expect this to have a negative impact on retention unless we are able to increase the value we deliver through higher performing ad clicks.

The following table presents year-over-year changes in our ad clicks and average CPC for the periods presented (each expressed as a percentage):

In the three and twelve months ended December 31, 2023, advertising revenue grew 11% and 13% year over year, respectively, due to year-over-year increases in both ad clicks and average CPC. Ad clicks returned to growth in the three and twelve months ended December 31, 2023, driven by ad system and ad format improvements. Average CPC also increased in the three and twelve months ended December 31, 2023 due to higher advertiser demand, as reflected in the increase in average advertising revenue per paying advertising location.

Although average CPC was up year over year in the fourth quarter of 2023, it continued the moderating trend observed earlier in 2023, compared to the more volatile quarter-to-quarter fluctuations in 2022. However, complex macroeconomic pressures may continue to cause volatility in the near term.

Advertising Revenue by Category

Our advertising revenue comprises revenue from the sale of our advertising products, including the resale of our advertising products by partners and syndicated ads appearing on third-party platforms.

To reflect our strategic focus on creating two differentiated experiences on Yelp, we provide a breakdown of our advertising revenue attributable to businesses in two high-level category groupings: Services and RR&O. Our Services categories consist of home, local, auto, professional, pets, events, real estate and financial services. Our RR&O categories consist of restaurants, shopping, beauty & fitness, health and other.

The following table presents our advertising revenue by category for the periods presented (in thousands, except percentages):

Paying Advertising Locations

Paying advertising locations comprise all business locations associated with a business account from which we recognized advertising revenue in a given month, excluding business accounts that purchased advertising through partner programs other than Yelp Ads Certified Partners, averaged over a given three- or twelve-month period. We also provide a breakdown of paying advertising locations between our Services categories and RR&O categories.

We provide our paying advertising locations as a measure of the reach and scale of our business; however, this metric may exhibit short-term volatility as a result of factors such as seasonality and macroeconomic conditions. For example, macroeconomic factors, such as the current inflationary pressures and labor and supply chain challenges, have had a predominant negative impact on RR&O paying advertising locations in recent quarters. Short-term fluctuations in paying advertising locations may also reflect the acquisition or loss of single advertising accounts associated with large numbers of locations, or the pausing/restarting of advertising campaigns by such multi-location advertisers.

The following table presents the number of paying advertising locations for the periods presented (in thousands, except percentages):

Paying advertising locations decreased in the three and twelve months ended December 31, 2023 compared to the prior-year periods largely due to a few lower-spend enterprise advertisers that turned off their advertising spend during 2023.

Reviews and Traffic

We report our reviews and traffic metrics on an annual basis as measures of the volume of our content and the size of our audience, respectively. Although measures of our content (including our reviews metric) and traffic do not factor directly into the advertising arrangements we have with our customers, this dynamic underpins our ability to deliver ad clicks and drive conversion of advertisers’ products and services. Consumer engagement metrics validate our value proposition to businesses as they seek easy-to-use and effective advertising solutions.

Reviews

Number of reviews represents the cumulative number of reviews submitted to Yelp since inception, as of the period end, including reviews that were not recommended or had been removed from our platform. In addition to the text of the review, each review includes a rating of one to five stars. We include reviews that are not recommended and that have been removed because all of them are either currently accessible on our platform or were accessible at some point in time, providing information that may be useful to users to evaluate businesses and individual reviewers. Because our automated recommendation software continually reassesses which reviews to recommend based on new information that becomes available, the “recommended” or “not recommended” status of reviews may change over time. Reviews that are not recommended or that have been removed do not factor into a business’s overall star rating. Users can access the reviews that are not currently recommended, as well as the star rating and other information about reviews that were removed for violation of our terms of service, through a link on the business’s page.

As of December 31, 2023, 287.4 million reviews had been submitted to our platform, of which 262.8 million reviews were available on business pages, including 51.4 million reviews that were not recommended, and 24.6 million reviews had been removed from our platform, either by us for violation of our terms of service or by the users who contributed them. The following table presents the number of cumulative reviews as of December 31, 2023 and 2022 (in thousands):

Traffic

Traffic to our website and mobile app has three components: mobile devices accessing our mobile app, visitors to our non-mobile optimized website, which we refer to as our desktop website, and visitors to our mobile-optimized website, which we refer to as our mobile website. App users generate a substantial majority of activity on Yelp, including the page views and ad clicks that we monetize, and we expect that traffic to our website will fluctuate and generally decline over time. While we believe our largest growth opportunity will be to monetize a greater portion of our existing traffic, rather than to grow traffic generally, we are also investing in a broad set of consumer initiatives to support the long-term growth of our traffic and business.

