Yelp (YELP) Q3 2026 Earnings Call Transcript

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DATE

Nov. 5, 2026

CALL PARTICIPANTS

• Director of Investor Relations - Kate Krieger
• Chief Executive Officer - Jeremy Stoppelman
• Chief Financial Officer - David Schwarzbach
• Chief Operating Officer - Jed Nachman

TAKEAWAYS

• Net Revenue -- $371 million, decreasing 1% year over year due to a challenging operating environment for local advertisers.
• Net Income -- $35 million, representing a 9% margin and a 12% decrease compared to the prior year.
• Adjusted EBITDA -- $92 million, decreasing 6% year over year while representing a 25% margin.
• Services Ad Revenue -- $238 million, decreasing 2% year over year as macroeconomic pressures impacted home service budgets.
• RR&O Ad Revenue -- $99 million, decreasing 13% year over year reflecting softer demand in the restaurants, retail, and other sectors.
• Other Revenue -- $34 million, growing 82% year over year driven by data licensing and AI-driven products like Hatch and Yelp Host.
• Paying Advertising Locations -- 509,000, decreasing 1% year over year as a decline in services locations was only partially offset by a 3% increase in RR&O locations.
• Ad Clicks -- Decreasing 8% year over year, reflecting softer consumer demand across the platform.
• Average CPC -- Increasing 2% year over year, driven by shifts in advertiser demand and location mix.
• Yelp Host Run Rate -- 2.5 million annual calls handled in October, representing a 15-fold increase since October 2025.
• Hatch ARR -- $37 million, growing 55% year over year and 6% sequentially.
• Request-a-Quote Projects -- Growing approximately 10% year over year, with Yelp Assistant generating 10% of these project submissions.
• Stock-Based Compensation -- 6% of revenue, decreasing 3 percentage points year over year as the company reached its efficiency target one year ahead of schedule.
• Share Repurchases -- $25 million in the third quarter, part of a total $200 million repurchased during the first nine months of the year.
• Shares Outstanding -- Contributing to a 15% year-over-year reduction in diluted shares through the share repurchase program.
• Q4 2026 Guidance -- $347 million to $352 million for net revenue and $57 million to $62 million for adjusted EBITDA.
• Full Year 2026 Guidance -- $1.455 billion to $1.46 billion for net revenue and $320 million to $325 million for adjusted EBITDA.
• Other Revenue Target -- $250 million annual run rate by the end of 2028, reflecting management's goal for AI-driven and licensing growth.

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RISKS

• Schwarzbach stated, "consumers and local businesses continue to face a challenging operating environment," which has resulted in increased pressure on advertising revenue.
• Nachman warned that input costs remain high for businesses on both the labor and fuel side, which is impacting the local advertising market.
• Nachman indicated that some consumers are choosing to "repair versus replace" for larger home service tasks, stating that "some of those bigger projects are not getting done."

SUMMARY

Yelp Inc. (NYSE:YELP) reported a 1% year-over-year revenue decline in the third quarter as record growth in data licensing and AI products was offset by macro headwinds in its core advertising segments. Management noted that high borrowing costs and persistent inflation have dampened consumer demand for large-scale home projects and restaurant visits. The company is actively shifting its investment profile toward AI-driven offerings like Yelp Host and Hatch while leveraging automated engineering tools to improve internal productivity. Although the company executed $200 million in share repurchases during the first nine months of the year, it paused the program in the third quarter to prioritize the repayment of its revolving credit facility.

• Stoppelman noted, "personal AI agents have gained considerable momentum in recent months," which has increased the demand for Yelp's structured local data.
• The company expects to recognize a tax benefit of approximately $30 million in the fourth quarter related to previously unrecognized tax benefits.
• Nachman reported that food ordering volume within the Yelp Host product grew sixfold from June to October.
• Stoppelman indicated that Request-a-Quote functionality is now fully integrated within ChatGPT through a partnership with OpenAI.
• Management reported that food order conversion rates increased by 13% for a major restaurant client following the deployment of new voice AI solutions.
• Schwarzbach stated that the company plans to return more than 50% of free cash flow to shareholders annually through share repurchases starting in 2027.

