Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Yelp (NYSE:YELP)

Q2 2013 Earnings Call

July 31, 2013 4:30 pm ET

Executives

Stacie Bosinoff - Director

Jeremy Stoppelman - Co-Founder, Chief Executive Officer and Director

Robert J. Krolik - Chief Financial Officer and Principal Accounting Officer

Geoff Donaker - Chief Operating Officer and Director

Analysts

Youssef H. Squali - Cantor Fitzgerald & Co., Research Division

Brian Patrick Fitzgerald - Jefferies LLC, Research Division

Mark S. Mahaney - RBC Capital Markets, LLC, Research Division

Thomas C. White - Macquarie Research

Heath P. Terry - Goldman Sachs Group Inc., Research Division

Jason S. Helfstein - Oppenheimer & Co. Inc., Research Division

Kerry K. Rice - Needham & Company, LLC, Research Division

Eric James Sheridan - UBS Investment Bank, Research Division

Stephen Ju - Crédit Suisse AG, Research Division

Jordan Monahan - Morgan Stanley, Research Division

Rob Sanderson - MKM Partners LLC, Research Division

Charles Eugene Munster - Piper Jaffray Companies, Research Division

Mark May - Citigroup Inc, Research Division

Ronald V. Josey - JMP Securities LLC, Research Division

James Cakmak - Telsey Advisory Group LLC

Kevin Kopelman - Cowen and Company, LLC, Research Division

Blake T. Harper - Wunderlich Securities Inc., Research Division

Operator

Welcome to the Yelp Q2 2013 Earnings Call. Please note that this conference is being recorded. I'll turn the call over to Ms. Stacie Bosinoff. Ms. Bosinoff, you may begin.

Stacie Bosinoff

Thank you, operator. Good afternoon, everyone, and thank you for joining us on Yelp's second quarter earnings conference call. Joining me on the call today is CEO Jeremy Stoppelman; CFO, Rob Krolik; and COO, Geoff Donaker will join us for Q&A. 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 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 the results.

During our call today, we will discuss adjusted EBITDA, a non-GAAP financial measure. 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 measure and a reconciliation of historical net loss to adjusted EBITDA.

And with that, I will now turn the call over to Jeremy.

Jeremy Stoppelman

Thanks, Stacie, and welcome, everyone. We had a fantastic second quarter, as we continue to execute in all areas of our business and again, hit record highs in all of our core metrics. In particular, I want commend the efforts of our sales teams in the U.S. and in Europe, whose hard work and dedication led to an increase of 6,800 paying accounts, our largest quarterly increase.

The Yelp brand is becoming more prevalent than ever. Over 100 million visitors a month came to Yelp to search for local businesses because of our high-quality content. As evidenced by the 62% increase in the active local business accounts, businesses are increasingly recognizing the value of Yelp. Along with the great execution this quarter, we continue to make strides in our 3 key areas: Mobile; European expansion; and closing the loop of local businesses.

First, mobile is a huge opportunity for us and the numbers bear this out. In the second quarter, approximately 40% of our local ad impressions were on mobile. Together, our app and mobile site accounted for 59% of all searches, including approximately 46% just from the app. Our product team recently launched a number of mobile upgrades, including a nearby feature that suggest businesses and activities based on your location, behavior, friend's activities and other data, such as the time of day and even weather; second, we're seeing the increased traction and brand awareness we expected to see in Europe. I visited our London office last month, and while I was there, I spoke at a conference and conducted a number of media interviews. I was excited by the number of people who are quite familiar with Yelp and was pleased with how useful Yelp is becoming as it helped me find a number of great restaurants. This quarter, we successfully integrated Qype's content for Italy and Spain into Yelp and are pleased with the progress we've been making; Next, we plan to integrate Qype's content from France. We also launched 6 new Yelp Markets globally, including Auckland, New Zealand, Toulouse, France and Tulsa, Oklahoma. We've long known that consumers are using Yelp to search for local businesses with the intent to spend money. And in the second quarter, a study recommissioned by Nielsen found that when consumers find a local business on Yelp, 89% make a purchase within a week. This confirms that consumers rely on our high-quality content, which, in turn, creates the reason merchants advertise on Yelp. Our product and engineering team is hard at work on new features that help businesses close the loop with our customers.

In the second quarter, we launched the Call to Action feature, which allows advertisers to promote a desired transaction directly on their Yelp business listing. This includes the opportunity to buy movie tickets, print coupons or link to promotions on their sites. We quickly followed that by announcing the Yelp platform, which enables consumers to transact with businesses directly on Yelp. The Yelp platform launched with restaurant delivery so now consumers can find a restaurant and immediately order food for delivery or pickup through our partners all directly on Yelp. This ensures one continuous user experience from discovery to transaction. As you can imagine, our platform has many possibilities in other verticals. Soon, we'll be adding spas, fitness studios, dentists and salons. Additionally, we announced the acquisition of SeatMe, and iPad app and web-based reservation and table management system for restaurants and nightlife establishments. With SeatMe solution, local restaurants and bars can provide an easy way out for customers to book online reservations, enhancing the consumer experience for Yelp users. There are approximately 1 million restaurant and nightlife businesses listed on Yelp in the U.S., most of which are not served by the high-end market offerings for reservation management. SeatMe solution will add reservation capabilities to a broader underserved market, while also complementing our existing partners.