Since the early stages of the COVID-19 pandemic in 2020, traffic levels, particularly in our RR&O categories, have fluctuated as consumer confidence levels changed in response to the pandemic and other macroeconomic conditions. As a result, although our traffic has recovered from its lowest levels in 2020, it has remained below our pre-pandemic 2019 traffic.

Economic uncertainty and inflationary pressures, among other macroeconomic concerns, continued to negatively impact consumer traffic in 2023 compared to 2019. We cannot predict the remaining duration of these conditions, or the duration or magnitude of any resulting adverse impacts on our traffic, and we expect that our traffic levels will continue to fluctuate with consumers’ level of confidence.

We use the metrics set forth below to measure each of our traffic streams. An individual user who accesses our platform through multiple traffic streams will be counted in each applicable traffic metric; as a result, the sum of our traffic metrics will not accurately represent the number of people who visit our platform on an average monthly basis.

App Unique Devices. We calculate app unique devices as the number of unique mobile devices using our mobile app in a given month, averaged over a given twelve-month period. Under this method of calculation, an individual who accesses our mobile app from multiple mobile devices will be counted as multiple app unique devices. Multiple individuals who access our mobile app from a shared device will be counted as a single app unique device.

The following table presents app unique devices for the periods presented (in thousands):

Desktop and Mobile Website Unique Visitors. We currently calculate desktop unique visitors as the number of “users,” as measured by Google Analytics, who have visited our desktop website at least once in a given month, averaged over a given twelve-month period. Similarly, we have calculated mobile website unique visitors as the number of “users” who have visited our mobile website at least once in a given month, averaged over a given twelve-month period.

Google Analytics measures “users” based on unique identifiers. Because the numbers of desktop unique visitors and mobile website unique visitors are therefore based on unique identifiers, an individual who accesses our desktop website or mobile website from multiple devices with different identifiers may be counted as multiple desktop unique visitors or mobile website unique visitors, as applicable, and multiple individuals who access our desktop website or mobile website from a shared device with a single identifier may be counted as a single desktop unique visitor or mobile website unique visitor.

The following table presents our web traffic for the periods presented (in thousands):

We have discovered in the past, and expect to discover in the future for the duration of our use of Google Analytics, that portions of our desktop traffic measured by Google Analytics have been attributable to robots and other invalid sources. Because traffic from such sources does not represent valid consumer traffic, our reported desktop unique visitor metric for impacted periods reflects an adjustment to the Google Analytics measurement of our traffic to remove traffic that we have identified as originating from invalid sources to provide greater accuracy and transparency. However, we cannot assure you that we have identified or will be able to identify all such traffic for any particular period. For additional information, please see the risk factor included under Part I, Item 1A titled “We rely on data from both internal tools and third parties to calculate certain of our performance metrics. Real or perceived inaccuracies in such metrics may harm our reputation and negatively affect our business.”

Additionally, Google has announced that it will no longer offer the Universal Analytics version of its Google Analytics product, which we currently use, as of July 1, 2024. We plan to begin reporting our web traffic metrics based on internal measurement tools for the year ending December 31, 2024, which we believe will allow us to better analyze web traffic data. These changes to our web traffic metrics will result in inconsistency between new data and previously reported data, and we may not have the necessary data to provide an overlapping transition period.

Active Claimed Local Business Locations

We report active claimed local business locations annually as a measure of the scope of our business. The number of active claimed local business locations represents the number of claimed local business locations — business addresses for which a business representative has visited our platform and claimed the free business page for the business located at that address — that are both (a) active on Yelp and (b) associated with an active business owner account as of a given date. We consider a claimed local business location to be active if it has not closed, been removed from our platform or merged with another claimed local business.

The table set forth below presents the number of active claimed local business locations as of the dates presented (in thousands).

Results of Operations

The following table sets forth our results of operations for 2023 and 2022 (in thousands, except percentages). The period-to-period comparison of financial results is not necessarily indicative of future results.