INDUSTRY GLOSSARY

• ARR: Annual run rate revenue, a metric used to project future revenue based on current performance.
• CPC: Cost-per-click, the amount an advertiser pays for each click on their advertisement.
• Hatch: An acquired AI-powered lead management platform for home service professionals.
• PALs: Paying advertising locations, representing the number of unique business locations with active advertising.
• RR&O: Restaurants, Retail, and Other, a Yelp reporting segment focusing on non-service businesses.
• SBC: Stock-based compensation, a non-cash expense used to attract and retain employees.
• Yelp Assistant: A conversational AI tool that helps consumers find businesses and submit project requests.
• Yelp Host: An AI-powered call answering service designed for restaurants to handle reservations and food orders.

Full Conference Call Transcript

Operator: I will now hand the conference over to Kate Krieger, Director of Investor Relations. Kate, please go ahead.

Kate Krieger: Good afternoon, and thanks for joining us on Yelp's third quarter 2026 earnings conference call. Joining me today are Yelp's Chief Executive Officer, Jeremy Stoppelman, Chief Financial Officer, David Schwarzbach, and Chief Operating Officer, Jed Nachman. We published a shareholder letter on our investor relations website and with the SEC, and hope everyone had the chance to read it. We will provide some brief opening comments and then turn to your questions. Now, I will read our safe harbor statement. We will make certain statements today that are forward-looking and involve a number of risks and uncertainties that could cause actual results to differ materially.

Please note that these forward-looking statements reflect our opinions only as of the date of this call, and we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events. In addition, we are subject to a number of risks that may significantly impact our business and financial results. Please refer to our SEC filings, as well as our shareholder letter, for a more detailed description of the risk factors that may affect our results. During our call today, we may discuss adjusted EBITDA, adjusted EBITDA margin, and free cash flow, which are non-GAAP financial measures.

These measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with generally accepted accounting principles. In our shareholder letter released this afternoon and our filings with the SEC, each of which is posted on our investor relations website, you will find additional disclosures regarding these non-GAAP financial measures, as well as a historical reconciliation of GAAP net income or loss to adjusted EBITDA, a calculation of net income margin and adjusted EBITDA margin, and a historical reconciliation of GAAP cash flows from operating activities to free cash flow. With that, I will turn the call over to Jeremy.

Jeremy Stoppelman: Thanks, Kate, and welcome, everyone. Yelp continued to advance its AI transformation in the third quarter. Our team made local discovery more conversational, delivered new tools to help businesses succeed, and expanded the reach of our trusted content through new partnerships. Together, these efforts resulted in the recent rollout of more than 30 new features and updates, along with substantial advances in our AI voice offerings. At the same time, consumers and local businesses continue to face a challenging economic environment, contributing to increased pressure on advertising revenue. Third quarter net revenue decreased by 1% year-over-year to $371 million, with a net income margin of 9% and an adjusted EBITDA margin of 25%.

Underlying our top line results, services ad revenue decreased by 2% year-over-year, and RR&O ad revenue decreased by 13% year-over-year. Conversely, other revenue grew 82% year-over-year to a record $34 million, driven by continued traction in our AI-driven revenue streams. Moving to our product initiatives, we have reconceived how consumers and businesses connect on Yelp through Yelp Assistant, a conversational experience that provides answers and enables actions. In the third quarter, we made Yelp Assistant more personalized and expanded the actions consumers can take with it. Yelp Assistant continued to be an important driver of project submissions in the quarter, generating approximately 10% of Request-a-Quote projects and contributing to overall project growth of approximately 10% year-over-year.

More recently, we added Keep Me Posted reminders integrated with OpenTable and rolled out a Check for Me agent, which can check restaurant wait times for consumers. In services categories, we enhanced booking functionality by integrating the scheduling and booking tools pros already rely on. Looking ahead, Yelp Assistant will soon leverage users' chat and search history to deliver more personalized answers and recommendations across categories. We are also delivering AI tools that help service pros and other local businesses grow, operate, and succeed. Yelp Host, our internally developed AI-powered call answering service for restaurants, continued to scale, reaching an annual run rate of 2.5 million calls handled in October, up 15x since October of 2025.

