Good day ladies and gentlemen and welcome to the Yelp! Incorporated Fourth Quarter 2012 Earnings Conference Call. My name is Derek and I’ll be your operator for today. At this time, all participants are in a listen-only mode. We shall facilitate a question-and-answer session at the end of the conference. (Operator Instructions)
I would now like to turn the conference over to your host, Ms. Stacie Bosinoff of Investor Relations. You may proceed.
Good afternoon, everyone, and thank you for joining us on Yelp’s fourth quarter and full year 2012 conference call. Joining me on the call today is CEO, Jeremy Stoppelman; and CFO, Rob Krolik. Before turning the call over to the company, I’ll 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 our 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. Please refer to our SEC filings as well as our financial results press release for a more detailed description of the risk factors that may affect our results.
During our call today, we will discuss adjusted EBITDA, which is a non-GAAP financial measure as defined by the SEC. In our press release issued this afternoon and our filings with the SEC, each of which is posted on our website, you will find additional disclosures regarding this non-GAAP financial measures and a reconciliation of net loss to adjusted EBITDA.
And with that, I’ll now turn the call over to Jeremy.
Thanks, Stacie, and welcome, everyone. To say that 2012 was a big year for Yelp is an understatement. We had a successful IPO, launched many new products, increased our presence in existing and new markets, and completed our first acquisition. Still Yelp’s task to revolutionize the local search market has only just begun. Every year, we make strides towards our goal to be the de facto of local search for the entire world and we expect 2013 will be no exception.
Let me quickly recap some key milestones. In our first year as a public company, net revenue increased 65% over 2011. The number of cumulative reviews increased 45%. The number of mobile devices using Yelp’s app increased over 60%. We launched 26 new Yelp markets, the most ever in any year.
And I’m excited to announce today that for the month of January, we hit 100 million unique visitors. This milestone is a true testament to the ubiquity of the Yelp brand. The growth we’re seeing today represents the power of the Yelp model and the value we provide to the community, our consumers, and local businesses.
In 2012, we expanded our geographic presence internationally with the launches of Sweden, Denmark, Norway, Finland, Singapore, Poland, and Turkey and we opened our first international sales office in London. In October, we welcomed Qype to the Yelp team, enabling us to accelerate our European expansion by adding their content and traffic.
We also deepened our presence in the U.S. launching cities such as Albuquerque, Jacksonville, Oklahoma City, and Buffalo. We ended the year with 97 total markets in 20 countries.
Our development teams were also busy this year, building new products like gift certificates and Yelp Menus and updating our site and apps to work more seamlessly together. For example, our dashboard for businesses now allows owners to track the 13 million mobile phone calls made during the fourth quarter. We also redesigned our home page to emphasize mobile activity and brought Yelp ads to our mobile apps. And of course, we provided Yelp’s rich content to marquee partners including Bing Local Search and Apple Maps, which in turn helps make Yelp more ubiquitous across the globe.
It’s clear that mobile isn’t just a part of our business anymore, it’s becoming our business and we see tremendous opportunity in front of us. As more people toggle between smartphones, tablets and desktops, our product offering needs to become seamless.
In the fourth quarter, approximately 46% of our searches came from our mobile apps. And we expect that in 2013, the majority of our searches will be coming from mobile devices. This year, we’ll look to create even more value for both consumers and local businesses, giving consumers new avenues to contribute content on mobile and adding more ways for producers to get the word out.
We also believe that 2013 will be a tipping point for our brand in Europe as the average person on the street comes to recognize Yelp as a trusted local resource. Our playbook is working, not just in London but in thriving local communities like Madrid, Munich and Paris. We’re also excited about the progress we’re making with Qype. We’re actively integrating Qype’s site and team, and if that continues to go as expected, we’ll accelerate our traffic and content considerably in Europe.
And finally, we’re focused on closing the loop with local business centers. Our teams are hard at work developing new innovative products that will help agencies better measure the value of their Yelp leads. Yelp enriches lives and communities by connecting people to great local businesses. I’m very proud of what our team has accomplished this year and I want to thank each and every employee for their hard work and dedication. While 2012 was truly remarkable, I’m even more excited about 2013 and the path we’re laying out to ensure success in the years to come.
