Yelp (YELP) Q2 2016 Earnings Call

Yelp (YELP) CEO Jeremy Stoppelman said they’re spending some of their marketing budget on old school TV advertising

“To drive broader awareness of Yelp, we’re investing in TV and online video advertising, as well as direct marketing. As we typically do with sizable investments, we’re rigorously testing and measuring the effectiveness of these campaigns and our tests in the second quarter show lifts in over a dozen different metrics. While we’re still analyzing results from numerous tests, we’re encouraged by what we’ve seen so far.”

Regal Theaters uses Yelp and finds it to be their highest ROI marketing channel

“A great example of how we’re delivering results for advertisers is our work for Regal Entertainment Group, one of the largest cinema operators in the U.S. Regal began advertising on Yelp last year and experienced dramatic increases in website traffic and high converting leads. In fact, it seems that consumers who find Regal Theaters on Yelp spend more time on their site and buy tickets at a much higher rate than through any of their other online advertising channels. To drive even more value our national account team is working directly with Regal to identify new opportunities, such as complementing their program with targeted local advertising around new releases.”

Yelp (YELP) CFO Charles Baker said they still have a lot of head room to grow

“There are 20 million some businesses in the Yelp index, there are 3 million plus that have claimed their presence on Yelp. There are 128,000 that are active advertisers, and now there are 100,000 businesses that are connected for a transaction capability. And I think that you should think of our market opportunity, kind of along those lines in terms of the total addressable market, our ability to market ourselves into a presence and a relationship with businesses and then to bring them into our suite of services, we can help them find, acquire and transact with their customers.”

 

Yelp 2Q16 Earnings Call Notes

Because of Yelp’s broad base, no single customer has significant bargaining power

“First, I’ve been impressed to see how well diversified and therefore defensible Yelp’s core business is. No single customer represents more than 0.5% of total revenue, no single geographic market is more than 15% of revenue and even our largest category home and local services, comprises less than a third of local revenue. And when you look at where our revenue growth is coming from, Yelp is still producing annual revenue growth rates of 30% to 40% on average, even in our longest standing markets. To me, that makes Yelp a broad-based and very local business, one with significant operating scale and nationwide reach that would not be easily or inexpensively replicated.”

Charles C. Baker – Chief Financial Officer

 

An effective sales force is integral to Yelp’s growth

“The vast majority of our sales organization is dedicated to broadening Yelp’s local coverage by selling to small independent businesses. This core local sales organization of 2,000-plus reps is a large and effective team, and our local sales model delivers attractive and highly predictable rates of return on the investments we’re making there. In the second quarter, the core local team generated more than half of the year-to-year increase in local revenue and grew small business advertisers in the segment by nearly 30% year-over-year.” Charles C. Baker – Chief Financial Officer

 

App users are increasing as desktop users begin to decline slightly

“Really, what’s happening there is the continued shift to mobile and so you can see mobile growth remained strong at 27% year-over-year with 23 million app unique. And if you look at our overall penetration, it’s 38% in the U.S. which is up, which is great, but it leaves a lot of headroom. So, we feel like there’s still a lot of room to grow, the web is mature and so desktop is in slight decline and mobile web growth is a little soggy there, as everyone moves over to app.” Jeremy Stoppelman – Co-founder and Chief Executive Officer

 

Yelp chooses to focus on the US market over the international market

“Yeah, on the international side, we have to keep it in perspective where it’s very all part of our revenue picture. It’s therefore a lot of our focus is on deepening our relationship with advertisers and consumers in the U.S. That’s where the business is. We still feel encouraged by what we’re seeing there with 20% contribution growth, but there are some distribution challenges and we’re trying to unlock additional distribution. We’ve talked pretty openly about how Google made our life a little bit more difficult there, starting a couple of years ago. And we haven’t seen a real change, so we have material traffic internationally, but it’s just not growing the way we would like it to, so we have some focused efforts there to try and unlock more.” Charles C. Baker – Chief Financial Officer

Yelp (YELP) Q1 2016 Earnings

Yelp (YELP) CEO Jeremy Stoppelman said revenue growth accelerated 

“We had a great start to the year with local revenue growth accelerating to 40% year-over-year, driven by the continued strength of our recurring revenue base, as well as better than expected ad budget fulfillment and strong sales team results. This year, we’re prioritizing building our core local advertising business, growing transactions, and increasing consumer awareness.”