As I look ahead to the rest of the year, I'm excited about our plans in each of Yelp's 3 core areas. We will continue to innovate and focus on delivering a great experience to capture the large local opportunity. And now, I'll turn the call over to Rob for the financial details.

Robert J. Krolik

Thanks, Jeremy. As Jeremy mentioned, we had a great second 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 are very pleased with our performance as we achieved record results in all our key metrics. In the second quarter, revenue grew 69% year-over-year to $55 million, an acceleration over Q1's revenue growth of 68%. Adjusted EBITDA was $7.8 million.

Moving on to the 4 key operating metrics. Cumulative reviews grew 41% year-over-year to $42.5 million, as we added over 3.4 million reviews in the quarter. Our average monthly unique visitors grew 38% year-over-year to roughly 108 million. Approximately 32% of these uniques are accessing our mobile site. Plain local businesses was 1.2 million, up 55% year-over-year. In plain and the active local business accounts grew 62% year-over-year to approximately 51,400, resulting in our largest net increase over any previous quarter of 6,800. Given that the Qype markets have -- that we have migrated are small, there's no meaningful impact to our metrics as of yet. We'll continue to update you on these migrations and call out the numbers when it is meaningful.

Let me walk down the P&L, starting with the revenue mix, to provide some additional color. We are seeing great momentum across all revenue sources. For the second quarter, local revenue was $44.8 million, up 77% year-over-year. Brand revenue was $7 million, up 24% year-over-year. Other revenue increased 87% year-over-year to $3.2 million, driven by new partnerships launched during the quarter and a big increase in deal revenue. International revenue contributed about 5% of total revenue in the second quarter. Our customer repeat rate, as defined as the percentage of current customers who advertised with us in the past 12 months, was 71% this quarter, which is similar to the last few quarters. Gross margin was 93%. Total sales and marketing was approximately 56% of revenue compared to approximately 62% last year, reflecting significant leverage in the model. To further illustrate this, domestic sales and marketing was 52% of revenue compared to 56% in the prior year's quarter. We intend to continue to invest in sales and marketing, given our significant growth and the large market opportunity.

Product development was approximately 15% of revenue compared to 13% in the second quarter of last year. The large portion of this increase is attributable to our hiring of additional engineers. Our product continues to evolve and -- with additional features like the Call to Action button, enhancing our nearby feature and the Yelp platform, which today includes food delivery. We are proud of what we've been able to accomplish and we have many more ideas on the drawing board.

G&A was approximately 19% of revenue compared to 18% last year, driven by costs associated with being a public company and an increase in stock-based compensation.

Turning to the balance sheet, our cash and cash equivalents position at the end of the quarter was approximately $97 million. We generated approximately $5 million in cash from operations in the quarter. Of the approximately $7 million in leasehold improvements associated with our new headquarters this year, we've spent approximately $2 million in the first 6 months of the year.

Now turning to guidance for the third quarter and full year 2013. For the third quarter, we expect revenues in the range of $58 million to $59 million. We expect adjusted EBITDA for the third quarter to range between $7.5 million to $8 million. This takes into account additional hiring expenses expected over the summer, the SeatMe acquisition operating expenses and our expected move into our new headquarters in September.

For the year, we are raising guidance. We expect full year 2013 revenue to be in the range of $222 million to $224 million, or approximately 62% growth year-over-year.

For the full year, adjusted EBITDA is expected to be the range of $27 million to $28 million, a six-fold increase over last year.

For modeling purposes, our basic share count in the third quarter will be approximately 66.5 million shares and 67 million shares for the full year. We expect stock-based compensation to be approximately $6.3 million for the quarter for the remainder of the year, which includes equity grants to the new SeatMe employees.

For the third and fourth quarter, we expect to have an additional expense related to amortization of intangibles from SeatMe.

At this time, the valuation analysis has not yet been complete and we'll update you once we have the number to share. I'll now turn the call over to the operator to open the call up for questions.

Question-and-Answer Session

Operator

[Operator Instructions] And your first question comes from Youssef Squali with Cantor Fitzgerald.

Youssef H. Squali - Cantor Fitzgerald & Co., Research Division

So a couple of questions, please. First, the operating leverage Q1 to Q2 was very, very impressive. I was wondering, Rob, if you can just kind of go through the details of what drove that, what is not sustainable in those drivers? Because if I look at Q3 guidance, it implies a sequential deterioration, maybe you could touch on that. And then maybe, Jeremy, just talk a little bit about your strategic vision behind the Yelp platform and kind of where can you take it beyond just the delivery, and just trying to get a sense of how big an addressable market that this will open for you guys.