Yelp Host was among the first voice solutions to deploy GPT-Live-1, which supports more natural, fluid conversations. In testing with a major restaurant client, food order conversion increased by 13% since its implementation in September. We believe Yelp Host is a best-in-class product based on customer feedback, and we are expanding our go-to-market team to capture the significant opportunity ahead. We are making similar product and go-to-market investments in Hatch. We substantially improved Hatch's voice AI and deepened the integration with ServiceTitan. These efforts contributed to continued business momentum. Hatch's annual run rate revenue reached approximately $37 million in the third quarter, up 55% year-over-year and 6% quarter-over-quarter.

Looking ahead, we are expanding the platform to serve additional services categories while enhancing our suite of products. Beyond AI tools for businesses, Yelp's trusted content is increasingly powering local discovery across the broader AI ecosystem. In the third quarter, we saw robust demand for our data licensing products, including from our partnerships with OpenAI and Meta. More broadly, personal AI agents have gained considerable momentum in recent months. As these agents increasingly act on consumers' behalf, we believe Yelp's trusted local content makes us an essential partner for connecting consumers with local businesses. In summary, we made significant progress in transforming Yelp with AI in the third quarter.

While the macro environment remains challenging, we are confident in our plans and believe that our initiatives will position us to drive shareholder value over the long term. With that, I will turn it over to David.

David Schwarzbach: Thanks, Jeremy. Turning to our third quarter results, net revenue decreased by 1% year-over-year to $371 million, $1 million above the high end of our outlook range. Net income decreased by 12% year-over-year to $35 million, or $0.63 per share on a diluted basis, representing a 9% margin. Adjusted EBITDA decreased by 6% year-over-year to $92 million, $17 million above the high end of our outlook range, representing a 25% margin. As Jeremy mentioned, consumers and local businesses continue to face a challenging operating environment. Services ad revenue decreased by 2% year-over-year to $238 million, while RR&O ad revenue decreased by 13% year-over-year to $99 million.

A decrease in services locations was partially offset by a 3% increase in RR&O locations, largely driven by multi-location advertisers. This resulted in an overall decline of 1% year-over-year in paying advertising locations to 509,000. Ad clicks declined by 8%, and average CPC increased by 2% year-over-year in the quarter, in each case primarily due to softer consumer demand. Moving to other revenue. Other revenue increased by 82% year-over-year to a record $34 million. This strong growth was driven by the inclusion of revenue generated by Hatch, as well as significant growth in revenue from data licensing and food ordering. Turning to expenses.

In 2026, we are maintaining a disciplined approach and shifting resources toward high-return areas that we believe will transform Yelp. In particular, we see a large opportunity in other revenue through AI-driven offerings such as Yelp Host, Hatch, and data licensing. As these revenue streams continue to gain traction, we are targeting an annual run rate of $250 million of other revenue by the end of 2028. At the same time, we see substantial opportunities to unlock operational efficiencies and increase employee productivity with AI. We have already seen AI tools drive meaningful improvements in product and engineering velocity, and we are bringing new products like Yelp Host to market faster than ever before.

We reduced stock-based compensation expense as a percentage of revenue by 3 percentage points year-over-year to 6% in the third quarter. We anticipate SBC will be below 6% of revenue in the fourth quarter, one year ahead of our end of 2027 target. To create long-term shareholder value, we have evolved our approach to capital allocation. We plan to invest in future growth, pursue strategic acquisitions through a combination of cash and financing, and return more than 50% of free cash flow to shareholders each year through share repurchases.

As previously disclosed, in the third quarter, we repurchased $25 million worth of shares at an average price of $26.14 per share, bringing our total repurchases for the year to $200 million and contributing to a 15% year-over-year reduction in diluted shares outstanding. We subsequently paused our program to pay down our revolving credit facility. With $339 million remaining under our authorization as of September 30th, we expect to resume repurchases in 2027, subject to market and economic conditions, as well as business requirements. Turning to our outlook. We anticipate that the challenging economic environment for consumers and local businesses will persist in the fourth quarter, with increased pressure on advertising revenue across categories.