Nearly 1 out of every 3 Americans use the Yelp mobile app 

“Based on our measures, we’re at about 30% reach in the U.S. So we feel like there is significant upside, although we’re quite proud of where we are. I think if you look at top 20 comScore properties, we make that list now.”

Even though Yelp has millions of users in international markets, only 2% of their revenue is derived from overseas 

“International revenue contributed about 2% of total revenue in the first quarter.”

JS Earnings Call Notes 2.9.2016 – Oaktree, Yelp, and Linkedin

Oaktree (OAK) Co-Chairman Howard Marks expects increasing defaults in high yield energy bonds
 
We expect a meaningful uptick in the U.S. high-yield bond default rates over the next 12 months with distressed energy sector contributing most significantly. As I believe you know, over the last five years, the average default rate has been just about the lowest in history for such a period.”
With more bond downgrades to come
 
Additionally, billions of dollars in investment grade energy and metals and mining debt could be downgraded to high yield status if commodity prices remain depressed. With the record amount of dry powder and our ability to add value in distressed assets across multiple strategies, including control investing, real estate, strategic credit and of course most prominently the Opps Funds, we are more optimistic about the ability to find attractive investments than we have been for several years.”
Oaktree (OAK) Co-Chairman Howard Marks thinks fear is creeping back into the market
 
Risk aversion is back after a five-year hiatus and a burgeoning supply of distressed opportunities is on the horizon. What started as a largely oil and gas focused dislocation has generalized into weakness across nearly every commodity sub-segment. And weakness is starting to bleed into other segments of the bond market, including media and retail.”
Oaktree (OAK) Co-Chairman Howard Marks doesn’t see a recession this year
 
“First of all, Michael, we fired our economist. So – actually that’s not true, we never had one. My general feeling is, I just don’t think that we’re in for a recession this year. And my feeling is that we’ve been limping along for several years now with an anemic recovery, and it even seems to be losing energy from that low level. But having said that, the consumption side is pretty good. I think that the gas savings are allowing people to improve their financial pictures, and the services businesses are resilient. Eventually, we’re going to have a recession, we always do, but I just don’t think it’s imminent and I don’t think it’s going to be a strong one in large part because we didn’t have a strong boom. We didn’t have an overexpansion of facilities or payrolls.”  
Relative to the rest of the world, they are reasonably optimistic on the Eurozone region 
 
One area we are selectively adding to at the present, however, is Europe. The reasons for our optimism about Europe include Europe’s evolving economy and the ECB’s quantitative easing, which is supporting credit fundamentals. It’s also worth reemphasizing Europe’s lower exposure to known troubled sectors such as commodities and its structurally lower sensitivity to interest rate movements.”
And they are putting their dry powder to work
 
We currently have a very robust pipeline of potential acquisition opportunities and our deal funnel is about as strong as it has been in some time. The bottom line is that this is a good time to have capital to spend.”
Oaktree (OAK) CEO Jay Wintrob said sovereign wealth funds represent 8% of the company’s assets under management
 
So sovereign wealth funds are an important part of our client base, but not really a vital part I guess you’d say. They represent about 8% of our AUM and that number has been consistent for several years. In terms of growth just in the last year, I think sovereign wealth funds represented about 18% of the growth, so a faster growth rate in our AUM from sovereigns than from our clients in the aggregate. We’ve been fortunate. We’ve added sovereign wealth clients in the last 18 months and, in fact, one of our largest sovereign wealth fund clients helped seed one of our step-out strategies.”