Robert J. Krolik

Thanks, Youssef. This is Rob. So Q1, Q2 leverage, yes, we're pretty happy with where we came out. I think Q2 is around, from an EBITDA basis, about 14% of revenue. In terms of your comments, I think the way I'd look at it is, we do have some additional expenses coming up in Q3 and really, the rest of the year. We did acquire the SeatMe platform product and technology and as well as the people. There was about 15 folks associated with that acquisition, so that's obviously going to be expensed. In Q3 specifically, we have a -- we're going to move into our new headquarters, which is going to be one-time kind of an expense there. And then we have a lot of hiring to do. So I think in Q2, we're a little bit short of where we thought we're going to be on the sales front, as well as in engineering. And so we're kind of redoubling our efforts and making sure we catch up. So for Q3 and Q4, that's really where some of the expense is going to take place. And how I'd look at it is, on an EBITDA, adjusted EBITDA basis for the full year, it's a six-fold increase over last year, but -- and so we're still delivering margin, at the same time, still want to take advantage of all the growth and the opportunity that we have before us.

Jeremy Stoppelman

And this is Jeremy, just thought I'd talk to your question around Yelp platform. So really, where the vision takes us there is around the consumer experience. We have all these people that are coming to Yelp to try and make a decision and ultimately purchase something. And so allowing them to do that seamlessly -- to transact on their phones, I think, makes the Yelp experience that much better. And it's a huge opportunity because obviously, all these verticals out there, we just started with one that we knew, would be interesting to our users, the food delivery area. But we have plans and actually deals in place to go into a lot of other verticals. And so you'll see us working either -- dentist will be on the platform, fitness studios, like yoga studios, salons, et cetera. And I think over the next year or so, it's really going to build out and be an incredible way for consumers to discover businesses and then close the loop and transact with those businesses.

Operator

The next question comes from Brian Fitzgerald with Jefferies.

Brian Patrick Fitzgerald - Jefferies LLC, Research Division

A couple of questions on the acquisition. Can you give us some color on how many unique visitors come over with SeatMe? And does it have a mobile app? Was it a competitive process? And then, any color on your early uptake around the Call to Action product.

Geoff Donaker

Brian, this is Geoff. On the SeatMe, SeatMe is a relatively nascent product that they've really been selling to businesses and restaurants for about the last 6 months, so no material consumer traffic there. That acquisition was really about the technology and the people in order for us to offer reservations to a wide range of restaurant and nightlife businesses that are out there. We think there are about 1 million businesses, according to the National Restaurant Association, that offer food or restaurant-oriented services in the U.S. So we're really excited to begin offering a reservation and waitless-type product to all of these businesses, or as many of them as possible. You also asked about the Call to Action feature that we recently rolled out. At this point, the uptake has been really good. We've been offering it for free to our existing clients, and several thousand of them have already new Call to Action products up on their site. And I think that uptake continues to be pretty strong on a day-to-day basis. We did just roll that out maybe a month ago.

Operator

The next question comes from Mark Mahaney with RBC Capital Markets.

Mark S. Mahaney - RBC Capital Markets, LLC, Research Division

Two questions, please. First, could you provide an update on where you are in terms of developing new ad tools or tools for advertisers? And then secondly, as you kind of build out and take Yelp into more of a build out the transactions capability of the site, does that make you think about additional types of revenue streams, or are we still going to be and will you still be primarily or predominantly advertising-based for the foreseeable future?

Jeremy Stoppelman

Mark, this is Jeremy. So we continue to reiterate on the ad side and continue to come up with new features for business centers. Obviously, we have the Call to Action to talk about right now. And I can't really go into details about the future pipeline. On the transactions side, I think -- certainly, there's a way to make money there, but fundamentally, we've got our local ad business that is executing incredibly well, and we continue to push hard there. And so I don't see it fundamentally changing the game. From our perspective right now, it's really all about the consumer experience. And if you can go pick up your phone and decide you want a massage and actually book it on your phone, it's just a much better experience. And so we're not as focused at how that's going to change the business model in the future.

Operator

Our next question comes from Tom White with Macquarie.

Thomas C. White - Macquarie Research

I guess on the guidance, you guys are taking up the full year outlook well in excess of kind of the 2Q outperformance. Can you just talk maybe a bit about what parts of the business are kind of tracking better than you expected. Is there any impact from some of the new acquisitions? Any color around performance of kind of newer markets versus your more mature markets? And then just last, quickly on the Yelp platform, is it safe to say it will largely remain sort of a partnership-driven initiative? Or do you guys kind of have any plans to build out more transactional tools yourself?