At the same time, we expect our investments and our strategic initiatives will continue to drive strong growth in other revenue. As a result, we expect fourth quarter net revenue will be in the range of $347 million-$352 million. For the full year, we are updating our range and now expect net revenue will be between $1.455 billion and $1.46 billion. Turning to margin. Following strong expense favorability in the third quarter, we expect expenses will be modestly higher in the fourth quarter as we focus our investments in key areas, including Hatch and Yelp Host. As a result, we expect fourth quarter adjusted EBITDA will be in the range of $57 million-$62 million.

For the full year, we are narrowing our range to the high end and now expect adjusted EBITDA will be between $320 million and $325 million. In addition, we expect to recognize a tax benefit of approximately $30 million in the fourth quarter related to previously unrecognized tax benefits, including related interest, which will benefit net income but will not impact adjusted EBITDA. In closing, Yelp's third quarter results reflect growing traction across our AI-driven offerings. We continue to believe in the opportunities ahead and our ability to deliver long-term shareholder value. With that, operator, please open up the line for questions.

Operator: Thank you. We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Alex Vegliante with Goldman Sachs. Alex, your line is open. Please go ahead.

Alex Vegliante: Hey, guys. Thanks for taking the question. I wanted to dig into the other revenue opportunity a little bit more, and specifically in the context of some of the consumer AI agents that have launched recently, such as Muse and things like that. How might you see Yelp playing a role in that landscape if we see consumer adoption of some of these tools increase, and given your existing data licensing partnerships with both OpenAI and Meta, how might the monetization structure look like in that world going forward? Thanks.

Jeremy Stoppelman: Hey, Alex. This is Jeremy. Thanks for the question there. We were really happy with other revenue growing 82% year over year. We have had a lot of success now for about a year with various LLM search players. That whole space, the quality of conversations continues to be strong. The quality of deals that we have done has been strong. I think that carries forward into the personal assistant realm. There is obviously Meta, and we have talked historically about, I think it was last quarter, our deal with Meta AI. That really gives access to Meta, all of our data across all of their properties, including Muse.

From their engagement and what we are seeing, they are really leaning into it. I think if you step back and look at the personal agent space, you really need high-quality local information. You need to know the reputation, all the subjective information that we have in terms of reviews. You obviously want photos to be able to showcase to users, and you really need accurate listing information, whether the business is in fact still in business, as well as the hours is absolutely critical.

You can imagine, if somebody is coming up with an anniversary idea and gets sent to a restaurant that is no longer in business, or you are outside the hours that it is open, that is going to be a real deal breaker for that user. It can result in obviously bad feelings and potentially bad press and all that. So I think for anyone building in the personal agent space, they are going to want to look at Yelp, unless their name is Google.

Alex Vegliante: Thank you.

Operator: Your next question comes from the line of Robert Coolbrith with Evercore ISI. Robert, your line is open. Please go ahead.

Robert Coolbrith: Great. Thank you very much. I wanted to ask about expense favorability that you've experienced, not just in Q3, maybe pronounced in Q3, but maybe over the past few quarters. Just what you maybe can unpack some of the key drivers there. Then when you look forward to Q4, just hear the level of certainty that you have in terms of increasing investment levels sequentially. Then I also wanted to ask a little bit about organic search trends and any changes there, as well as paid search project acquisition. Thank you.

David Schwarzbach: Thanks, Robert. This is David. I will cover your questions. In terms of expenses, we saw favorability in the third quarter, and we did see favorability in the first half of the year as well. Just to step back for one second, very much 2026 for us has been an investment year. We made the acquisition of Hatch in February, and we mentioned that we were significantly increasing resources there, both on the product and engineering side, as well as sales and marketing. Then we've seen real traction on the Yelp Host side, and we're leaning in there as well. We're continuing to invest in Yelp Assistant to make that a great conversational experience.

As you saw from our recent product release, we're adding features quite rapidly that increase the capabilities of that assistant. As we go through the year, we're always evaluating how to deploy our capital, and we're also remaining very ROI disciplined. The expense favorability comes out of, in particular, some optimizations that we've made around marketing spend. We also, because we're leaning into more innovation, we're seeing more cap dev, or capitalized software development, as an element. Then there's always just a variability of a variety of expenses that are harder to forecast, like healthcare expense. That's a combination of things.

