Yelp Inc. (YELP) Earnings Call Transcript & Summary

Sure. And we do spend a lot of time thinking about pricing and packaging. He offers very much an experimentation-driven company. And so we run lots of experiments, both on the product side, but also on the go-to-market side. And fundamentally, we are a CPC-driven offering. And within CPC, you have Request-A-Quote. That is the core of the business. What we want to ensure is that we're continuing to drive more and more value there. Now in addition, we have products that we think drive trust with consumers like enhanced profiles, like business highlights, the new logo product. Interesting -- businesses really want to use their logo and connect with customers through that logo. Consumers really like seeing those logos. I think it's a small thing, but it ends up being quite important and then connect the ability to talk directly to consumers. Those are all now being bundled. And the way that we're really thinking about it overall is a bundling strategy. And we think that, that leads to higher retention. And by delivering value, higher spend with us over time. So I would say, sitting here today, it's unlikely that we would pursue per se a premium pricing model around Request-A-Quote in the spirit of keeping the offering simple and driving that retention.

And how do you think about the levers Yelp has at its disposal for expanding kind of the value gap between a paying advertiser and a free listing. Does the gap get closed by offering more paid products? Or should we think about it as a higher ad load where you drive more of the traffic to advertisers? How should we think about that?

We definitely see a large opportunity to increase monetization broadly. And while increasing ad load on the page is something that we can do over the long run, we think there are a lot of other better ways to monetize our traffic. So let me just talk a little bit about some of the approaches that we're taking right now. So unequivocally, bringing more ad formats to market is quite important to us. Recently, we brought special offers for you as one example of that. And we also see -- I mentioned Request-A-Quote. We now have a product called Nearby Jobs. That's where, when a consumer is going through the Request-A-Quote flow, they can check a box and say, hey, yes, I'm hoping to hearing other service providers. On the service provider side, they actually see a list of opportunities, and they can select which ones they want to engage with, which gives them flexibility and freedom. And we're doing that through a set price per month. And so we see that as another way to monetize. Connect is another way to monetize. So we think that we can bring a broad set of products to market that enable us to monetize more. And at the same time, we think that we can continue to improve on the back end through the matching algorithm that will enable us in time to better optimize the consumer to the advertiser but also let us optimize across ad formats. And that's definitely in the future. But when you start to think of that combination of different ad formats with optimization, we think that provides also a really good opportunity for us to continue to drive performance.

You talked about a lot of these new ad products like logo connect, seasonal spotlight ads. Do you see that as kind of a way more to increase advertisers, increase ARPU, reduce churn? And do you think of those as stickier products that are less traffic driven? Like help us contextualize a bit more of these new products.

I think you'll know, ideally, we get all of those benefits. Obviously, we will see how it plays out. But we do think that we are able to do all 3 of those things that you mentioned, which is you have a better way to reach different consumers through these different ad formats. That has the potential to increase how much an advertiser spends with us. We also think that we are able to retain better because we can show value. And this is a little bit why we're inclined towards that bundling approach, which is I see so much value from Yelp, I wouldn't think of leasing. And we think when you combine both that ability to offer more products and folks retain longer that ultimately, we can continue to offer more and more things that give us new growth opportunities. While enticing that next customer because the thing that mattered to them was I'm a new business, and I want to talk to my customers, so I'm going to use Connect. Or I'm a service provider and scheduling is a real hassle for me, and this is just part of the product that I get scheduling and it works well. So we think of it as being able to play across all of those. And at the same time, I think what's important to be mindful of is because we have a strong consumer brand, that's trusted. What we want to ensure is a continued great consumer experience. And so it does take some art to balance across all of those things and the media of obviously applying experimentation to that is it lets us quantify those decisions.

So David, back in 2016, before your time, long before your time, Yelp had kind of a sales issue with the election, kind of the Presidential Election impacting efficiency. Is it something we should be kind of worried about as a potential risk again this year heading into a kind of contentious election?

So what is, no doubt, true is it's hard sitting here even 6, 7 weeks out to know exactly how things are going to play out with regard to the election. I think they are a little bit different than 2016. There are probably 2 bigger macro elements that are going to matter more. And the first is just the pace of the recovery and it does seem like additional stimulus through the federal government is going to take some time to come. It would accelerate the recovery if there were additional investment. And so I think that's probably a bigger factor. And then clearly, caseload, as we go into the winter here, I think there's a lot of concern about people being back indoors. What does this mean in flu season, collides with COVID and what are the implications of that. And in fairness for ourselves as we look at the rest of the year, we're cautiously optimistic. There are just things -- they're so much bigger than in any of our individual businesses that are going to play out here. So I do think that depending on how things go with the election and whether that drags out because of delays in vote counting, I don't think that per se is going to be the biggest factor affecting us over the next month.