Geoff Donaker

So on the guidance, yes. So for the full year, we're guiding at 62% year-over-year growth rate. I think when we had originally put out guidance for fiscal year 2013, it had been around the 53%. So we're pretty happy with being able to do that. I think the core of it is really around the local revenue piece. It's up 77% year-over-year in Q2 and obviously, continues to be very successful in selling it out to local businesses. So local revenue is really the big piece. I'd say display, brand revenue, it's doing well. We're happy with the team there. I think they've done a really good job of turning it around and -- but I wouldn't say that -- I mean, I think we had 24% growth year-over-year in Q2. But if you look at the pattern from last year, it was kind of fairly stable from Q2 to Q3. So that's how kind of how we're looking at it when we provided guidance. And then in other revenue, it's fairly small. $0.5 million to $1 million can make a big difference there, but it's not impacting our numbers dramatically, one way or the other, in total. So local revenue is really guiding our guidance, and we did add 6,800 net new clients in the quarter and we're looking for that to continue to help us out.

Jeremy Stoppelman

And this is Jeremy. On your platform question, really, we're focused on partnerships. We don't have any plans to go out and do a lot of building there. I mean, there are so many different verticals now that have very specialized needs. And so what we found is it's pretty straightforward to reach out to folks that are already operating those verticals and bring them on the platform. And so that's going to be the focus for that feature, that functionality.

Operator

The next question comes from Heath Terry with Goldman Sachs.

Heath P. Terry - Goldman Sachs Group Inc., Research Division

When you look at the 6,800 new partners added in the quarter, any shift that you're seeing in terms of the makeup of those partners relative to your existing base? I'm thinking largely along the industry lines to the extent that maybe you're seeing more traffic in -- or attraction in restaurants or another. But even if it's some trend in terms of size or geography that you think is significant. And then just the second question is to whether or not you're seeing any additional traction in the non-advertising revenues within the local, whether it's deals or CPC or click-to-call, getting more significant traction this quarter versus last.

Robert J. Krolik

Keith, it's Rob. So when I look at the 6,800 new, net new advertisers, they kind of fall in line with how we've seen it in the past. I will say that when I look at the numbers in total, home and local services continues to do very well. I think in Q2, about 24% of our net local revenue was coming from the home and local services, and that's up from 22% in Q1. And pretty much every other category is about the same as what we've seen in the past. And then in geography and the size of business, we are definitely seeing some pickup in the, what we call the national logo accounts. I guess, kind of regional chains noticing us, understanding that what we can deliver to their businesses and signing up, so that's very helpful, but it's still largely driven from the sole proprietor, single-business location. And then as far as geography, we -- in our deck that we just put out on the -- it should be on the site, we're showing that our 2005, 2006 cohort is doing really well. It grew 43% year-on-year. So those 6 markets are continuing to do well. I think what's interesting to note is that the markets that aren't on here and including international, is also growing very strongly. So what that represents, the cohort analysis, is the U.S. Yelp markets, and the Yelp market is defined as those markets where we have a community manager. But in places where we don't have a community manager, people are starting to utilize Yelp, and businesses are starting to notice Yelp. So they're using it. They're signing up for advertising, and that is actually growing fairly quickly, even outside of our Yelp markets. And in terms of kind of the outside of the, what I call the subscription packages, we do have deals. We noticed about 100% increase in deals revenue on a year-over-year basis. So that's actually going well. It's a fairly small number, but it's getting a lot of traction, a lot of -- it's easy for businesses to sign up. It's kind of a Mad Lib type exercise, where they are just putting up an amount and posting it at the site and they can readily take it down. So it's, I think, fairly easy. It's self-service and people are enjoying it. And I think we have now maybe around 60,000 deals on the site. CPC, which is -- so deals is included in other revenue. CPC and click-to-call, is included in local revenue, and they're both performing well. I'd say CPC is definitely doing well. We did move to a market dynamic-based system earlier this year for all advertisers on the CPC. We definitely have seen a lot -- a large amount of interest in that platform. So kind of across all of these things, we're seeing nice uptake.

Operator

Our next question comes from Jason Helfstein with Oppenheimer.

Jason S. Helfstein - Oppenheimer & Co. Inc., Research Division

Just -- so first, to clarify. So all the metrics, right, that we're looking at, that's still off of what we call the basically the U.S. local, right? So if we take the local number and when we strip out international, those metrics that we're still giving out, that's still all positive, that number. That's just first thing. And then second, I just wanted to dig, kind of dig a bit deeper I think, consistent with some of the other questions. So as you guys are thinking about that other services, which looks like it's going to be your fastest-growing segment this year and pretty interesting from an open-ended standpoint where that can go, you have different choices, right? You can kind of partner with a seamless or a GrubHub, or you can do it yourself. Can you just talk about the decision-making on kind of how you do that? And is it purely economics, the terms that you are able to offer versus build it yourself? Or do you feel like, if there are certain things that you can offer the functions directly, you can provide a better customer experience, and ultimately, that will make a happier Yelp vendor and Yelp customer?