And now I’ll turn the call over to Rob for the financial details.
Thanks, Jeremy. As Jeremy mentioned, we had a great fourth quarter. Please note that we have posted a few slides on our Investor Relations webpage that accompanies the financial portion of the webcast.
Let me start with the financial results. We achieved record results in all of our key metrics with both net revenue and adjusted EBITDA ahead of our guidance. In fourth quarter, net revenue accelerated from Q3 and grew 65% year-over-year to $41.2 million. For the full year, net revenue was $137.6 million, an increase of 65%. Adjusted EBITDA for the fourth quarter was $1.8 million and $4.5 million for the year.
Moving on to the four key operating metrics, reviews grew 45% year-over-year to 36 million as we added almost 2.7 million reviews in the fourth quarter. Our average monthly unique visitors grew 31% year-over-year to roughly 86 million. Approximately 30% of these uniques are accessing our mobile site.
Plain local businesses hit nearly 1 million, with approximately 994,000, up 64% year-on-year. And active local business accounts grew 68% year-over-year to approximately 40,000. None of the above operating metrics include Qype. As we migrate each market over to Yelp, we will begin to include those metrics in our metrics.
These financial results and operating metrics demonstrates that our playbook continues to deliver growth across our markets. To provide some additional color, let me walk down the P&L starting with the revenue.
For the fourth quarter, local revenue was $33.9 million, up 87% year-over-year. Brand revenue was $5 million, flat year-over-year. Other revenue was up 29% year-over-year at $2.2 million. In the fourth quarter, approximately 25% of local ads were shown on mobile devices. As we focus more and more on mobile, we expect to see a greater contribution of revenue from mobile.
Our customer repeat rate defined as a percentage of current customers who advertised with us in the past 12 months was 72% this past quarter, which is up from 67% from the prior year. Gross margin for the fourth quarter was consistent year-over-year at approximately 93%.
Sales and marketing expense for the fourth quarter was 62% of revenue compared to 64% in the prior year. Sales and marketing is both the primary point of investment for growth as well as the greatest point of operating leverage in our model.
In 2012, we grew sales and marketing head count over 50%, reflecting our continued investment in opening new markets with our Community Manager program and adding new sales associates. As a reminder, we think of spark spending on new markets as an investment until they generate revenue. If you exclude this international investment, sales and marketing was 50% of total revenue in the quarter versus 56% in the fourth quarter of 2011. This shows the leverage we continue to gain in our model.
Product development was 15% of revenues, slightly up from 13% in the fourth quarter of the prior year. On a dollar basis, we increased product development expense by approximately $3 million year-over-year as we continue to invest in the future of the platform. G&A expense was 19% of revenue, down 21% in the fourth quarter of last year. Going forward, we expect G&A to grow at a much slower pace than revenue.
Turning to the balance sheet, our cash and cash equivalents position at the end of the year was over $95 million net of the $25 million cash payment of the Qype acquisition. We used approximately $2.8 million in cash from operations in 2012. We had one-time charge in the fourth quarter of 2012 of approximately $1.2 million for severance and restructuring related expenses associated with the acquisition.
Now, turning to guidance for the first quarter and full year 2013. For the first quarter, we expect revenues in the range of $44 million to $44.5 million. We expect adjusted EBITDA for the first quarter to range between $1.25 million and $1.5 million. We expect full year 2013 revenue to be in the range of $210 million to $212 million or approximately 53% growth over 2012. For the full year, adjusted EBITDA is expected to be approximately $20 million to $22 million.
For modeling purposes, our basic share count in the first quarter will be approximately 63.5 million shares and 65 million for the full year. Given the recent acquisition, we expect amortization for the year of approximately $2 million or about $500,000 per quarter.
Stock-based compensation is expected to be approximately $14 million for the full year, or approximately $3.5 million per quarter. We expect to spend approximately $68 million in capital expenditures in 2013 plus about $7 million in lease hold improvements for our new San Francisco headquarters. I’ll now turn the call over to the operator and open the call up for questions.
(Operator Instructions) Our first question is coming from the line of Steven Ju, Credit Suisse.
