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Yelp, Inc.'s (YELP) CEO Jeremy Stoppelman on Q1 2014 Earnings - Call Transcript

Before turning to our outlook, I'd like to take a moment to remind everyone about our investment strategy in 2014. We see a multi-billion dollar global opportunity in the local space. Our strategy is to continue to invest in growing the Yelp product and footprint to maximize long-term revenue and local advertising market share. Given our results in Q1, we think this strategy is working.

For the second quarter, we expect revenues in the range $85 million to $86 million representing a 55% year-over-year growth rate. We expect adjusted EBITDA for the second quarter to range between $11.5 million and $12.5 million. We also expect stock-based compensation to range between $10 million and $11 million, depreciation and amortization to be approximately 5% of revenue and negligible tax expense on a cash basis. I'm pleased to announce that we are increasing revenue and adjusted EBITDA guidance for the year. We expect full year 2014 revenue to be in the range of $363 million to $367 million or approximately 57% growth over 2013.

For the full year, we expect adjusted EBITDA to range between $56 million and $60 million, a 97% increase over 2013. We expect stock-based compensation to be approximately $43 million to $45 million, depreciation and amortization to be approximately 5% of revenue and negligible tax expense on a cash basis. For modeling purposes, we expect our average weighted basic share count in the second quarter to be approximately 72 million shares and for the full year, average weighted basic share count is expected to be approximately 73 million shares.

I'll now turn the call over to the operator to open up the call for questions.

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Operator: Thank you. [Operator Instructions] First question is from Youssef Squali from Cantor Fitzerald. Please go ahead.

<Q - Youssef Squali - Cantor Fitzgerald Securities>: Thank you very much. Two quick questions, please. I guess starting with Jeremy, if I look at the international business, so you're in 26 countries right now. You've been in some of these countries for several years now. International contribution to revenues is still relatively small; I think you stated 3%. If you were to kind of dream the dream, how big do you think international can be over in the not too distant future, I mean in the next two years or three years. Can international for you be similar or is there any structural difference or challenge that would prevent your international business from over time becoming say half of your business, obviously not over in the next two years or three years, but over time. I'm just trying to understand kind of your thinking about the ramp up of monetization as you open up more countries and as more and more traffic starts coming from international?

And then, Rob, your EBITDA for both Q1 and Q2 was a bit shy of expectations, yet if I look at the year, it was higher as you just stated in your guidance. So what happens in the second half to get you there? Thank you.

<A - Jeremy Stoppelman - Yelp, Inc.>: Hi, Youssef, this is Jeremy here. So, thanks for the question about international. We continue to be very happy with our consumer growth, our audience growth there as well as contributor growth, which as you know comes before the revenue piece, that's essentially how our model works. We roll out market-by-market, develop the community, see a big audience of consumers in that and turn on monetization over a period of years. And as far as our expectation of what can we achieve over the next several years, we think it's something like 30% to 40% of revenue could be coming from international over the next 5 years to 10 years, is how we think about it. That's kind of our goal that we set up for ourselves.

<A - Rob Krolik - Yelp, Inc.>: Hey, Youssef, it's Rob. So to follow-up on the question about EBITDA. So we had about $8.5 million in EBITDA in the quarter, Q1. And then we had not obviously given any expectations about Q2 as of yet. We feel like continuing to invest in the business both in sales hiring as well as product to continue to generate all of our great product initiatives, as well as hire new great sales people who are doing great work and we feel, as you can tell in Q1 with the 66% growth rate, it's paying off. So we do feel like as the year increments along, we'll gain some leverage out of the model, and we expect to drop about 20% of the incremental guidance down to EBITDA.

Operator: The next question is from Jason Helfstein from Oppenheimer. Please go ahead.

<Q - Jed Kelly - Oppenheimer & Co., Inc. (Broker)>: Good afternoon. This is Jed on for Jason. Just touching on international again. Would you expect just given as the weather improves and looking at like seasonality last year if there was any to see like an uptick in international just with more businesses spending just with better weather?

<A - Rob Krolik - Yelp, Inc.>: Yeah. I don't know that we would necessarily relate the business at this point to better weather, I previously worked at eBay, I know that the factor - I think we are still nascent in the market at this point that we're only generating probably $2.5 million in the quarter from international, but what Jeremy said earlier about the fact that international reviews are up 210%, international traffic is up 95% year-over-year, so longer term we expect international to contribute a great deal to our P&L, but it's hard to say whether weather in the next few months will help us out or not.

<Q - Jed Kelly - Oppenheimer & Co., Inc. (Broker)>: Thank you.

Operator: The next question is from Tom White from Macquarie. Please go ahead.