Robert J. Krolik

Jason, thanks. This is Rob, I'll take the first one on the metrics. So I may need a little help from you to parse through the question but -- so for metrics that we're providing cumulative reviews, unique visitors and paying local accounts, those are inclusive global numbers. So cumulative reviews on a global basis was up 41% to 42.5 million. Unique visitors was 108 million, 38% increase year-over-year and paying local business accounts was up 51,400, up 62% year-over-year. In the cohort data, that is just U.S. markets that we've ever given out. So the 2005, 2006 markets where we started -- obviously, San Francisco was one of those markets, so 6 markets. And then 2007, '08 and 2009, 2010, they're all U.S.-based markets, and so all of that information is U.S.-based. And then we said we talk a little bit about international and it's 5% of revenue, which is $2.7 million, $2.8 million this quarter. So we're happy with where that is. Obviously, the U.S. is growing so fast, it's kind of eclipsing it at this point. But we're happy with where that is. The other thing I would just throw out, we did have, like I said, 108 million unique visitors coming to our site on a global basis. And then in international, of that number, we had about 17 million of that 108 million coming internationally from a unique visitor standpoint. That's about 16% of the 108 million, and then that's up about 75-plus percent year-over-year. So we're feeling good that we are making some traction internationally. We don't break out Europe specifically out of that but, obviously, most of that is Europe. And in terms of where Qype is, we have integrated Ireland, Spain and Italy, although those numbers are so small that, that wouldn't necessarily move the needle on those numbers. We do expect, obviously, when we integrate the U.K. and Germany later this year that they will hopefully move the needle.

Geoff Donaker

And Jason, this is Geoff. On your question about Yelp platform and how do we think about partners there. Really, the goal with platform is to make sure that every local business that does have a transaction offering is served on Yelp wherever possible. And so in the specific example of food delivery, we'd love for every local business on Yelp, who does offer food delivery, to be able to offer that through the Yelp platform. And so what we started with is 2 different partners, Eat 24 and delivery.com, who I think between them offer 10,000-plus local businesses -- 30,000, I'm getting that signal -- 30,000-plus local businesses for delivery services. So that's a good place to start. We know there's others in the delivery space, and so we'd love to work with them over time to supplement that number and, again, offer delivery to as many consumers as possible. And similar thought logic would apply in every other category.

Operator

Next question is from Kerry Rice with Needham & Company.

Kerry K. Rice - Needham & Company, LLC, Research Division

Just a couple of quick questions, most have been answered. But when I think about the kind of customers or advertisers, local business, it sounds like they're getting a little bit larger. Have you seen any migration to larger subscription packages from, I think, the average is around 300 today? And then my second question is around mobile advertising. I know that's part of the subscription plans. But would you ever consider rolling out a mobile-only advertising product for what it seems like would be -- cater to more of the restaurant-type of your customers?

Geoff Donaker

Thanks for your questions. So I guess, to take them in reverse order, first you asked about mobile advertising. And at this point, that's right, that mobile advertising is just bundled in, whether you buy Yelp on a subscription or a CPC basis. We just serve whichever ads we think are going to perform best for you, which is a combination of mobile and desktop. I suspect that for the foreseeable future, that will continue to be the way that we sell it. There certainly is an opportunity to sort of price it differently for mobile in the future. That's just not a point of focus for us at this point since we are in acquisition mode. And given that 51,000 customers we've got today and an ocean of the millions, it really feels like the right focus is on customer acquisition rather than pricing leverage. You also asked about whether the price point overall is increasing for our existing customer base or new customers as they come in. And I think the short answer there is not really. We do continue to offer more price points, and so we certainly see more, as Rob mentioned earlier, national and regional advertisers come in. But we also see more and more sole proprietors coming in, some of them are buying on a CPC basis at even lower price points. So when you take that mix as a whole, there's not really much variation.

Operator

Next question comes from Eric Sheridan with UBS.

Eric James Sheridan - UBS Investment Bank, Research Division

Question on direct traffic. You provided some interesting stats on mobile, the amount of searches you're getting from mobile or from the mobile app. But how many -- are you able to disclose how many searches are coming direct to Yelp as opposed to coming from other search engines at this point and how that might compare with a year ago? And second question for us was on salespeople. What's the number of quota bearing or salespeople at this point in the organization and how are you thinking about ramping that sales force Q3, Q4 and maybe even into next year as you look ahead for the opportunity?

Jeremy Stoppelman

Thanks, Eric. So let me -- I'll take your sales question first. So we have a little over 1,500 people in the company in total. As of the end of the quarter, I think we have 1,536 and a little over 1/2 of that is sales. So we've been growing our sales by around 50% year-over-year for the last, I want say, 4 or 5 or 6 quarters. So what we'll continue to do is continue to bring people on board as quickly as we can but in a very prudent manner, and the ability for us to train and have them be productive is obviously the critical piece. So we're not going to bring on more than we can really take on. That's kind of how we look at the salespeople part of your question. In terms of direct traffic, we have 108 million. We don't pay for traffic. That's all organic traffic. I think we've said before that over 50% of that comes from Google, and that's kind of how we're looking at it. In terms of searches, we had about 46% searches come from the app. And then on top of that, we had about 13% of searches come from the mobile site. So all together, we have searches of about 59% coming from mobile. And that's obviously where I think a lot of our business is headed, and I think we're extremely well positioned to help that.

Operator

Next question comes from Stephen Ju with Credit Suisse.