Steven Ju – Credit Suisse
Hey, guys. So, I know historically you have talked about launching a new market at a not too fast and not too slow pace. But as the operating profit dollars from your existing cores that you’ve already launched, continue to build, do you think about accelerating the pace of new market rollouts?
And second as you look at the historical performance of your cohorts, at what point in terms of either claimed businesses or reviewed businesses or whichever metric you choose to look at does Yelp become a destination site and your engagement volume accelerate? And of your 96 global markets, how many do you think have reached that inflection point? Thank you.
Sure. Hi. This is Geoff, COO. And let me start with the first part of your question. You asked a question about sort of our historical approach of continuing to launch new markets but going not too fast and not too slow. That will continue to be the theme for 2013 and beyond. Certainly, our high level goal would be to bring Yelp to the world. But we don’t want to get out over our skis.
The focus for this year internationally is going to be on Europe, as we continue to solidify the Qype acquisition and integration over the next few months and continue to bring Yelp to some new markets both within the countries that we’ve launched and a handful of new countries as well.
And I’d like to ask you to repeat the second part of your question because actually I didn’t quite get it around the tipping point there.
Steven Ju – Credit Suisse
Yes. So, as you look at the historical performance of some of your cohorts, I mean, at certain point as you continue to gather either reviewed businesses or claimed businesses, and at a certain point you reach some sort of a tipping point and you might see some showing either engagement or traffic accelerate as you become more of a destination site. So I’m just wondering like when that typically happens for any given cohort and of your 96 global markets, how many do you think have reached that tipping point?
Sure, thing. So, I definitely understand the question, what I would say is that although we have used the term tipping point or inflection point to reflect time at which a market becomes really useful or Yelp becomes particularly useful in that market, what I would say is that there’s not really a quantitative specific number that goes into that.
That having been said, I think it would be fair to assume that at least half of our existing markets are at that point now, where you could go and use Yelp in that market and find that we’re really useful as a destination to find anything from dentist to car mechanics and everything beyond that. And then, associated with that, you’d have significant consumer traffic associated with that point as well.
Yes. Steven, this is Rob. I think also what we typically said in the past is from a monetization standpoint, it’s 18 to 36 months before we even monetize or start monetizing the market and that’s obviously begun now in London, with the Qype acquisition we’re expecting to accelerate in Europe and that’s kind of how we’re looking at it.
Your next question is coming from the line of Brian Fitzgerald with Jefferies.
Sachin Khattar – Jefferies
Hey, guys. It’s Sachin sitting in for Brian. Two quick questions. The first, you guys have talked about being able to turn on impression by, say, advertising on the app. I think you said your goal was to have it done by the end of last year 2012. So, I was wondering if you could talk about progress around that. And then my second question is can you talk about the recent programs in gift certificates and the Yelp Menu that you guys recently rolled out? Thanks.
Sure. This is Jeremy. So, we have rolled out 100% of our apps or app traffic, mobile ads and its performing well. In fact, 25% of the ads shown by Yelp are shown in our mobile apps, so it’s been a success. Of course, as mobile continues to grow as part of our traffic, we expect that even more ads will be shown but they’re performing as we anticipated, and so we’re happy with that.
On the product side, we built for – just in time for the holidays, gift certificates, that’s gone well. Business centers can post gift certificates. We have many thousands. They get created, self-served by local businesses. So, that’s off to the races, but obviously, it’s still very early days there.
Another thing we highlighted was our enhanced Menus feature and I think that’s a really cool showcase of the depth of content that Yelp has. So, if you dive into a particular menu, we didn’t just take the basic menu information which is of course widely available. There’s people you can license it from or you can go and collect it. But what we’re able to do with our deep content is match a specific dish to reviews that mention that dish, and we can also then match against photos where we have a caption that specify that it’s the same thing.
So, it’s actually a very visual, very rich experience. And even judging – looking at how often a dish is measured, we’re able to pull up popularity, so we can – so if you land on a restaurant, we can potentially specify exactly what dishes are the most frequently mentioned and you can dive in and look at that. And so, it’s been a really nice win for consumers and we’ve gotten a lot of positive feedback around it.
Sachin Khattar – Jefferies
Great. Thanks very much.
Your next question is from the line of Jason Helfstein, Oppenheimer.
