YELP INC

The following table sets forth our results of operations for the periods presented (in thousands, except percentages). The period-to-period comparison of financial results is not necessarily indicative of the results of operations to be anticipated for the full year 2024 or any future period.

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

(2)Other revenue now includes revenue generated from transactions with consumers, which we reported separately as transactions revenue in prior periods. Prior period amounts have been reclassified to conform to the current period presentation.

(3)Percentage change is not meaningful.

Three Months Ended March 31, 2024 and 2023

Net Revenue

Advertising. We generate advertising revenue from the sale of our advertising products — including business page upgrades and performance-based advertising in search results and elsewhere on our platform — 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 for the three months ended March 31, 2024 increased 7% year over year, primarily driven by an 8% increase in ad clicks.

Other. We generate other revenue through non-advertising contracts, such as our subscription services, which include our Yelp Guest Manager product, and through our Yelp Fusion and Yelp Knowledge programs, which provide access to Yelp data for a fee. In addition, we now report transactions revenue — which was $2.8 million for the three months ended March 31, 2024 — together with other revenue to reflect that neither transactions revenue nor the underlying business is a core part of our current business model. As a result, other revenue now includes revenue from various transactions with consumers. We generate revenue from such transactions 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.

Other revenue for the three months ended March 31, 2024 decreased compared to the prior-year period, primarily due a lower volume of food takeout and delivery orders. This decrease was partially offset by higher revenue from the continued growth of our Yelp Knowledge and Yelp Fusion programs.

Trends and Uncertainties of Net Revenue. Net revenue decreased slightly in the three months ended March 31, 2024 compared to the three months ended December 31, 2023, in line with historical seasonal trends. Despite ongoing macroeconomic challenges and their impacts on consumer behavior, we expect our strategic initiatives to contribute to continued business momentum and a sequential increase in net revenue in the three months ending June 30, 2024.

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 for the three months ended March 31, 2024 increased compared to the prior-year period, primarily due to an increase in website infrastructure expense of $1.6 million as a result of investments in maintaining and improving our infrastructure as well as higher cost of labor.

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 for the three months ended March 31, 2024 increased slightly compared to the prior-year period, primarily due to:

•an increase in marketing spend of $2.6 million, primarily driven by our increased investments in Services project acquisition through paid search, partially offset by a decrease in costs for business owner marketing; and

•an increase in employee costs of $1.4 million resulting from higher cost of labor, partially offset by lower average headcount.

These increases were partially offset by a decrease in workplace operating costs of $3.7 million due to reductions in our leased office space.

We expect sales and marketing expenses to increase in 2024 compared to 2023 as we expand our efforts to acquire Services projects through paid search as well as due to more tenured sales and marketing employees. As a result of our planned expansion of our investments in paid project acquisition, we now expect sales and marketing expenses to increase 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 for the three months ended March 31, 2024 increased compared to the prior-year period primarily due to an increase in employee costs of $3.1 million as a result of higher cost of labor, partially offset by lower average headcount.

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 for the three months ended March 31, 2024 decreased compared to the prior-year period due to:

•the $3.6 million impairment charge incurred in the prior-year period related to the abandonment of certain office space in San Francisco, which did not recur in the current-year period. See Note 8, “Leases,” of the Notes to Condensed Consolidated Financial Statements included under Part I, Item 1 in this Quarterly Report for further detail; and

•a decrease in employee costs of $3.1 million, primarily driven by lower average headcount.

These decreases were partially offset by an increase in our provision for doubtful accounts of $4.9 million primarily due to higher anticipated customer delinquencies and the increase in advertising revenue.

We expect general and administrative expenses to decrease in 2024 compared to 2023. However, adjusting for certain nonrecurring expenses, we expect general and administrative expenses to remain relatively consistent or increase slightly on an absolute dollar basis 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 for the three months ended March 31, 2024 decreased compared to the prior-year period primarily due to a decrease in depreciation expense of leasehold improvements from asset retirements related to lease abandonments and expirations.

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 for the three months ended March 31, 2024 increased compared to the prior-year period, primarily driven by $1.7 million of higher interest income earned on our cash, cash equivalents and marketable securities due to increased federal interest rates.

Provision for (Benefit from) Income Taxes

Provision for (benefit from) 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.

Provision for income taxes for the three months ended March 31, 2024 increased from a benefit from income taxes in the prior-year period primarily due to an increase in profit before tax for 2024.

As of December 31, 2023, we had approximately $119.4 million in net deferred tax assets (“DTAs”). As of March 31, 2024, 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 condensed 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.