(1) Percentage changes are calculated based on rounded numbers and may not recalculate exactly due to rounding.

Years Ended December 31, 2023 and 2022

Net Revenue

Advertising. We generate advertising revenue from the sale of our advertising products — including Yelp Ads and business page upgrades — to businesses of all sizes, from single-location local businesses to multi-location national businesses. Advertising revenue also includes revenue generated from the resale of our advertising products by certain partners and monetization of advertising inventory through third-party ad networks. We present advertising revenue on a disaggregated basis for our high-level category groupings, Services and RR&O.

Advertising revenue increased in 2023 compared to 2022, driven by a 5% increase in ad clicks and a 9% increase in average CPC.

Transactions. We generate revenue from various transactions with consumers, primarily through our partnership integrations, which are mainly revenue-sharing arrangements that provide consumers with the ability to place food orders for pickup and delivery through third parties directly on Yelp. We earn a fee for acting as an agent for transactions placed through these integrations, which we record on a net basis and include in revenue upon completion of a transaction. In the three months ending March 31, 2024, we will begin recognizing revenue from these sources on a net basis within other revenue to reflect that neither transactions revenue nor the underlying business is material to our current business model.

Transactions revenue decreased in 2023 compared to 2022, primarily due to a lower volume of food takeout and delivery orders.

Other Revenue. We generate revenue through our subscription services, including our Yelp Guest Manager product. We also generate revenue through our Yelp Fusion and Yelp Knowledge programs, which provide access to Yelp data for a fee, as well as other non-advertising partnerships. Beginning in the three months ending March 31, 2024, other revenue will also include transactions revenue.

Other revenue increased in 2023 compared to 2022, primarily driven by the continued growth of our Yelp Fusion and Yelp Knowledge programs.

Trends and Uncertainties of Net Revenue. Net revenue in the year ended December 31, 2023 increased by 12% year over year, as our execution of our strategic initiatives drove strong advertiser demand in both our Services and RR&O categories. Although we anticipate that net revenue in the first quarter of 2024 will decrease slightly from the fourth quarter of 2023, reflecting typical seasonality in Services and macroeconomic challenges facing our RR&O categories, we also expect that net revenue will grow in the first quarter and full year of 2024 compared to the prior-year periods as our 2024 strategic initiatives gain traction.

Costs and Expenses

Cost of Revenue (exclusive of depreciation and amortization). Our cost of revenue consists primarily of website infrastructure expense, which includes website hosting costs and employee costs (including stock-based compensation expense) for the infrastructure teams responsible for operating our website and mobile app, and excludes depreciation and amortization expense. Cost of revenue also includes third-party advertising fulfillment costs and credit card processing fees.

Cost of revenue increased in 2023 compared to 2022, primarily as a result of:

•an increase in merchant credit card processing fees of $2.9 million, primarily due to the increase in advertising revenue;

•an increase in advertising fulfillment costs of $2.7 million largely attributable to the expansion of Yelp Audiences; and

•an increase in website infrastructure expense of $2.1 million, primarily as a result of higher labor costs associated with maintaining and improving our infrastructure.

We expect cost of revenue to increase on an absolute dollar basis in 2024 compared to 2023.

Sales and Marketing. Our sales and marketing expenses primarily consist of employee costs (including sales commission and stock-based compensation expenses) for our sales and marketing employees. Sales and marketing expenses also include business and consumer acquisition marketing, community management, as well as allocated workplace and other supporting overhead costs.

Sales and marketing expenses increased in 2023 compared to 2022, primarily due to an increase of $54.5 million in employee costs resulting from higher average sales headcount, higher commissions and bonuses due to the increased productivity of our Local sales team, and higher cost of labor.

This increase was partially offset by a decrease of $7.0 million in marketing and advertising costs, primarily related to business owner and consumer marketing, and a decrease of $5.8 million in workplace operating costs from reductions in our leased office space. See Note 9, “Leases,” of the Notes to Consolidated Financial Statements for further detail.

We expect sales and marketing expenses to increase in 2024 compared to 2023 as sales and marketing headcount remains stable but more tenured. However, we expect sales and marketing expenses to decrease as a percentage of net revenue in 2024 compared to 2023.