Kevin Gieraltowski – Oppenheimer
Hi, this is – can you hear me?
Kevin Gieraltowski – Oppenheimer
This is Kevin on for Jason. Can you talk about your sales efforts in international markets, how is demand for local ad space? And also how much of your revenue guidance is coming from international markets? That’s it.
Okay. Yeah, I’ll take the second part of that at least. So, on the revenue guidance, we’re not guiding international revenue. What we had said previously, I think at the end of Q3 for the Q3 earnings call is that about $6 million of revenue in 2013 we would expect to come from Qype acquisition, but we’re not giving any specific guidance. That being said, in the fourth quarter, there’s probably about 4.5% of our revenue that is coming from international overseas markets and about two-thirds of that was coming from Qype.
Kevin Gieraltowski – Oppenheimer
And in terms of your first part of your question, it was around – say that again? Okay, next question then.
Your next question will be from the line of Youssef Squali, Cantor Fitzgerald.
Youssef Squali – Cantor Fitzgerald
Thank you very much. Two questions please. I guess maybe either Geoff or Jeremy. Can you talk a little bit about the brand advertising business? I think last quarter you talked about some execution issues there, was flat sequentially – I’m sorry year-on-year. I was wondering how those execution issues are being addressed and when do we expect to see resumption of growth in that line item?
And then second maybe for Rob, looks like your active local business accounts were up about 3,800, which was towards the lower end of what you’ve done if you just look at the last three or four quarters. We would’ve actually expected that number to be up a little higher considering that you’ve opened up UK for monetization, maybe if you can just address that point and what’s implied in your guidance in that business.
Hey, Youssef, this is Rob. Maybe I’ll take part of these questions and then if Geoff and Jeremy want to jump on, that’s fine. In terms of the display advertising, I think what we first need to remember, it’s a pretty small portion of our business. But that being said, we’re pretty confident that the changes that we made in the fourth quarter, the team that’s in place right now is doing a great job and we held flat which is about what we expected for Q4, a little bit above actually.
And then going into 2013, we feel pretty comfortable with the changes that are made that we’ll be able to deliver. Again, it’s not necessarily the focus. The focus is on local ad revenue and so local ad revenue grew at over 80%, 85% in fourth quarter. So, that’s really where a bulk of our resources are being spent. But, as far as the local – as far as the display side, we’re feeling good about that.
In terms of active local accounts, one thing that’s not in there is the local accounts for Qype. It just – as we migrate their customers over to our platform, we’ll incorporate them in. So, a little bit apples and oranges but – so it’s probably – the absolute number is probably a bit higher. That said, in the fourth quarter, we generally see a little bit of a slowdown versus any other quarter in the year given the holiday season in Thanksgiving and Christmas.
Youssef Squali – Cantor Fitzgerald
Was there anything in the fourth quarter of 2011 that would have driven that number sequentially up?
Yeah, it was the – when we launched Yelp Deals.
Youssef Squali – Cantor Fitzgerald
Got it. Okay. All right. That’s helpful. Thank you.
Your next question is coming from the line of Kaizad Gotla, JP Morgan.
Kaizad Gotla – JP Morgan
Great. Thanks for taking the question. A couple here, first, can you just talk about how many of your claimed local business locations are outside the U.S.? Just trying to get a sense for sort of the immediate opportunity for your sales team to call on there? And then, can you also just talk about how you’re pricing the product overseas? Should we assume a similar $300 type of monthly rate? Thanks.
Yeah, thanks for the question. So the claimed local businesses outside the U.S., we don’t give that number, we just give in total. And so, as we grow and get bigger, we’ll look at that, but that’s not a number today that we give out by geography.
It’s also worth noting, this is Jeremy, that it’s not really a funnel, like you don’t have to be claimed to purchase advertising. So, when we’re reaching out to a business, we’re able to sell any local business in our database, and so they don’t have to take that first step of claiming, just as a FYI. And, Geoff, did you want to?