Okay. Can you give us an update on the Yelp ad certified Partners Program? Is COVID something that impairs that effort? Is it something that allows you to start new conversations, kind of where -- what is the latest with that?

So that is something that we see as delivering value to providers. At the same time, what we have seen is that other features are more, I think the right word would be urgent or immediate. So being able to reach those consumers, being able to communicate with them around your status during COVID have been areas where people have focused more. So it's obviously an element of our offering. I would say other parts of the offering are probably more relevant at the moment.

I wanted to ask on food delivery. Obviously, the general market there has been on a tear, given the pandemic. But how do you see that kind of Yelp position for that? And then how should we think about the deal with Grubhub evolving over time.

So as we said, people really are ordering out more -- what we have seen is takeout is doing really well. Financially, whether it's takeout or delivery, we're paid the same, and we're happy with our partnership with Grubhub that does run into 2022. One of the things that has been really important, we see tremendous uptake is just these restaurants want to be able to communicate. And so banners and badges have ended up being really important, letting people know that they can do delivery and take out is the first step on the way to actually getting that order. And then, of course, having that run over the rails with Grubhub just makes for that seamless experience for the consumer. So overall, we've been pleased by the performance there, and we're happy with our partnership with Grubhub.

I wanted to ask a few on costs. And I guess, starting with the sales force, what do you see as the medium-term role of the local sales force at Yelp? Is that a group we should expect to grow in size over the next few years, remain stable or even shrink?

So one of the things that we'd already been transitioning before COVID, it's seems a long time ago, long before COVID. But the sales force had started to -- we've been reducing it in size a bit. And that came at the same time as we were focusing and continue to focus on self-serve as a way to create operating leverage as well as expanding our channel reach through multi-location and national. As we went through the pandemic, obviously, we've taken quite a few people out of the local sales team. And so it's considerably smaller today than it was before. So personally, I don't see us returning to that size of the local sales force in the future. That being said, we are very ROI driven to the extent that we see an opportunity to invest there and generate return. We want to continue to invest, whether it's in product and engineering, but also on the go-to-market side.

You've talked about bringing a big chunk of the sales force back to the offices in August. Can you give us an update on how that's gone? And are there any attrition factors we should be thinking about that would potentially keep you short of the $30 million sequential increase in cost?

So 2 thoughts there. First, on the return of local sales folks we've staggered that over a number of months. And the last group will be coming back at the beginning of October. And overall, we're pleased with how that's gone is -- you mentioned when -- on our Q2 earnings call, we said that expenses could be higher by as much as $30 million from the second quarter to the third quarter, we will come better than that, so lower than that increase of $30 million. And we're looking forward to sharing more details around that when we get to the Q3 earnings call.

All right. Thanks for sharing that. When you look at the kind of returning furlough sales force versus, say, the engineers going back to full salary? Or would you say that it's more the sales force coming back that's moving slower? Or is anything else you'd point to behind where that may be coming in better?

Sure. So as we previously shared and you alluded to, part of what we did here in Q3 was we returned our product and engineering teams to full time. And so those are people who are in seat, obviously, and so that expense is there. In terms of pacing and timing around the local sales force and attrition, we'll share more about that on Q3. There were some other elements that we mentioned that had the potential to impact costs here in Q3. Things like how much health care are -- people will get, consume, will people start going back to the -- to do the things that they need to do, but maybe have been scared off during COVID from doing or just delayed. That's a variable for us. And then just overall performance in terms of bad debt. And so all of those are components. And again, we'll get into much more detail when we get to the Q3 earnings call.

Okay. I wanted to just ask about the share repurchase authorization, almost $300 million. How do you think about returning to repurchase shares? Where does that fit into your capital allocation framework?

So one of the things that has been very important to us is maintaining a strong balance sheet and demonstrating that we have the financial capacity to weather any storm. So -- and we've achieved that through some hard decisions in Q2 and through fiscal discipline. We don't want to lose that. We don't want to lose that fiscal discipline. We do not want to lose that balance sheet strength. At the same time, we do see share repurchase as a part of our ongoing commitment to total shareholder return. And so in time, we will come back with our thinking around that.

All right. David, we are unfortunately about out of time, but thanks a lot for doing this fireside chat with us. Thanks for being here at the virtual conference and hope to host you at a live conference again sometime in the future.

We're looking forward to that, and thanks again for having us, Lloyd.

All right. Thank you. Operator, we can go ahead and wrap.