YELP Q1 Earnings Call: AI Product Push and Services Expansion Drive Results Amid Macro Uncertainty

Local business platform Yelp (NYSE:YELP) reported Q1 CY2025 results beating Wall Street’s revenue expectations, with sales up 7.7% year on year to $358.5 million. The company expects the full year’s revenue to be around $1.48 billion, close to analysts’ estimates. Its non-GAAP profit of $0.81 per share was 3.1% above analysts’ consensus estimates.

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StockStory’s Take

Yelp’s first quarter results were shaped by ongoing momentum in its Services segment, which offset continued challenges in the restaurant, retail, and other (RR&O) categories. CEO Jeremy Stoppelman pointed to the “16th consecutive quarter of double-digit year-over-year growth” in Services, as product-led initiatives—including new AI features and workflow integrations—helped drive project volume and advertiser engagement. Management noted that while RR&O revenue declined, Services revenue grew 14% year over year. CFO David Schwarzbach highlighted the impact of disciplined expense management, with net income margin and adjusted EBITDA margin expanding meaningfully compared to the prior year. Notably, the number of Services paying advertiser locations surpassed RR&O for the first time, reflecting a shift in business mix.

Looking ahead, Yelp’s guidance is underpinned by continued investment in AI-driven features and product enhancements aimed at increasing advertiser value and efficiency. Management acknowledged that macroeconomic uncertainty, especially in RR&O categories, remains a headwind. Stoppelman stated, “We continue to keep an eye on inflation and potential tariff-related supply chain disruptions,” but emphasized that the product’s measurable return on investment supports spending even in uncertain conditions. The company expects expense growth to be modest, with headcount roughly flat through year-end and ongoing efforts to reduce stock-based compensation. New AI-powered call answering products and further Yelp Assistant expansion are expected to bolster engagement and help offset softer trends in RR&O.

Key Insights from Management’s Remarks

Management attributed quarterly growth to strength in Services, a shift in advertiser mix, and the rollout of new AI-driven product features. The company highlighted ongoing challenges in RR&O, but noted early traction from workflow integrations and AI enhancements.

• Services category momentum: Services revenue grew for the 16th consecutive quarter, propelled by product improvements like Request to Quote enhancements and higher adoption of Yelp Assistant. Management cited a 10% increase in project requests, with even stronger growth when excluding paid search.
• AI feature deployment: The quarter saw the introduction of 15 new features, including AI-powered photo recognition and response quality badges. These tools aim to streamline the hiring process and highlight high-quality service providers, with management seeing significant runway for further feature adoption.
• RR&O segment headwinds: Restaurant, retail, and other categories continued to face a challenging environment, resulting in a 3% year-over-year revenue decline. Management attributed this to softer advertiser demand and reduced paid search activity, with enterprise and multi-location advertisers remaining cautious amid macro uncertainty.
• Workflow and CRM integrations: Yelp advanced its multi-location services strategy with the launch of a Zapier integration, connecting its Leads API to over 800 CRM and lead management platforms. Early signs indicate positive advertiser uptake and improved revenue growth within this segment.
• Expense discipline and capital allocation: The company continued to manage costs carefully, keeping headcount flat and reducing stock-based compensation as a percentage of revenue. Yelp repurchased $62.5 million of its own shares in the quarter and maintains flexibility for further buybacks or potential acquisitions.

Drivers of Future Performance

Yelp’s outlook centers on expanding AI-driven products, increasing advertiser value, and navigating persistent macroeconomic uncertainty, particularly in RR&O.

• AI product expansion: Management sees further opportunity to enhance the user and advertiser experience through AI, including broader rollout of Yelp Assistant and upcoming call answering solutions for both service pros and restaurants. These initiatives are expected to increase lead quality, engagement, and advertiser retention, with the potential for new monetization avenues.
• Services mix shift: The ongoing growth of Services—now surpassing RR&O in paying advertiser locations—positions Yelp for continued resilience. Management believes many Services projects are non-discretionary, providing some insulation against broader economic pressures, though RR&O headwinds may persist.
• Macro and cost headwinds: Executives flagged inflation, potential tariff-related supply chain disruptions, and cautious advertiser sentiment as ongoing risks. Expense growth is expected to remain modest, but management acknowledges that further macro deterioration could impact advertising budgets, particularly in RR&O categories.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will watch (1) the pace of AI feature adoption, especially for Yelp Assistant and call answering tools; (2) whether Services momentum persists as RR&O categories face continued headwinds; and (3) progress on multi-location advertiser integrations and CRM partnerships. Execution on AI-driven product expansion and maintaining expense discipline will remain critical signposts for Yelp’s strategy.

Yelp currently trades at a forward EV/EBITDA ratio of 6.9×. In the wake of earnings, is it a buy or sell? See for yourself in our full research report (it’s free).

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