Sure. And, I guess, last but not least, that’s reflective of the approach that we’re taking with international sales in general. What you’ll sort of see is that the approach that we’re using in the UK and coming soon some other markets as we fold that Qype sales team into the Yelp sales team, is effectively the products that we’re offering and the price points that we’re offering in those European markets are really going to mirror what we’ve already been offering in the U.S. and Canada, which is to say, for the most part, those who pay on a sort of flat subscription type basis will be buying packages anywhere from the $300 to $1,000 a month level. But then, of course, we have a range of performance-based pricing options as well that advertisers have the ability to sort of dial up and down as they’d like as well.
Kaizad Gotla – JP Morgan
Okay, thanks. And, how do you think about the decision to offer mobile as a separate and maybe premium ad format since you’re seeing pretty good engagement there?
Yeah, we, of course, did consider that opportunity. And, at this point, the obvious choice was really just to be agnostic and make sure that we deliver the best possible ads for both consumers and advertisers, irrespective of platform. So, as an increasing portion of our consumer base starts to access Yelp through these alternative platforms, whether it’s tablet or smartphone or the next thing to come out, we just again we want to show the best ad that we possibly can.
I think pricing, as we think about the package piece of our business, again those $300 and up packages, pricing leverage is a future option for us, but it’s not one that we’re focused on at this time given that we’ve only got 40,000 paying accounts in this sort of ocean of millions of small businesses out there.
The last thing I would offer there is just on the performance-based advertising piece of the equation, as people are paying us on a pay-per-call or a pay-per-click basis, there, a higher click-through rate from, say, mobile will actually take care of itself as the bid prices go up and as obviously price per impression goes up as well.
Your next question is coming from the line of Scott Devitt, Morgan Stanley.
Scott Devitt – Morgan Stanley
Hey, thanks. First question is on the 2013 guidance, implies a double-digit EBITDA margin. So I was wondering if you could just walk through the leverage points that get you there from current levels to make sure that we – we’re modeling it correctly?
And then secondly, a bigger picture question on ROI, I was just wondering relative to some of the other platforms that exist, big and small, Google and Angie’s List come to mind. How you’re able to measure ROI for advertisers both existing and then potential clients that you go out to? What type of tools are in place to measure the returns? I’m just trying to get an understanding of how advertisers think about your platform in terms of true yield measurement versus a more brand or awareness spend which is naturally less measurable? Thanks.
Hey. Thanks, Scott. So to your points about leverage, that’s really – a lot of it obviously will come in sales and marketing. So, I mean, one thing that I’d kind of call out, and I think we even said it obviously in the prepared remarks, is that if you strip out the international investment, we had about 50% in sales and marketing as a percent of revenue in the fourth quarter.
So, I think we’re gaining a lot of traction in that leverage model. I think as you go forward into 2013, we’re absorbing the Qype acquisition. So I think you will notice a little bit of bump in sales and marketing as a percent of revenue to 62% in Q4. I think that bump will continue into Q1 as we absorb that, but going throughout the rest of the year, you’ll see a steady decline.
And then G&A and product development, while we’re obviously going to invest in those areas, as a percent of revenue, it should come down. So, I think the majority of the leverage is going to come in sales and marketing and we feel good about obviously the guidance that we provided.
And then on your question about advertiser ROI, one of the important milestones from 2012 was the introduction of an improved business owner dashboard, where business owners are able to see all the details of the customer leads they’re getting, whether those are phone calls from a mobile device or clicks or somebody looking for directions to a specific business or purchasing a Yelp deal. And all of those, of course are great evidence of a customer lead. What you can imagine that you’ll see in 2013 will be a continued evolution of that product line so that we can help the business owners even better close that loop and focus on what their ROI is for their Yelp spend, whether or not they’re paying us for advertising.
And so, there’ll be some natural extensions of that product like helping them understand when and from whom that mobile call came so that they can ultimately figure out how much revenue was associated with it and whether or not that was associated with a Yelp ad click or not and then ultimately calculators and things of that nature to help them to close that loop and figure out how much revenue did they actually generate from their spend on Yelp.
So those will be some of the things that we continue to focus on this year. The survey work that we’ve done to this point suggests that overall, advertiser ROI is actually strong and competitive with some of those other marketplaces you mentioned.
Scott Devitt – Morgan Stanley
Okay. Thank you.
Your next question is from the line of Rohit Kulkarni, Citibank.