In terms of the fourth quarter, we do anticipate that expenses will be a touch higher than they were in the third quarter. Obviously, we look to execute against the plan that we have and the guidance that we've given for the fourth quarter.

Jed Nachman: Yeah, I can handle this. This is Jed. I can handle the paid projects. I believe that was the question. We have spent over the first three quarters of the year on paid project acquisition, particularly for our multi-location services segment. I think the name of the game here is making sure that we're very disciplined in terms of how we're buying those projects. Where we see green shoots, we're going to lean into it, and where we're not seeing the return, we're not going to spend as much. We will look for pockets of opportunity where that makes sense, and make sure we're very disciplined in doing so.

Robert Coolbrith: Got it. Anything on organic, either, excuse me, AI or AI penetration of relevant queries? Thank you.

Jeremy Stoppelman: I guess I'm not totally, this is Jeremy, not totally clear what you mean on-

Robert Coolbrith: Oh, just from Google, the relevant local search queries that would drive some level of traffic, obviously, to Yelp. Have you seen any increase in penetration-

Jeremy Stoppelman: Gotcha

Robert Coolbrith: of AI or AI Mode? Anything notable there? Thank you.

Jeremy Stoppelman: SEO side, historically, that's obviously been a great source of traffic for us. We continue to get quite a bit. That said, we're diversified across multiple channels. We have some great partnerships, like with Apple, that drives considerable traffic, as well as our own direct traffic. We have a very successful, popular app that drives a lot of direct traffic as well. So, in the quarter, I know there was a lot of discussion around Google dialing up AI Overviews and that having impact. We saw some impact, but stepping back and looking at overall results, it was somewhat muted in the big picture.

I think part of that stems from the queries that we typically get a lot of our most valuable traffic from are highly monetizable, and as a result, Google seems to be a bit more cautious with those queries, so it was a bit more muted in dialing up or cautious about dialing up its AI Overviews. So, we did see some impact there, but again, not dramatic, not as dramatic as reported elsewhere.

Robert Coolbrith: Got it. Thank you very much.

Operator: Your next question comes from the line of Jason Kreyer with Craig-Hallum. Jason, your line is open. Please go ahead.

Thomas: Hey, guys. This is Thomas on for Jason. When you look at AI-enabled tools that you've rolled out, I know you talked about 30 updates and features as of late, but as particular in the services segment, which solutions are helping drive most durable engagements with consumers and customers, and can you elaborate on any notable dynamics you're seeing between them?

Jeremy Stoppelman: Sure. This is Jeremy. Within services, one of our big investment areas has been, for a while, Yelp Assistant, and we continue to build that out. Originally, it was designed specifically for services, but it's become cross-category. We continue to add agentic features like Check for Me, which can actually do an outbound call to a restaurant to find out how long the wait might be. Within Yelp Assistant this quarter, we added a Keep Me Posted feature. So, if you're interested in particular types of businesses opening up in your neighborhood, obviously, that's great re-engagement when we can let you know that, "Hey, we found a new restaurant that met your criteria." So that's been great.

Also on the services side, this is more on the business owner side, we have been working on Smart Lead Reply. Speed to lead is of critical importance to both sides of the transaction. Consumers want to hear from businesses, and so getting a faster response with AI is really critical, and so we're going to be offering that. We also see great Request-a-Quote volume coming from Yelp Assistant, and so that's been another benefit there. Request-a-Quote was up 10% year-over-year, so great to see there. Oh, and I guess, sorry, one more to throw in there. In our partnership with OpenAI, you can obviously see Yelp's great content now within ChatGPT, and that's all attributed.

But from a service perspective, even more interesting is our Request-a-Quote feature is now fully baked into ChatGPT. So you'll see Request-a-Quote buttons when those listings come up, and you can dive right into our flow. That's also partially a contributor to our Request-a-Quote growth of 10% year-over-year.

Speaker 7: That's helpful. Maybe double-clicking on Yelp Assistant. How are you thinking about turning one-time projects into more like a recurring relationship with the customer? Are you noticing any behaviors between how those products change, driving repeat usage rather than simply improving conversion on one existing visit?

