Executive Summary / Key Takeaways

• Yelp is undergoing a significant AI-powered transformation, focusing on its high-growth Services categories and leveraging its vast repository of trusted local content to enhance both consumer and business experiences.
• The company delivered record net revenue of $376 million in Q3 2025, with Services revenue growing 7% year-over-year, driven by product innovation and the strategic acquisition of RepairPal.
• Despite macroeconomic uncertainties and competitive pressures impacting its Restaurant, Retail & Other (RR&O) segment, Yelp maintains disciplined expense management, leading to a Q3 2025 adjusted EBITDA margin of 26% and an increased full-year 2025 adjusted EBITDA outlook of $360 million to $365 million.
• Yelp's AI initiatives, including Yelp Assistant and new AI-powered call answering services (Yelp Host and Yelp Receptionist), are driving operational efficiencies and creating new revenue streams, with AI search API calls increasing significantly and data licensing revenue reaching a $10 million annual run rate.
• The company's strategic positioning, anchored by its unique, human-generated content and expanding AI capabilities, offers a compelling investment thesis for long-term profitable growth, particularly as it expands into underserved multi-location services and capitalizes on emerging AI search partnerships.

A Local Powerhouse Reimagined: Yelp's AI-Driven Strategy

Yelp Inc., established in 2004, has long served as a trusted digital bridge connecting consumers with local businesses across a diverse range of categories, from home services to restaurants. The company's foundational strength lies in its extensive collection of human-generated ratings and reviews, which now totals over 308 million cumulative reviews, growing 7% in 2024 alone. This rich, trusted content is not merely a historical asset; it is the bedrock upon which Yelp is building its future, particularly through an aggressive and transformative integration of artificial intelligence.

Yelp's overarching strategy centers on three pillars: leading in services, driving advertiser value, and transforming the consumer experience. Each of these initiatives is increasingly powered by AI, which management views as a "transformational" force for the company. This product-led approach is designed to deepen engagement, enhance monetization, and solidify Yelp's competitive moat in the evolving local digital advertising landscape.

The company's journey has seen it adapt to various market dynamics. A notable legal challenge, the CIPA Action, was settled for $15 million in April 2024, resolving claims without attributing liability to Yelp. More recently, 2024 marked a period of accelerated innovation, with over eighty new features and updates introduced, predominantly in the Services categories. This strategic focus has yielded tangible results, with Services revenue consistently demonstrating double-digit year-over-year growth for fifteen consecutive quarters.

Technological Edge: AI as Yelp's Differentiator

Yelp's core technological differentiation is increasingly rooted in its sophisticated application of AI to its vast, proprietary dataset of local business information and user reviews. This integration is not just about incremental improvements; it's about fundamentally reimagining how consumers discover and interact with local businesses and how businesses manage their leads and operations.

A prime example is Yelp Assistant, an AI chatbot that has become a cornerstone of the company's Services strategy. This conversational AI streamlines the Request-a-Quote process, allowing consumers to articulate their service needs naturally. Project submissions through Yelp Assistant surged by nearly 400% year-over-year in Q3 2025. The technology offers tangible benefits by asking relevant questions and summarizing project details for service professionals, leading to higher-quality leads. Recent enhancements include AI-powered photo recognition, enabling the system to extract critical details like model numbers from uploaded images, further enriching lead information. Yelp is expanding Yelp Assistant to RR&O business pages and plans a cross-category launch, aiming for it to become the primary interface for consumer interaction.

Beyond lead generation, Yelp is pioneering AI-powered call answering services with the launch of Yelp Host for restaurants and Yelp Receptionist for services. These subscription-based SaaS solutions leverage Large Language Models (LLMs) and Yelp's high-quality data to provide human-like voice answering services tailored to individual businesses. Early results for Yelp Host are promising, having handled thousands of calls and hundreds of reservations within its first month. These products address a critical pain point for businesses—missed calls and dropped leads—and represent a significant opportunity to unlock value and generate incremental revenue from a "huge TAM" in lead management, extending beyond Yelp-generated leads.

Yelp's trusted content is also proving to be a valuable asset in the broader AI search landscape. The company is experiencing strong demand for its data licensing products, particularly from emerging AI search platforms. AI search API calls increased by 20x over the past year and 10x in just the two months leading up to Q2 2025, contributing to an annual run rate revenue of over $10 million from this area. Yelp positions its "highly trusted content about SMBs" as a "critical ingredient" for LLM-based players seeking to provide a general search experience, especially those competing with Google. The strategic intent is to wrap Yelp Assistant functionality in an API, creating monetization opportunities for other platforms to tap into Yelp's local expertise.

Other technological innovations include "smart selection," an AI-powered feature for advertisers that optimizes ads by showcasing the best reviews and photos, and Menu Vision, an augmented reality feature allowing diners to view dish photos and reviews by pointing their camera at menus. These advancements collectively enhance Yelp's competitive moat by improving user engagement, increasing advertiser ROI, and opening new revenue channels, directly contributing to its financial performance and market positioning.