Stephen Ju - Crédit Suisse AG, Research Division

Rob, it looks like the ARPU for local advertising dropped a bit sequentially, so will you give us some color there? And as you look to close the loop and make the ROI more transparent to your advertisers, where do think that monthly spend for advertiser, kind of advertiser goal over the longer term. And Jeremy, can you help me understand -- maybe this is too specific an example, but as I look at some of the most popular restaurants in the Bay Area, some of them have an excess of 5,000 reviews. So from Yelp's perspective, what's the value of the incremental review beyond, say, even 100? Because I don't if somebody is going to go bother to read even 20 before they decide to go to a restaurant. So what can the use case be for the data beyond a certain level?

Jeremy Stoppelman

This is Jeremy. Why don't I'd take that first, and then hand off to Rob. So we get asked that question a lot, and I would say for that individual restaurant review, the freshness matters a lot. And so even if we have 5,000 likes, we're also constantly getting new reviews. And so as that restaurant is changing, we're learning more about that business. With all that data, we can also then summarize it in very interesting ways. So we have, for example, a review highlights feature that can mine those 5,000 reviews and expose things automatically that would otherwise be very difficult to figure out. So in my opinion, it's always better to have more data than less and that value of the incremental review always gives you some new bit of information. So we're always pushing to how can we have more and more local information, so we can always direct consumers to the right business at that moment today.

Robert J. Krolik

And on your other question about ARPU, so number one, we really don't look at it that way. Some think we're taking this local revenue divided by the number of businesses, we don't do that internally, but we do look at it just ahead of this call. And I think it's actually, if you do it in total, it's actually up for the quarter, slightly up. And then if you strip out the international piece completely, it's like down by $1. So as to what's driving that, part of the reason is, is that we do have international revenue now and part of that's Qype and the Qype businesses that are contributing to revenue or not in the paying accounts. We've kind of called that out of before. So if you strip out all of international, it's actually about flat quarter-on-quarter. But we don't -- in terms of direction, where that's going, I think Jeff has kind of said it well earlier. We find a number we specifically focus on, it's been flat over the last couple of years. So we'll kind of leave it at that, and we'll just continue to go out and acquire more customers.

Operator

Next question comes from Scott Devitt with Morgan Stanley.

Jordan Monahan - Morgan Stanley, Research Division

It's Jordan Monahan on for Scott. Actually, one question and then I'll follow-up from a previous question. So you talked a couple of times in the press release and a couple of times in your remarks about closing the loop, and we were wondering what other opportunities are out there. So I guess, a couple of questions. One would be, what sort of data do you get from Open Table if I've made a reservation on Yelp? And I follow-up and dine in the restaurant. Do you get any of that data passed back to you and does that help you close the loop? And are there other avenues that you can think about, say, credit card programs or other loyalty type of programs? And then just a second follow-up is actually the reverse of the prior question on review density. Is there a number of reviews that's critical toward making that review database relevant? In other words, if you have 5 or 10 reviews of a restaurant, is it not relevant? But once you get to 50, then it becomes relevant. What do think the hurdle is?

Geoff Donaker

This is Geoff again. Thanks for your questions. I'm going to start with the review density question, and I think there isn't a perfect science to this. We've looked at it a number of times in the past, and the short answer is almost as Jeremy said on the individual business level, more content is always better. So if you're looking for sushi in San Francisco at this point, the price of admission to that is very high. You've got to have dozens of reviews before a particular business or services is really useful. But when you're looking for an orthopedist in Boise, frankly, 1 or 2 reviews from Yelp members actually might be really, really valuable, so there's not a line in the sand that 5 or 10 or some other number of reviews. You asked about closing the loop, and we've had a number of initiatives this year that have tried to help local businesses on Yelp further understand how consumers are finding them after the Yelp platform. One going back a couple of months is the revenue estimator that help businesses on Yelp understand the value of every one of those leads that they're currently getting from Yelp. Another one, of course, with this new call to action unit that several thousand of our advertisers have recently picked up, that again helps them direct consumers to the right place on their site to get coupons or reservations or whatever kind of loop closing they're trying to promote for their business. And then, of course, in the last couple of weeks, we both introduced the Yelp platform and then acquired SeatMe. And both of those are, of course, about helping to close the loop in various categories as well. You asked specifically about OpenTable and what kind of data do we get there. Of course, we do know and can let local businesses, restaurants who use OpenTable know if a consumer has found and made a reservation through OpenTable on the Yelp site. And of course, that's just one more way to close the loop for those businesses that are using OpenTable. So you can imagine that as we introduce more and more platform partners, that gives us more data points we can then feed back to those local businesses.

Operator

Next question comes from Rob Sanderson with MKM Partners.

Rob Sanderson - MKM Partners LLC, Research Division

So just to beat a dead horse on the Yelp platform, on the revenue model and the opportunities surrounding it. It sounds like, I don't know if it's intentional or not, but it sounds like you're sort of downplaying the significance of the incremental fits of revenue that may come out of that. Is that really the message and is there really more to thought of this as an effort to create more transparency into the effectiveness and, therefore, better close the loop? Or how should we be thinking about the revenue model?