Rohit Kulkarni – Citibank
Thank you for taking my questions. First one on local ad revenues, they appear to have accelerated quite nicely despite tougher comps. Any color you can provide as to what led to this acceleration and how we should think about going forward? And second one on 2013 revenue guide, in particular, it seems around Europe, it seems to be going to be a bigger focus. So any broad stroke macro assumptions you’re making or just making around Europe versus U.S.? Thank you.
Hey, thanks for the question. So, on the local ad side, yeah, I mean it grew 87% year-over-year I think in Q4, and Q3 is 82%. I think if you take out the Qype, it probably accounts for around 5% or so of that, still obviously matching the Q3 2012 year-over-year increase. So, I just think it’s great execution from the sales team, they are really delivering. I think the interest from businesses is continuing to be strong in the product. I think the ROI, the repeat rate is at 72%. In Q4 of 2011, it was 67%. So, I think people are seeing benefits from being on the Yelp platform and advertising with us and we’re proud of that.
As to the question about what is our revenue guidance for Europe, I wouldn’t want to get into specifics about geographies at this point. I think we established our London sales team in Q3. We think very highly of what they’re doing, they’re making good progress every single month, it’s great to see. Obviously, we have now the addition of the Qype team on the ground and they’re obviously doing well. So, we feel good about that, but I’m not going to break it out separately at this point.
Rohit Kulkarni – Citibank
Okay. Thanks, Rob.
Your next question is from the line of Aaron Kessler, Raymond James.
Aaron Kessler – Raymond James
Yes, hi, guys, a couple of questions. First, just on mobile, you talked a little bit about them. Can you give us a sense of are you seeing incremental revenues at this point from mobile or is that more if you get larger ad commitments or freeing up more inventory at some point? And also just in terms of the revenue model going forward that you talked about, can you give us a broad sense of maybe how much is kind of the core subscription offering versus CPC or click-to-call? And do you foresee maybe offering a dynamic pricing model more in the future as well? Thank you.
Okay, let me take that first question, maybe Geoff can follow up with the second. On the mobile side, yeah, we saw 25% of our impressions coming from mobile, that’s app and mobile web that are being served up on those platforms. And so it just means that 25% of our ad impressions are being on the mobile device, which we’re pretty pleased with – and if you think about our ad, mobile ad platform went live at the end of November.
But remember that when a business, generally speaking, buys a product from us, at least the vast majority are buying subscription-based services, and a portion of those impressions can go to mobile or desktop or wherever we decide what’s the best solution for the – obviously, the consumer and also the advertiser. So, we don’t record revenue in the sense that it’s specific to mobile, but it gives a good indication that where our impressions are being served on the mobile platforms. And the fact that we’re being able to fulfill inventory demand organically through the mobile, we also feel is a very strong position to be in. Geoff?
Sure, sorry. Season allergies here. Okay. Jumping into your other question about performance-based pricing. We do actually already have performance-based pricing and, in fact, bid-based auction pricing mechanisms built behind the scenes at Yelp. So today, all of our national and local advertisers are actually already running – those who want to buy on a CPC or a pay-per-call basis, are already running on a bidded basis and those bids happen on sort of the usual suspects, it depends again on the category, keyword, geography, combination that that advertiser is running on. As you can imagine, the next steps would be to roll that out to self-serve at all of our local advertisers who are choosing to pay on a pay-per-call or pay-per-click basis.
I think you asked for a sort of a contrast between the package pricing and the performance-based pricing, and the way I think about that is the package pricing is really for those folks who want to set it and forget it and they want to spend $300 or $500 a month, know exactly how many impressions they’re going to get and then really not be able – not have to think about it again until this time next month when they may go in and check their performance metrics. Whereas those performance-based advertisers may be actually checking in every day or two to look at how their program is going and want the ability to sort of dial-up and down spend.
Aaron Kessler – Raymond James
Thank you. And just a quick follow-up on, I think last year you gave international EBITDA drag I think of roughly $15 million for 2012. Do you have a similar number for 2013? I may have missed it.
Yeah. We haven’t given that out this time. I mean, with the Qype acquisition, it becomes a little bit more difficult to do that, but – and also now, we’re generating some revenue from overseas. I guess, the way to think about it I think through the nine months ended September we were around $8 or so million on Yelp itself and I’d say – and we spent about $3 million in the quarter – in the third quarter.