Product Development. Our product development expenses primarily consist of employee costs (including bonuses and stock-based compensation expense, net of capitalized employee costs associated with capitalized website and internal-use software development) for our engineers, product management and corporate infrastructure employees. In addition, product development expenses include allocated workplace and other supporting overhead costs.

Product development expenses increased in 2023 compared to 2022, primarily due to an increase in employee costs of $26.8 million as a result of higher average headcount and higher cost of labor.

We expect product development expenses to increase in 2024 compared to 2023 to support our product initiatives. We expect product development expenses as a percentage of net revenue to remain relatively consistent in 2024 compared to 2023.

General and Administrative. Our general and administrative expenses primarily consist of employee costs (including bonuses and stock-based compensation expense) for our executive, finance, user operations, legal, people operations and other administrative employees. Our general and administrative expenses also include our provision for doubtful accounts, consulting costs, as well as allocated workplace and other supporting overhead costs.

General and administrative expenses increased in 2023 compared to 2022, primarily due to:

•an increase in our provision for doubtful accounts of $15.7 million due to higher customer delinquencies and higher advertising revenue;

•an increase in impairment charges of $13.1 million related to our leased office spaces. See Note 9,“Leases,” of the Notes to Consolidated Financial Statements for further detail;

•a litigation settlement loss contingency of $11.0 million incurred in 2023 in connection with the agreement to settle a class action lawsuit asserting claims under the California Invasion of Privacy Act (the “CIPA Action”). See Note 13,“Commitments and Contingencies,” of the Notes to Consolidated Financial Statements for further detail; and

•an increase in employee costs of $10.6 million, primarily driven by higher cost of labor.

We expect general and administrative expenses to decrease in 2024 compared to 2023 as the expenses in 2023 included a litigation settlement expense and impairment charges that we do not expect to recur in 2024. Adjusting for these non-recurring items in 2023, we expect general and administrative expenses to increase in 2024 compared to 2023 to support the continued growth of our business and remain relatively consistent as a percentage of net revenue in 2024 compared to 2023.

Depreciation and Amortization. Depreciation and amortization expense primarily consists of depreciation on computer equipment, software, leasehold improvements, capitalized website and internal-use software development costs, and amortization of purchased intangible assets.

Depreciation and amortization expense decreased in 2023 compared to 2022, primarily due to a decrease in depreciation expense of leasehold improvements, furniture and fixtures from asset retirements related to lease abandonment and expirations as well as certain other assets becoming fully depreciated since the prior-year period.

Other Income, Net

Other income, net consists primarily of the interest income earned on our cash, cash equivalents and marketable securities, research and development tax credits, the portion of our sublease income in excess of our lease cost, accretion of discounts and amortization of premiums on investments, credit facility fees and foreign exchange gains and losses.

Other income, net increased in 2023 compared to 2022, primarily driven by $12.4 million of higher interest income due to increased federal interest rates.

Provision for Income Taxes

Provision for income taxes consists of: federal and state income taxes in the United States and income taxes in certain foreign jurisdictions; deferred income taxes reflecting the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

The decrease in the provision for income taxes in 2023 compared to the prior year was primarily due to a tax benefit related to 2022 federal and state tax provision to return adjustments. This benefit was primarily the result of IRS guidance published in the third quarter of 2023 that reduced the amount of research and development expenses required to be capitalized under the Tax Act.

As of December 31, 2023, we had approximately $119.4 millionin net deferred tax assets (“DTAs”). As of December 31, 2023, we consider it more likely than not that we will have sufficient taxable income in the future that will allow us to realize these DTAs. However, it is possible that some or all of these DTAs will not be realized. Therefore, unless we are able to generate sufficient taxable income from our operations, a substantial valuation allowance may be required to reduce our DTAs, which would materially increase our expenses in the period in which we recognize the allowance and have a materially adverse impact on our consolidated financial statements. The exact timing and amount of the valuation allowance recognition are subject to change on the basis of the net income that we are able to actually achieve. We will continue to evaluate the possible recognition of a valuation allowance on a quarterly basis.

We currently estimate that our effective GAAP tax rate (before discrete items) for 2024 and beyond will be in the range of 24% to 28%. However, our GAAP tax rate is impacted by a number of factors that are not in our direct control and that are subject to quarterly variability, which limits our visibility into the applicable rate for future fiscal periods. Unless there is a material change, we do not plan to provide regular updates to the above range given the uncertainty inherent in it as a result of these factors.