Jeremy Stoppelman

This is Jeremy. Thanks for the question. So obviously, we're focused on our core business for local advertising. We think that there is a revenue opportunity here but we're just getting started. We just launched it in the last couple of weeks here. So as that develops, our understanding might change. But I think from our perspective here, we still feel like the local ad model is core to what we do, and we're going to keep doing it for a very long time. And I think our focus on the Yelp platform is really about consumer convenience. We think it just makes using Yelp that much easier and there's a stickiness factor, too. Hey, I'm a consumer. I've got my credit card information loaded into the Yelp app. I'm able to search, and I'm actually able to buy. When you think about the comparable experience on Amazon for e-commerce, and they go really, really horizontal. So anytime I'm trying to buy, just about anything, I know that all my information is in Amazon, and I can immediately purchase and have it delivered. And we want to recreate that type of experience in local, and that's what we're focused on, not necessarily the monetization at this point.

Operator

Next question comes from Gene Munster with Piper Jaffray.

Charles Eugene Munster - Piper Jaffray Companies, Research Division

Any updates in terms of the relationship with Apple and how Siri's progressing? I know you mentioning some of the metrics about the number of searches you've had on mobile. I assume that Siri is included in that or maybe just a clarification on that?

Robert J. Krolik

Yes so -- Gene, it's Rob. So our relationship with Apple continues to be strong. As far as the number of searches, I don't believe actually the number of searches that Siri does is actually included in our numbers. So when you come over to the Yelp app or the mobile website, when you do searches on that, that's how we account for it. But any searches that are actually done on the Apple platform, for lack of a better word, maybe Siri itself, we can't capture that data at this point. But the relationship with Apple is strong, and we're happy to be a partner with them.

Operator

Next question comes from Mark May with Citi.

Mark May - Citigroup Inc, Research Division

While you certainly generated a lot of the traffic elsewhere, Google remains a decent traffic source. And I'm wondering given that, why hasn't your business been impacted more by the changes that Google has made in their search results for a while now, including, most recently, the Carousel, but this has been going on for a while. And then secondly, my numbers might not be right, so part of this is just a clarifying question but, if so, maybe if you could respond. It sounded like your international revenues may not have grown in the quarter sequentially. And if that, in fact, is accurate, maybe if you could provide some color as to why that is. And then thirdly, it looks like when we just do simplifying calculation, maybe this is the wrong way to look at it, that average reviews per unique is sort of stable or not growing. And I'm wondering -- so suggesting there's more consumption versus participation, if you will, and if that at all matters to you, if you think that's an issue.

Jeremy Stoppelman

Mark, I guess I'll tackle the first one here, this is Jeremy. I'll talk about Google and all the changes they've continued to make. We've been competing with them for now several years, maybe 8 years. And I think the fact of the matter is, we have the highest quality and best content. And try as they might, users are willing to jump through hoops to find their way to our content. And there is really no other resource out there that has the breadth and depth. And so as a result, consumers just keep flocking to the site, and so we feel really good about our competitive position in the long term.

Robert J. Krolik

Mark, on the international revenue side, so yes, on an absolute dollar basis, you're right, it's about $2.8 million or so in Q1 as well as Q2. And what people, I guess, just need to understand is that what's happening is Yelp revenue is actually internationally growing very quickly, and the Qype revenue is actually trailing off. So now what's happening is we're actually only selling Qype in Germany as of today. And we started selling in Q1, Yelp in Spain and France, and that's ramping quite nicely. I mean, we're coming from a position of effectively 0 a year ago. So we feel good about -- it's really meeting our expectations as to kind of where we are and what we are able to achieve there. So yes, on a year-over-year basis, it's quite impressive. And then even on a Q4 to Q2 basis, it's up, I think, $600,000 or $700,000, which is -- on a percentage basis, it's a pretty good clip.

Geoff Donaker

I think you also asked about sort of a ratio of reviews to uniques or the other way around. And I guess, a little bit like ARPU, that's certainly a ratio you can look at. It's not one we pay a lot of attention to internally. To the point of is there more consumption than writing on the platform, certainly, that's always been true at Yelp. A minority of people are contributors, and then there's a whole lot of people who want to come to Yelp to find local businesses. And I expect that to will continue to be true. The good news, at the core of that, is that both that unique visitor number, as well as that reviews or content number, are growing pretty healthily. And so that's what we're really focused on.

Operator

Next question comes from Ron Josey with JMP Securities.

Ronald V. Josey - JMP Securities LLC, Research Division

So a question about the sales cycle and whether that's contracted, given all the products that were launched this quarter between either the BCG results, the Nielsen results, the call to action, the revenue estimator, now the platform and other stuff. So just over all, in terms of when you first contact a potential local business to advertise to when they agree. Is that contracted based on these new products? Or is this just something you're seeing overall in the business?