Jeremy Stoppelman: Yeah, absolutely. Our goal is to be as sticky as possible and as engaging as possible, and that is part of what we try to solve by being broader than just a services Yelp Assistant originally was services-focused, but by bringing in higher frequency categories, things like restaurant food, nightlife, even spa, salon-type conversations, that can drive up the frequency, but so can some of these more agentic features, which is where we're turning a lot of our attention. I think with the rise of personal assistants, it's really raising the bar on the expectation of what something like Yelp Assistant should be for people.

I think it's a great way for normal people out there that maybe aren't going to be early adopters of some of these personal agents to get agentic features right away. They already have Yelp. They've had it for years. It's familiar. If we can bring them into an experience that anticipates their needs, that serves up things right in the moment, or it goes out and actually solves a problem, books that appointment where it makes something that was friction-full frictionless, I think we have a real opportunity to engage that user and keep them locked in until they have a service request as well.

Speaker 7: Great. I appreciate the perspective, guys.

Jeremy Stoppelman: Thank you.

Operator: Your next question comes from the line of Sergio Segura from KeyBanc Capital Markets. Sergio, your line is open. Please go ahead.

Sergio Segura: Great. Thanks for taking the questions. I wanted to start on just the advertising business. Advertising revenue decelerated again sequentially, and I think the outlook implies further pressure in the fourth quarter. So, hoping you could just unpack the trends that you're seeing within that business in terms of just traffic, SMB budgets, multi-location advertisers, anything you're seeing there. And any comments you could provide on October specifically, if you saw trends worsening in October. Thank you.

Jed Nachman: Yeah, this is Jed. I can take the advertising question. It continues to be a challenging operating environment for a lot of these local businesses, where there's obviously a lot of pressure on the consumer between inflationary impacts, obviously consumer confidence is not where we need it to be, and borrowing costs, which particularly hits on the services side as well. We're seeing a lot of behavior in services specifically around repair versus replace, and some of those bigger projects are not getting done. And on the business owner side, the input costs continue to be very high, both on the labor side, and we can look at things like diesel gas as an example.

So, those are certainly impacting the local advertising market. We are, as a result, leaning into a lot of our other products. I think when you think about RR&O, our Yelp Host product continues to gain traction out in the marketplace. We have done a ton of investment on the product side there, as well as Hatch. We do not expect the local advertising market to turn anytime soon, but we continue to invest on the consumer experience as well. I heard Jeremy talk about the ecosystem side.

We will continue to We still believe our audience is very valuable, and we are also going to be making sure that our data shows up on all the places where consumers are, would meet the consumer where they are, whether that is other platforms like OpenAI or Meta, as well as continue to invest in our own platform.

Sergio Segura: Got it. Thanks, Jed. Maybe following up on Hatch, I think the ARR growth there moderated slightly versus last quarter. What are you just seeing there in that business in terms of bookings, customer additions, sales productivity? I know you guys made some significant investments in Hatch, so just what is your level of confidence that you can accelerate growth within that business again? Thank you.

Jed Nachman: Yeah, thanks. We are really pleased with the Hatch business right now. It is an annual run rate revenue of $37 million, up about 55% year-over-year, which is in line with last quarter. We still believe there is a really large opportunity in the lead management space for these home services pros, both on the speed to lead side, which you can think about digital leads, as well as our voice AI solution. Since completing the acquisition in February of last year, or of this year, I am sorry, we have been investing in the business both on the go-to-market side as well as on the product side, really in order to prepare for scale going forward.

Our product investments include huge improvements to our voice product, with the implementation of GPT-Live-1, and the continued fine-tuning of the models to handle even really the most complicated home services use cases. Our customer feedback has been very strong, and we believe ultimately the voice product has really leapfrogged in the marketplace, in part due to some of that expertise that we brought over from the outside and were able to deploy on the Hatch business. We have also deepened our ServiceTitan integration, which now supports real-time booking with things like adaptive capacity, which is really important to a lot of these pros.