Yelp (YELP) CEO Jeremy Stoppelman said the company is seeing increased engagement from their mobile app 

 
Consumers are increasingly moving their online activity to mobile devices and we have evolved to a mobile-centric company. We will continue our focus in the mobile app since app users are more than 10x as engaged as web users based on the number of pages viewed and our shift towards the app will enable us to establish a direct relationship with consumers.”
And he believes there remains a large opportunity to capture a significant portion of online marking dollar ad spend
 
The vast majority of local business owners continue to advertise in traditional offline channels. Even though according to a 2015 BrightLocal study, more than 90% of consumers read online reviews when looking for a great local business. Migrating these offline marketing budgets online continues to represent a huge market opportunity for us.”
They’re spending more marketing dollars to increase brand awareness
 
We also see a significant opportunity to increase awareness in usage of Yelp. ComScore indicates that Yelp has only about 30% reach on U.S. smartphones. So in 2015, we expanded our marketing efforts to include our first TV advertising campaign to increase awareness. Based on a survey we conducted with Nielsen in the fourth quarter, unaided brand awareness increased from 26% to 41% over the last year among U.S. adults online.  We plan to invest approximately $50 million in marketing in 2016, which represents an incremental $20 million compared to 2015.”
Yelp (YELP) CFO Rob Krolik thinks they can steal market share from Yellow Pages offline directories
 
We think there is a huge opportunity in the market if you look at the fact that there is $7 billion in 2016 that’s being spent on Yellow Pages alone. I mean, most of that money is going to move online and we think we are the perfect place to grab that, given our high ROI.”
Yelp (YELP) COO Geoff Donaker addressed how they compete with tech heavyweights Google & Facebook for online marketing dollars
 
I think what I hear from our sales team is that Google and Facebook do come up, but in general, when they hear Google and Facebook from a local advertiser, that’s a really good sign. That means that the local advertisers who has already started to shift online and it’s a great opportunity for us to talk with them about Yelp advertising as well and we are very confident with the ROI that we offer the typical advertiser. More often frankly, we are dealing with prospects who don’t advertise online at all yet and that’s a more difficult conversation, because you are trying to get somebody effectively out of print and online, which is happening over time, but is a more gradual process.”

Linkedin (LNKD) CEO Jeff Weiner said their professional social network surpassed 400 million members

“In the quarter, cumulative members grew 19% to 414 million, unique visiting members grew 7% to an average of 100 million per month, and member page views grew 26%.”

And that mobile continues to gain traction 

“Mobile in particular grew three times faster than overall member activity, and now represents 57% of all traffic to LinkedIn.”

Linkedin (LNKD) CEO Jeff Weiner wants the company to become the de facto job listing site 

Another key member investment throughout 2015 has been to help members advance their careers. As of January, we’ve more than doubled the number of jobs on LinkedIn versus last year, to more than 6 million open listings.  Through improved discovery in our flagship and Job Seeker apps, as well as better relevance, we’ve seen a material increase in jobs engagement on LinkedIn, from approximately 30% year-over-year growth last January to over 80% growth today. In addition, our jobs app has seen traffic increase approximately six times from a year ago. And most importantly, we’re driving a greater volume of hiring by our customers.”

Sponsored content is their fastest growing product

“Sponsored Updates continues to be our fastest growing product at scale as well as our most profitable ad product.  Sponsored Updates continues to exceed our expectations given how quickly it has scaled. With the launch of the new flagship Feed, we are increasingly focused on driving even greater alignment between engagement and Sponsored Content growth.  Sponsored Updates grew approximately 85%.  And growth has been driven largely by a combination of engagement and customer adoption.”

Linkedin (LNKD) CEO Jeff Weiner called it a competitive hiring environment in Silicon Valley for top talent

We remain very competitive, especially with regard to technical hires, which has been a challenging hiring environment, I think, for a couple of years, especially here in the valley. And I think our team has done excellent work in terms of continuing to add to the world-class folks that we already have here.”

Linkedin (LNKD) CEO Jeff Weiner said trust is at the core of their business

With regard to plans to leverage data off of LinkedIn.com, that comes back to Members First. And we’ve talked about this in the past, but trust is the foundation, it’s the bedrock upon which our entire ecosystem exists. And we talked about Members First as a value, it’s a first principle. And so to the extent we can be leveraging data to create more value for members and more value for customers in a way that’s consistent with that first principle, then we’ll explore those opportunities.”