I’d say from Yelp’s perspective, we’ve probably spent about $3 million or so, maybe a little more in the fourth quarter. And then on top of that obviously, we had the Qype acquisition, which is all overseas.
Your next question is coming from the line of Todd Van Fleet, First Analysis.
Todd Van Fleet – First Analysis
Hi, good afternoon, guys. It doesn’t sound as though you’re really differentiating the pricing either by vertical or based on either mobile versus the PC. It really only sounds as though it’s based on the size of the subscription, so I guess question one is I’m wondering how Yelp decides on which platform to serve the ad? One.
Second question would be if you anticipate allowing the advertiser, the merchant to determine or have input into how they want the ads being served, be it PC or mobile, because I can’t believe that the ROI is the same for both platforms? And then the third, I guess, question which is probably a bit unrelated is I’m wondering if you have any plans to try to get into the middle of the transaction kind of similar to what we’re seeing happen with maybe some of your other colleagues in this space, so I’ll let you address that.
Hey, Todd. It’s Geoff. I guess first off, we do differentiate pricing quite a bit across all these things. But I guess to your second and related question, we don’t differentiate specifically for those who are paying on a package mobile versus tablet versus PC. And we think for now, that’s actually the right approach, i.e. you’re right that the ROI theoretically can vary. We don’t actually get the request much at all for people to say I just want to run on one device versus another kind of device. So, that just hasn’t been a priority to this point, always something we could offer in the future if that turns out to be important.
I think what you have to remember about our business though is that because we’re local search, at the end of the day if I’m searching for a mattress to buy, it probably doesn’t matter if I’m accessing that through an iPad or a smartphone or a PC because really, I’m just looking for a mattress and whichever mattress store shows up there, it’s probably going to have a similar ROI across devices. And generally speaking, that’s what we’ve been seeing. So, I think that will continue to be the focus.
We do differentiate pricing though, of course, both through the auction based behind-the-scenes system as well as kind of on the front end of the rate card for the packages because (inaudible) mattress stores and coffee shops have a very different ability and propensity to pay on a per-click or a per-impression basis.
And then (inaudible) the last part of your question that was – oh sorry, yeah, getting in the middle of the transactions. Actually, we have a number of ways in which we’re already in the middle of the transaction and those include Yelp Deals, Yelp gift certificates, things like our relationship with OpenTable where you can make a reservation. And I think that will be a continuing theme and you’ll see more and more of that from us in the years to come, although we really are focused on the advertising portion of our business which is likely to be the bulk of our business for a very long time.
Your next question is from the line of Darren Aftahi, Northland Securities.
Darren Aftahi – Northland Securities
Thanks for taking my question. I just have one. It looks like app usage grew about 1 million though was flat over the last couple of quarters and I was wondering if you could talk about the direct impact you have with the relationship with Apple on mobile app downloads. And in the fourth quarter specifically, have you seen any potential adverse impact from the launch of the Google Maps application? Thanks.
Sure. This is Jeremy. So, if you go back and look at Q3 and Q4 of last year, we were adding about 1 million users per quarter, 1 million unique device users. And so that’s pretty good, we feel great about how the app is performing and overall looking at the Apple relationship, it’s very positive. I can’t say that we’ve really seen any kind of negative impact from Google Maps being on the phone. And so things continue and we’re very happy with the relationship.
Your next question is from the line of Tom White, Macquarie.
Tom White – Macquarie
Great. Thanks for taking my question. I was wondering if you could maybe update us on the percentage of revenues that you guys are generating from particular verticals, specifically maybe restaurants in the home and local services space. I think at the time of the IPO or at least the last S-1, restaurants were around 42% of user reviews, about 17% of revenues. Have you guys had any better success of monetizing that restaurant category? Do you think that it’s a chance that maybe the revenue per tonnage will kind of approach the usage or the review percentage?
And then just secondarily on the comments on the prepared remarks about closing the loop. If you step back, maybe Jeremy or Geoff, step back and think about sort of the Holy Grail of providing ultimate and sort of concrete ROI to local businesses, how do you think Yelp may sort of fit into that piece of things, be it around payments or maybe having some sort of point of sale solution at the local merchant to really kind of give advertisers perfect ROI, thanks – or at least perfect ROI calculations? Thanks.