It is worth noting that as more of this consumer communication becomes really AI-driven, including some of the personal agents that Jeremy mentioned previously, Hatch is really well-positioned to help those services businesses handle those leads. It is going to be, as more and more people use these agents, it is going to be important that pros can kind of handle all of those communication methods. On the go-to-market side, we have added capacity on both the enterprise side as well as the commercial teams. We are expanding into additional service categories as well, most recently into moving, pest control and lawn care.

Those are still very early stage, but we believe over the long term can drive a lot of growth in that business. Our overall posture is we are going to continue to invest in that business and feel like it is a really large opportunity, and that we have the ability to take share as that market develops.

Sergio Segura: Okay. Thanks, Jed.

Operator: Your next question comes from the line of Kishan Patel with Raymond James. Kishan, your line is open. Please go ahead.

Kishan Patel: Hey, this is Kishan on for Josh Beck. Thanks for taking the question. Given the macro trends affecting services advertisers, how are you thinking about balancing customer acquisition marketing spend going forward?

Jed Nachman: Yeah, I mean, we touched on it before around our paid project acquisition. We are just going to be really ROI-focused and disciplined in our approach in terms of acquisition costs. We obviously are going to continue to invest in the customer experience as well, whether that is on the account management, customer success side. We want to make sure the folks are trained properly in order to use the system, that they are converting on leads. I mean, one of the things that Hatch has taught us is when we step back, getting the lead is obviously a very important part for these service businesses, but you have got to be able to convert on those leads as well.

That is a big component on whether these folks are going to see ROI. So you look at things like Smart Lead Reply that we are investing in to make those leads more effective, the ones that come in. We are going to continue to invest there, and from a paid perspective and a marketing perspective, we are going to be really disciplined in how we are going out and acquiring those.

Kishan Patel: Thanks. How are you thinking about scaling Yelp Host go-to-market, and what have you learned about which restaurant segments adopt the fastest?

Jed Nachman: Yeah, on the go-to-market side, first of all, we are really happy with the progress. This is a homegrown product that really launched about a year ago, and we are really happy with the reception in the marketplace. We have handled, I think in October, we are on a run rate for about 2.5 million annual calls. On the voice solution side, we believe we have leading product in the market in terms of voice quality. We have been testing with some bigger clients, and in one example, we had our food order conversion increasing by 13% after deploying our new voice solution. So, that was a nice proof point.

This is a big step for a lot of these customers to turn over their voice to an AI voice agent. So, it is oftentimes a land and expand. We have got to prove ROI, but we are really happy with the way that is going so far. Our food ordering, which is relatively new over the last two or three months, actually started that in June, and it is very nuanced. You can imagine all the different versions of ordering food. Am I gluten-free? What do you have on the kids' menu? Is it good for kids? How is the noise? It has got to be able to kind of handle all of that at once.

And food ordering specifically grew 6X from June to October. So we are pleased, and we believe we have a good head start in terms of the quality of our voice product. Now we are just going to concentrate on making sure that message gets out there, and that is going to be done through our go-to-market team as well as marketing efforts behind that. I believe we have a moment in time to go showcase what we have on the Yelp side, and we are going to pursue that aggressively.

Kishan Patel: Thanks very much.

Operator: Your next question comes from the line of Colin Sebastian with Baird. Colin, your line is open. Please go ahead.

Zach: Hey, this is Zach on for Colin. I guess I'm just most curious, as you scale more of the products requiring AI inference, are there any efficiencies you're finding or leveraging within your cost to serve across pricing, product design, or infrastructure efficiency?

Jed Nachman: Yeah, I'll take this one as it relates to internally at Yelp. Over the last couple years, and I would say particularly over the last 12 months, we've been really leaning into AI in order to drive both efficiency and production, quite frankly. It's one thing to say, but we want to get more production out of folks. The most obvious returns, as you can imagine, have come from our product and engineering teams, where the velocity has really accelerated, as evidenced by the latest product release. I think we had over 30 products and new features in the last quarter.

