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 prior to the first quarter of 2024. Prior-period amounts have been reclassified to conform to the current period presentation.

Three and Six Months Ended June 30, 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 each of the three and six months ended June 30, 2024 increased 6% year over year, primarily as a result of the 9% year-over-year increase in ad clicks in each period.

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 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 and six months ended June 30, 2024 increased compared to the prior-year periods primarily due to increases in revenue from the continued growth of our Yelp Knowledge, Yelp Fusion and Yelp Guest Manager programs. These increases were partially offset by a lower volume of food takeout and delivery orders.

Trends and Uncertainties of Net Revenue. Net revenue increased in the three months ended June 30, 2024 compared to the three months ended March 31, 2024 as we delivered more ad clicks. Despite ongoing macroeconomic challenges and their impacts on consumer behavior, particularly in our RR&O categories, we expect our strategic initiatives to contribute to continued business momentum and a sequential increase in net revenue in the three months ending September 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 and six months ended June 30, 2024 increased compared to the prior-year periods, primarily due to:

•increases in website infrastructure expense of $1.5 million and $3.1 million, respectively, as a result of investments in maintaining and improving our infrastructure as well as higher cost of labor; and

•increases in merchant credit card processing fees of $0.3 million and $0.4 million, respectively, due to a higher volume of transactions associated with the increase in advertising revenue.

These increases were partially offset by decreases in advertising fulfillment costs of $1.6 million and $2.3 million, respectively, reflecting our more efficient delivery of ads.

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 and six months ended June 30, 2024 increased compared to the prior-year periods, primarily due to:

•increases in marketing spend of $10.3 million and $12.9 million, respectively, primarily driven by our increased investments in acquiring Services projects through paid search, partially offset by decreases in costs for business owner marketing; and

•increases in employee costs of $3.8 million and $5.2 million, respectively, mainly resulting from higher cost of labor, partially offset by lower average headcount.

These increases were partially offset by decreases in workplace operating costs of $3.0 million and $6.7 million, respectively, 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 investments in paid project acquisition, we 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 June 30, 2024 decreased compared to the prior-year period primarily due to a decrease in employee costs of $2.4 million as a result of more employee costs being capitalized and lower average headcount, partially offset by higher cost of labor.

Product development expenses for the six months ended June 30, 2024 increased compared to the prior-year period, primarily due to:

•an increase in employee costs of $0.7 million resulting from higher cost of labor and higher costs associated with in-person employees gatherings, partially offset by lower average headcount and more employee costs being capitalized; and

•an increase in consulting costs of $0.4 million.

These increases during the six-month period were partially offset by a decrease in workplace operating costs of $0.9 million due to reductions in our leased office space.

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, certain consulting and professional services costs, including litigation settlements, as well as allocated workplace and other supporting overhead costs.

General and administrative expenses for the three and six months ended June 30, 2024 decreased compared to the prior-year periods due to:

•an $11.0 million loss contingency recorded in the prior-year periods in connection with the agreement to settle a putative class action lawsuit asserting claims under the California Invasion of Privacy Act (the “CIPA Action”). See Note 12,“Commitments and Contingencies,” of the Notes to Condensed Consolidated Financial Statements included under Part I, Item 1 in this Quarterly Report for further detail; and

•decreases in employee costs of $1.4 million and $4.5 million, respectively, primarily driven by lower average headcount.

For the six-month period, the decrease compared to the prior-year period was also attributable 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.

The decreases in the three- and six-month periods were partially offset by increases in our provision for doubtful accounts of $4.5 million and $9.3 million, respectively, primarily due to higher anticipated customer delinquencies and increases in advertising revenue.

We expect general and administrative expenses to decrease in 2024 compared to 2023. However, adjusting for the litigation loss contingency and impairment charge described above, 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 and six months ended June 30, 2024 decreased compared to the prior-year periods primarily due to decreases 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, foreign exchange gains and losses and, in the three and six months ended June 30, 2024, the release of a reserve related to a one-time payroll tax credit.

Other income, net for the three and six months ended June 30, 2024 increased compared to the prior-year periods, primarily driven by the release of a $3.1 million reserve related to a one-time payroll tax credit as well as $0.9 million and $2.6 million of higher interest income earned on our cash, cash equivalents and marketable securities in the three- and six-month periods, respectively, 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.

Provision for income taxes for the three and six months ended June 30, 2024 increased from the prior-year periods primarily due to an increase in profit before tax for the current-year periods, partially offset by a decrease in the annual estimated effective tax rate.

As of December 31, 2023, we had approximately $119.4 million in net deferred tax assets (“DTAs”). As of June 30, 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.