Okay, thanks. So, in answer to your first question about the local revenue as a category percentage. So, I believe we gave that out in Q2, and we gave that out in the S-1. It actually hasn’t materially changed, it’s about the same. So, just to kind of go over the top five, we had 22% coming from home and local and this is 22% of local ad revenue. We had 17% coming from restaurants to your point, it’s about the same as before and then 15% coming from beauty and fitness and then health is about 11%, and shopping is about 11%.
So, your comment about the number of reviews versus the percentage of revenue that we’re getting from a category, we just don’t think of it that way. I think there’s going to be a lot more reviews written on a restaurant because hopefully you go to eat more often than you have to get a plumber. So, maybe the two are related. But at the end of the day, you’ll write more reviews about a restaurant. So, I think that’s how we look at it and we’re pretty happy with the percentage that we have. We don’t know that it will necessarily increase or decrease. We have our sales folks talking to various different businesses and talking to them about what the benefits of Yelp can be and it can benefit any business – local business that comes down to our platform.
And I think that’s a good segue to the second part of your question around ROI and that Holy Grail. I mean, the way in which a plumber measures the success of his local advertising program is going to be really different from the way a restaurant might think about it or a real estate agent or a doctor, right? And each one of these things kind of has their own way of thinking about closing the loop in their own way that you as a consumer might actually pay. And some of these are cash-based businesses, many are credit card businesses and many are something new that may or may not evolve.
I think you’ll continue to see us, back to Todd’s question, experiment in transactions and be more and more part of that closed loop. And at the same time, there will always be many cash-based local businesses out there, at least for the foreseeable future. And so for those, we’ll continue to try to provide them more and more tools, so they can evaluate their ROI and the ultimate revenue they generate from Yelp on their own.
We have time for one final question. That final question is coming from the line of James Cakmak, Telsey Advisory Group.
James Cakmak – Telsey Advisory Group
Hi. Thanks for taking my question. You’ve been investing heavily to expand your overseas efforts and most recently accelerated by the Qype acquisition last quarter. Can you just talk broadly about the learnings that you’ve had overseas, the successes as well as the hurdles that you have any kind of what’s giving you the optimism that we can replicate the achievements that you’ve had in the U.S.?
And then secondly, with Facebook’s announcement of the Graph Search, does that change your thought on the competitive landscape at all or is the fact that you’re having a growing mix of users coming directly to your app insulate you guys from those threats? Thank you.
This is Jeremy. So, I’ll touch on Facebook first. As we think about it, the thing we’re most excited about is that Yelp is just or sorry that local is just enormous market. And with an enormous market, you attract a lot of competition and virtually every year, there is someone launches in this space that makes waves or captures media attention.
But we’ve been here since 2004, just focused on one thing and doing it well and that’s connecting people with great local business. And the communities that we built have generated incredibly rich deep content that is very hard to replicate and I don’t think anyone, certainly not overnight, is going to impact the business. So from an overall competitive standpoint, we feel very comfortable with our position.
So, then your other question was looking at international overseas and how do we know that that will be successful as we have been in the U.S. First off, the playbook is working, so wherever we’ve launched a Yelp market, it’s taking hold; a community is forming and we know that that takes time. And we also know that we don’t necessarily get the halo effect that we do when we launch a domestic market because in the U.S., Yelp is so big. If we’re going to a new place like Singapore, we’re almost starting from scratch, so there is that.
But we had this opportunity to acquire Qype and in doing so, we now have an asset with a lot of content that we can incorporate into the Yelp platform. And also a lot of traffic; we reported they had over 15 million monthly uniques and that continues. And so, as we integrate that content and subsequently that traffic, we feel like that’s going to give us an acceleration in Europe. So, regardless even without Qype, the playbook was working and over time, we know that Yelp would be very likely to be just as successful as in the U.S., but we do feel some conviction that Qype will help accelerate that process.
Ladies and gentlemen, with that final question, that does conclude today’s Yelp conference. We thank you for your participation and you may now disconnect. Have a great day.
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