Yelp’s Q1 earnings showed flat revenue growth and other marginal gains, but it beat estimates despite a challenged SMB macroeconomic environment. Its earnings also tell a compelling story about non-advertising revenues and – like several others we’ve been watching – revenue diversification.
There’s a lot to unpack there, but starting with the basics, Yelp’s Q1 revenue grew 1 percent year-over-year to $361 million. Net income was $18 million, which was down 27 percent year-over-year. Adjusted EBITDA decreased 7 percent year-over-year to $79 million, reflecting a 22 percent margin.
But the real story form Yelp’s Q1 earnings is beneath the surface. When looking at the revenue breakdown, advertising declined 2.8 percent year-over-year to $332.49 million. This is where those SMB macro-economic issues factor in, especially in sectors hit by delivery and fuel prices, such as restaurants and retail.
Specifically, Yelp’s “Restaurants, Retail & Other” advertising revenues fell from $110 million to $99 million year-over-year. This was offset by services ad revenue – including home services and professional services like lawyers and dentists – which reflected moderate growth, from $232 million to $234 million.
Where the Action Is
But the real mover in Yelp’s revenue mix was “Other Revenue,” which grew 75 percent year-over-year to a record $29 million. This was driven by a few things, including data licensing, Yelp Host, and the inclusion of Hatch revenues, given that Yelp acquired the company in February (see our coverage here).
Meanwhile, Yelp’s user-facing AI products are more effectively moving users towards desired outcomes and transactions. And these are rolling out fast. As we recently covered, Yelp released 35 new features in Q1 – many of them AI-centric. These include Yelp Assistant, a front-end conversational interface.
In fact, Yelp Assistant drove 15 percent of Yelp’s Request a Quote bookings during the quarter. Request a Quote, in turn, has been a breakout hit among SMBs because it converts Yelp user queries into new business in structured ways. Yelp continues to build on that foundation with automated tools.
Speaking of which, Yelp Host is an AI call answering service for restaurants. It surpassed an annual run rate of 1.5 million calls handled in April – greater than 2x its volume in January. This not only helps restaurants focus on service, but they can avoid unanswered calls that leave money on the table.
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Confidence in the Category
Data licensing is another revenue driver noted above, including agreements with OpenAI and integrations with other AI tools such as Alexa+. These partnerships utilize Yelp’s APIs. For example, using its Reservations API, apps can offer users the ability to make restaurant reservations directly.
Lastly, given Yelp’s Hatch acquisition earlier this year, it has folded in its revenue. As we noted when we covered the acquisition, one of Hatch’s points of value is strong revenue, which we can now quantify. Yelp’s Q1 earnings reports that it contributed an annual run rate of $34 million in March, up 92 percent year-over-year.
Altogether, Other Revenue ended Q1 with a $116 million run rate. On its earnings call, Yelp stressed a commitment towards AI product development that boosts this Other Revenue category. And confidence in the category shows, given Yelp’s guidance that it will reach a $250 million run rate by the end of 2028.
“Product momentum, strong traction from Hatch and Yelp Host, and a growing partner ecosystem give me confidence in Yelp’s AI transformation and our ability to drive long-term profitable growth,” said Yelp co-founder and CEO Jeremy Stoppelman.
Header image credit: Hitesh Dewasi on Unsplash