China is their fastest growing market for new members

With regard to China, China continues to be our fastest-growing market in terms of new users. And growth was very much a part of the strategy there, it was priority number one. At this point, given the initial success we’ve had in terms of penetrating the marketplace – not dissimilar from where we are elsewhere in the world – we want to begin to invest increasingly in engaging those members.”

Yelp 4Q15 Earnings Call Notes

Jeremy Stoppelman

Seat Me is 20% of OpenTable size in SF and LA

“And I mentioned earlier in the call, when we are looking at San Francisco now and L.A., we have about 20% of OpenTable size. And that’s looking at that, that full service front of house solution. So we are seeing a lot of really high quality, high traffic restaurants moving over and doing quite well in the product, which as an order of manage less expensive generally than OpenTable.”

Rob Krolik

Expect adjusted EBITDA of 90-105m, stock based comp 83-87m

“For the full year, we expect adjusted EBITDA to range between $90 million and $105 million. Similar to 2014, we expect adjusted EBITDA to ramp up throughout the year with significant increases in the third and fourth quarters, in particular. In addition, we plan to spend slightly less in marketing in the second half of 2016 and also expect lower sales headcount growth in the fourth quarter of 2016 compared to the same period in 2015. We expect stock-based compensation to range between $83 million and $87 million and depreciation and amortization to be approximately 5% of revenue. We expect CapEx to be approximately $30 million.”

Expecting 700m in revenue in 2016. $7B is being spent on Yellow Pages

“I think we want to focus on 2016. And we have given our guidance of about 34% revenue growth, $685 million to $700 million. And that’s today what we are focused on. We think there is a huge opportunity in the market if you look at the fact that there is $7 billion in 2016 that’s being spent on Yellow Pages alone. I mean, most of that money is going to move online and we think we are the perfect place to grab that, given our high ROI.”

Geoff Donaker

It’s a good thing when we hear people say they use Google or Facebook

“Hey, Jason, it’s Geoff. I will take the competition question first. I think what I hear from our sales team is that Google and Facebook do come up, but in general, when they hear Google and Facebook from a local advertiser, that’s a really good sign. That means that the local advertisers who has already started to shift online and it’s a great opportunity for us to talk with them about Yelp advertising as well and we are very confident with the ROI that we offer the typical advertiser. More often frankly, we are dealing with prospects who don’t advertise online at all yet and that’s a more difficult conversation, because you are trying to get somebody effectively out of print and online, which is happening over time, but is a more gradual process.

Yelp 2Q15 Earnings Call Notes

This year hasn’t gone as smoothly as anticipated

“While this year hasn’t gone as smoothly as we anticipated, I am as confident as ever about our future, particularly about the success of our apps and local advertising products. With the strength in our core business, we continue to believe that we can be a $1 billion revenue company by the end of 2017.”

30% reach on smartphones

“Recent comScore report show that Yelp had, as of 2015, approximately 30% reach among the U.S. smartphone users. While this suggests that Yelp is the definitive leader among local search and discovery apps, it also means that we have significant room to grow.”

Exiting direct brand advertising

“Direct brand advertising sales is in decline, while programmatic advertising has its own challenges with privacy implications, ever declining CPMs, and lower ad quality. For example, ads that play video or audio intrude upon the consumer experience increasing load times and data usage on smartphones. We believe that prioritizing the consumer experience while delivering highly relevant native local advertising will provide us with the strategic long-term advantage. Given that our brand advertising as a percent of total revenues declined from 25% in 2010 to 6% in the second quarter of 2015 now is the right time for us to reallocate those resources to our highly differentiated core business.”

Max Levchin stepping down

“Before I turn the call over to Rob, I would like to take a moment to thank Max Levchin, Chairman of Yelp who has decided to step down from the board to pursue other interests. Given the demands on his time, we have mutually agreed this is the right time for him to transition off the board. Max provided the seed capital to start Yelp and I am forever grateful for all of his contributions and wish him all the best going forward.”