<Q - Tom White - Macquarie Capital (USA), Inc.>: Great. Thanks for taking my question. On the guidance, it looks like you expect the top-line trends to kind of improve quite a bit, I guess over the remaining three quarters sort of back half of the year, could you maybe comment a little bit more on exactly why the raised outlook to the deals with Yahoo! and YP, do they factor into that at all, and then just quickly on platform, in terms of helping drive kind of consumer understanding or awareness of platform, not merchants but consumers, would you guys ever consider doing any sort of traditional brand marketing? Thanks.

<A - Rob Krolik - Yelp, Inc.>: Okay. Hey, Tom, I'll take the guidance question. So for 2014, what we've seen at least in the first quarter is that our business is really firing in all cylinders, and so as we look forward to the next few quarters, we feel like that momentum will carry through and that's why we updated the guidance to $363 million to $367 million for the year. So it's really coming from the business momentum that we have currently. As you know, we haven't rolled out the partnership as of yet, and our expectations are fairly modest for that. That said, it's not reflected in our guidance. But I would encourage everyone to be cautious only because we'll be experimenting over the next year with YP.

<A - Jeremy Stoppelman - Yelp, Inc.>: And then, Tom, to your other question, it's Jeremy, around platform and can we create consumer awareness through some brand marketing. I think we're really happy with the growth we're already seeing with our existing partners on platform. I think there's a lot of leverage to be gained by adding additional partners which we'll continue to do over the course of the year and we just launched Booker in the last quarter, which we're very excited about.

We'll never say never on experimentation with brand marketing. I mean, we do have a program that we've been dabbling with, but it's not particularly focused on platform. And it's really just experiments. We're constantly evaluating different ways to get the word out about Yelp. But fundamentally, the best way that we found to get the word out about Yelp is just through our organic growth. And so, of the traffic that we keep getting, about north of 130 million monthly uniques, it's really all organic. We don't do any SEM at this point. But it actually is pretty difficult and expensive to move the needle when you have an audience of that type.

Operator: The next question is from Kaizad Gotla from JPMorgan. Please go ahead.

<Q - Kaizad Gotla - JPMorgan Securities LLC>: Great. Thanks for taking my question. Just want to dig in a little bit on the YP partnership, wondering if you could just talk a little bit about the overlap between YP's advertiser base and yours and how many of them have a Yelp profile today? And also, I noticed that the customer repeat rate was up quite a bit from 70% to 75% this quarter. Wondering if there's anything you wanted to call out there or are you seeing more usage of some of the ROI measurement products that you've rolled out over the last few quarters that's boosting that number? Thanks.

<A - Geoff Donaker - Yelp!, Inc.>: Hi, this is Geoff. Thanks for your question. First, on YP. We see this YP relationship as really a win-win, gives YP's advertisers access to our 138 million consumers and us the opportunity to tap into YP's 500,000-plus advertisers. As to specific overlap between their advertiser base and ours today, we actually haven't done that specific deduping, so I don't yet know. My sense from some initial tests is that it's pretty small. So we do think it'll be mostly upside though, as Rob said. No, we really don't know what to expect there and in the first year, we'll be doing a lot of iteration and experimentation.

To your question on repeat rate, as you mentioned that repeat rate did notch up a bit this quarter, although really over the last couple of years, it's been pretty consistent in the low 70% range and so, no, we haven't been managing or really reading too much in the small fluctuations there. So nothing specific to report.

Operator: The next question is from Lloyd Walmsley from Deutsche Bank. Please go ahead.

<Q - Lloyd Walmsley - Deutsche Bank Securities, Inc.>: Thanks, guys. I'm wondering if you can just give us a little bit more color on the Call to Action ad unit. I think in the past, you've said that your customers adopting it, so kind of a 15% lift in engagement, any update there and can you maybe give us color on what percentage of your customers are using that? And then, I'll follow-up if I may.

<A - Geoff Donaker - Yelp!, Inc.>: Okay. Thanks, Geoff, again. Thanks for your question about Call to Action, yes, as Jeremy mentioned that is actually starting to drive a material number of leads, it's more in the 100,000 leads to our customers in the last period. I don't have an updated number for you on that. We had previously done a study that suggested 15% uptake or uplift in leads per page view for those advertisers who had the CTA turned on. We haven't updated that study yet, and so I guess when we do we'll share that back out, but nothing new to report there at this point.

I also don't have an update on the percentage of total customers who have turned that on, but it's fair to say at this point that they all should know about it, and anybody who is a paying enhanced profile or branded profile customer has the ability to turn that CTA unit on, assuming they have a landing page they'd like to point people towards. Did you have a follow-up as part of that?


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