You look at something like Yelp Host, which was a built-from-scratch product, and we were able to make a ton of headway due to some of the advantages we've seen with the AI engineering tools. We've also been aggressive throughout the rest of the company in deploying AI and solutions. We want to make sure that they're measurable and have impact, and you're not spraying the AI hype around the company. We do see a lot of pockets where this is making a big impact. Some of those examples include pipeline management for the sales team, all homegrown, real-time coaching, AI tooling, and that's across marketing, across sales, user ops, et cetera.

We're going to continue to lean into this AI transformation. I think you see it externally with our products on both the business and consumer side, and we believe there's a real opportunity internally as well to make sure we're driving efficiency and, more importantly, more production out of the resources that we do have.

Operator: Your next question comes from the line of Nitin Bansal with Bank of America. Nitin, your line is open. Please go ahead.

Nitin Bansal: Thank you. As you expand more into AI products, how is your go-to-market strategy evolving? Can you talk about what are the key initiatives and pipeline that could accelerate the growth in the other segment? On the advertising side, can you talk about some of the puts and takes and key initiatives and pipeline that could drive stabilization in the top-line growth over the next few quarters? Thank you.

Jed Nachman: Yeah, I can kind of take the go-to-market side on our new initiatives. I would say that our posture is aggressive in terms of making sure we have the right heads in place to capture the opportunity and the right resourcing to capture the opportunity. I think when you look at Hatch, as well as Host, these are new markets. Folks are making decisions out in the marketplace, and it's really important that we have the coverage across the enterprise segments, across the commercial segments to really take advantage of that.

We have a ton of in-house sales expertise that we're deploying out to those other initiatives, specifically Host and Hatch, because we believe there's a large opportunity for both of them to have a bright future, and we want to take advantage of that.

Operator: Your next question comes from the line of Bryan Smilek with JPMorgan. Bryan, your line is open. Please go ahead.

Vignesh: Hey, guys. This is Vignesh on for Bryan. Appreciate you taking the question. I guess it seemed like the RR&O ad revenue declined double digits, even as the paying ad locations were up slightly. Could you maybe talk a little more on the divergence between this and kind of what needs to happen to maybe stabilize? Appreciate the cadence on kind of expenses for next quarter, but anything maybe into kind of next year and how we should think about expenses on that front? Thanks.

Jed Nachman: Yeah, I can take the question on PALs and RR&O revenue. RR&O revenue was down 13%, and our PALs were actually up 3% RR&O. This was largely due to some multi-location customers that increased locations but didn't necessarily increase average revenue per location. I think stepping back, RR&O continues to be pressured for a lot of the reasons we mentioned before. Consumers pressured obviously due to inflation and compounding inflation over the last few years. On the business side, they continue to really face high input costs. We don't expect that to turn anytime soon. It was a nice bump to see those paying advertising locations, but I wouldn't read into anything in terms of really sunny days ahead.

Operator: A reminder, if you have any further questions, please press star one to raise your hand. Your next question comes from the line of Shweta Khajuria with Wolfe Research. Shweta, your line is open. Please go ahead.

Shweta Khajuria: This is Shweta. Thank you for taking my question. How should we think about EBITDA margins as other revenue scales to $250 million in annual revenue? For my follow-up, as we think about other revenue, how is it trending compared to your projections of other revenue scaling to the $250 million mark by 2028?

David Schwarzbach: Thanks for the question. In terms of the margin profile of the adjusted EBITDA, again, it has three components to it. There is the transaction side, which is going to have higher margins because it's really back end for a restaurant order or order on DoorDash. We have the licensing product, which is data, which also is going to have higher margins. Then we have the subscription piece, which is, we expect over the long term, would normalize to what you typically see for a SaaS or software enterprise software product. In the near term, we're certainly investing against growth opportunities.

So, that mix has a contribution profile, but importantly, and just to emphasize, as Jed really covered, we see this very large market opportunity for both Hatch and Host, and so we are definitely going to continue to invest in that. In terms of progress towards the $250 million run rate target by the end of 2028, we hit a run rate number in the third quarter of $136 million, so obviously a bit more than halfway there, growing at 82%. We look forward to continue to execute against that opportunity.

Shweta Khajuria: Thank you.

Operator: We have reached the end of our Q&A session. This concludes today's call. Thank you for attending. You may now disconnect.

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