Website traffic down with SEO changes, but app traffic does continue to grow

“Now, website traffic internationally is down, that’s right, we mentioned 3% decline in website traffic and that is mostly a function of SEO and things that effectively we see Google having done with their algorithm there. The good news is that as with the rest of our business we do see app traffic growing very nicely in all of our markets. And given that, that is now majority of all kind of user activity, the good news is that their app traffic does continue to grow for us in cities all over the world not just domestically.”

The unicorn bubble is affecting us

“As to the unicorn bubble question and we certainly are feeling those impacts. What are we doing? I think we are trying in general take that Goldilocks approach we have always talk of trying to maintain a high-quality bar on hiring and retention and promoting from within. And we have been really delighted by general strength in our ranks across the sales force in the product and engineering group. And I think for the most part, it is something that we just have to ride out. That having said, you can see the cost in a couple of these areas have gone up, in particular, product and development as a percentage of revenue continued to creep up and that’s a function of compensation in the marketplace. So, we will do what we can to kind of hold the dam on that whole thing and not ride it out, as you said.”

Yelp 3Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Our mission

“Our mission is to connect people with great local businesses and we want consumers to be able to access these trusted local reviews in any country in any other native language.”

400m of cash on balance sheet

“We generated approximately $19 million in cash flow from operations and finished the third quarter with $418 million of cash and cash equivalents and marketable securities on the balance sheet.’

Expect 375m in full year revenue, 70m in EBITDA

“We expect full year 2014 revenue to be in the range of 375 million to 376 million or approximately 61% growth over 2013.

For the full year, we expect adjusted EBITDA to range between 69.5 million and 70.5 million, a 138% increase over 2013. We expect stock-based compensation to be approximately $42 million to $43 million and depreciation and amortization to be approximately 4% to 5% of revenue.’

Still have plenty of inventory on the site

“As to the question on inventory, we still have plenty of inventory on the site and we’re still at a very low overall sell-through ratio as we do add more performance based advertising and of course that gives us opportunity to take advantage of that inventory they have the beauty of auction dynamics within the ad system.”

The best thing we can do is continue to build communities

“I think the answer is to continue to focus on building communities internationally and driving great content because ultimately that’s what the user wants and if Yelp is the premier destination for that content like over the long term we still feel quite strong when the user will find their way to Yelp, growth can be slower but ultimately if you have something scarce and unique like Yelp content ultimately you’re going to win the day. ”

Millions of local businesses out there

“I hope you want to look at this active local business account number whether it’s 86000 or some smaller number for the advertiser account, it’s still a drop in the ocean relative to the millions of local businesses that are out there and so we are absolutely still on an acquisition phase and we want to sell local businesses whatever it is they want to buy whether that’s a low price package that just includes profile features or that’s a larger advertising package around a fixed price with performance basis. So at this stage we are not focused on raising prices in anyway but rather selling advertisers and letting them to be with one and other prices overtime.”

Yelp 1Q14 Earnings Call Notes

A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

132m visitors

“132 million unique visitors who came to Yelp on a monthly average basis in Q1”

26 countries internationally

“n Q1, our total international traffic grew 95% year-over-year to 23% of total traffic and reviews grew 210% compared to last year to comprise 11% of total reviews.

We also recently launched in Mexico and Japan, our 25th and 26th countries. I visited Japan for our launch this month, and I’m thrilled with the warm reception Yelp has received from both consumers and media in our first few weeks.”

Only 20% of Yelp’s 53m reviews are negative

“with 57 million reviews on the site, there’s bound to be some consternation over reviews, given that they are opinions, and business owners may not always agree with those opinions. I think one thing to keep in mind is about 20% of our reviews on the site are negative, so the majority is neutral to positive. And so that negative review is far less frequent than you might imagine. with 57 million reviews on the site, there’s bound to be some consternation over reviews, given that they are opinions, and business owners may not always agree with those opinions. I think one thing to keep in mind is about 20% of our reviews on the site are negative, so the majority is neutral to positive. And so that negative review is far less frequent than you might imagine. ”

It doesn’t really matter to us how you use Yelp

“there isn’t really a strong preference either way. If you’re a diehard Yelp user, we’ll take you on the mobile web, we’ll take you in the app or we’ll even take you on desktop.”