Geoff Donaker

Thanks for the question. The short answer is there's no new numbers or a vast change on that. Certainly, all of the things that you just mentioned have been positively received by both our prospective advertisers, as well as our sales team. And so we're getting really good feedback on all those things. I think of each one of these things as just another arrow in the quiver in many other conversations that we have with local businesses around that country and now world, and so we want to continue to add to that quiver. But I don't have any sort of cycle time as changed by x percent number for you at this point.

Operator

Next question comes from James Cakmak with Telsey Advisory Group.

James Cakmak - Telsey Advisory Group LLC

So you've already had, I guess, reservation capabilities through your partner program for some time. Can you talk about how -- as your traffic has growing by impressive amounts, how the traffic and transactions through the partner program, the reservations, how those have been trending? Have they been growing just as fast as your audience and unique visitors have? And then secondly, we're starting to see the scale of the business pretty clearly now, and you are outperforming on the EBITDA front. How are you thinking about your investments to expand into new markets? Because profitability is trending ahead of expectations, would you consider accelerating into a new market entry and how do you see reinvesting in the business?

Robert J. Krolik

Thanks, James. So in terms of partners and what they're experiencing on the platform, I think I can't tell you exactly that it's nearing the traffic growth, but I know it's going up. So I know that we're obviously creating more reservations. We're creating more deals transaction through our platform in Q2 2013 than we did in Q2 2012. So I think directionally, it's definitely increasing. It's hard to say whether it's really tracking to traffic growth. I know deals in and of itself is actually up 100% year-over-year, so it's actually growing faster than traffic. But we're pleased with where it's trending. And we feel like the more partners we can add to the platform, especially the new Yelp platform, the more benefit those people will get. And especially from a consumer experience standpoint, they'll just benefit tremendously. In terms of where we're tracking it, it's nice to be sitting where we're sitting. I think the expansion into new markets, we're going to go as fast as we have been planning to go. I don't think that we'll necessary go crazy and spend a lot more. I think it's really about how can we methodically go through this process of entering in a new market and getting a toehold and then expanding that over time. For us, once we go into a new market, it does take, if not a couple of years to really get a hold on that market and start generating revenue maybe 2 to 3 years down the road. So we try to think of it at a longer time horizon than just a quarter. But at the same time, we're continuing to invest. So we're hiring salespeople, hiring engineers and we're doing what we can to continue to take advantage of all of this growth.

Operator

Next question comes from Kevin Kopelman with Cowen and Company.

Kevin Kopelman - Cowen and Company, LLC, Research Division

First on deals, what drove the acceleration deals in the quarter and to what extent did that contribute to your net advertiser additions? And then on users, could you just give us the active mobile app users in the quarter?

Robert J. Krolik

Yes, so active mobile app was 10.4 million in the quarter on a monthly average basis, so to get that out of the way. And then for deals, what's driving that, I think year-over-year, the number of deals on the platform is probably up 100%. So it's not necessarily surprising that we're generating a lot more transactions through deals, and so I think that kind of makes sense. Again, it's not a tremendous amount of money. I think it's more for the convenience of the consumer coming to the site, finding something, a local businesses that they think is great and then, hey, that local business has a great deal, why don't they buy it right then and there.

Operator

Next question comes from Todd Van Fleet with First Analyst (sic) [First Analysis].

All right. We'll go next to the next question from Blake Harper with Wunderlich.

Blake T. Harper - Wunderlich Securities Inc., Research Division

I had a question about the international business. I know you had hit on it, Geoff. But besides the revenue right now, if you could talk about what it is now that you have Qype under your belt and you've integrated some of the markets over. Is there anything different or anything different about those markets as far as the level of engagement, the reviews or anything about the local business customers that you see compared to the U.S. and how does that impact any of your confidence or your ability to recreate what you've done in the U.S. business and the scale of the U.S. businesses in Europe?

Geoff Donaker

Sure, thanks for your question. And so just to recap on Qype, as Jeremy mentioned earlier, we've made sort of -- progress good so far. We've now integrated the Qype sites in Ireland, Italy and Spain into Yelp, and so now we're one big happy site and family in those countries. Next step, we'll be integrating Qype in France. And then the really big Qype countries, the U.K. and Germany are yet to come later this year. So that's been sort of big area focus for us in Europe. As to your question about market differences, certainly, each market, as we've gone internationally, has been differences. There's all kinds of cultural differences from one market to the next. That having been said, broadly what we're seeing is very similar trends in terms of how communities get formed at the local level, how consumers come in and flock to that local content and then the conversations that we have in local businesses from market to market. So by and large, we're still sticking with our in the out years. We think the European business could be as big or in the range of as big as the U.S. business but, that's certainly not going to happen overnight. And we're very much just getting started now.

Operator

At this time, I'd like to turn the call back to management for closing comments.

Jeremy Stoppelman

Thanks for joining us on this quarter, and we look forward to updating you in Q3. Thanks.

Operator

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Yelp Management Discusses Q2 2013 Results - Earnings Call Transcript
This Transcript
All Transcripts