Financial Performance and Operational Strength

Yelp's financial performance in 2025 reflects a company strategically reorienting towards its strengths while managing external headwinds. In the third quarter of 2025, Yelp reported net revenue of $376 million, a 4% increase year-over-year. This growth was primarily fueled by the Services segment, which saw revenue climb 7% year-over-year to $243.8 million. The home services and auto services categories were key drivers, with the latter benefiting from the strategic acquisition of RepairPal. RepairPal, acquired in November 2024 for approximately $80 million, contributed about two percentage points to total advertising revenue growth in Q3 2025 and approximately half of the year-over-year increase in Services paying advertising locations.

Conversely, the Restaurant, Retail & Other (RR&O) categories continued to face macroeconomic pressures, resulting in a 2% year-over-year revenue decline to $113.5 million in Q3 2025. This segment also saw a 7% decrease in paying advertising locations. Overall, paying advertising locations across the platform decreased by 2% year-over-year to 512,000, as declines in RR&O offset growth in Services.

Despite a challenging advertising environment, average Cost-Per-Click (CPC) increased by 14% year-over-year in Q3 2025, reflecting strong advertiser demand in Services categories and a focus on delivering higher-quality ad clicks, even as total ad clicks declined by 11% due to macro pressures and reduced paid search spend. Other revenue, encompassing subscription services and data licensing, grew 17% year-over-year to $18.7 million in Q3 2025, driven by products like Yelp Places API, Yelp Insights API, and Yelp Guest Manager.

Yelp's commitment to disciplined expense management is evident in its profitability. The company achieved a net income of $39.3 million in Q3 2025, representing a 10% margin, and an adjusted EBITDA of $98.1 million, a 26% margin.

While cost of revenue increased due to RepairPal-related revenue share payments and advertising fulfillment costs, product development expenses decreased for the nine months ended September 30, 2025, largely due to lower headcount and increased capitalization of employee-related costs. Sales and marketing expenses for the nine-month period also decreased, reflecting reduced spending on acquiring Services projects through paid search.

Liquidity and Capital Allocation

Yelp maintains a healthy financial position, with cash and cash equivalents of $231.1 million and marketable securities of $102.5 million as of September 30, 2025. The company's primary liquidity sources are these balances and cash generated from operations. Net cash provided by operating activities increased by $72.7 million during the nine months ended September 30, 2025, driven by higher cash collection from customers and lower vendor payments, alongside the non-recurrence of a $15 million CIPA Action settlement payment from the prior year.

Yelp also has access to a $125 million senior secured revolving credit facility, with $120.8 million available as of September 30, 2025. Management believes these resources are sufficient to meet material cash requirements for the next 12 months and beyond, including working capital, stock repurchases, and capital expenditures. The company actively returns capital to shareholders, repurchasing $75 million worth of shares in Q3 2025 at an average price of $32.59 per share, with $127 million remaining under its existing repurchase authorization.

Competitive Landscape and Strategic Positioning

Yelp operates in a highly competitive digital local services and advertising market, contending with both direct and indirect rivals. Its primary direct competitors include Google (GOOGL), Meta (META), TripAdvisor (TRIP), and Angi (ANGI).

Google, through Google Maps and Google My Business, offers a broad ecosystem with massive user reach and advanced search algorithms. Yelp's specialized focus on authentic, user-verified reviews and community-driven local discovery provides a niche advantage, particularly in targeted local interactions. However, Yelp lags Google in overall market reach and the sheer depth of technological resources for AI integration. Meta's social platforms, Facebook and Instagram, offer vast network effects and sophisticated ad targeting. Yelp differentiates itself with detailed, category-specific reviews and a more focused user experience for local discovery, but Meta's scale and faster innovation in social features present a significant challenge to Yelp's market positioning.

TripAdvisor, while strong in travel and experiences, has a narrower focus than Yelp's comprehensive local business categories. Yelp's all-in-one local ecosystem, including tools like Yelp Guest Manager, offers a more versatile platform for everyday services. Angi specializes in home services, where it may offer more tailored project matching tools. Yelp's broader category coverage and community features provide an edge in overall market positioning, though Angi's focused approach can lead to strong performance in its niche.

Yelp's competitive advantages, or moats, include its strong brand recognition in local reviews, the powerful network effects generated by its user-generated content, and proprietary technology for business analytics. These assets foster user loyalty, contribute to recurring advertising revenue, and enhance platform value. Yelp's emphasis on trusted, human-written content helps it differentiate from competitors, particularly in an AI-driven search environment where authenticity is paramount. The company's strategic partnerships, such as the one with DoorDash (DASH), which expanded its food ordering network to over 500,000 restaurants, also enhance its offerings and competitive standing.

Despite these strengths, Yelp faces vulnerabilities, including its dependence on advertising revenue, which exposes it to macroeconomic downturns, and potential technological gaps in AI integration compared to resource-rich giants like Google and Meta. The ongoing pressure in the RR&O segment, driven by macroeconomic factors and competition from food ordering and delivery providers, highlights a key challenge.

Outlook and Risks

Yelp's outlook for the remainder of 2025 reflects a cautious yet strategically focused approach. The company anticipates that heightened macroeconomic uncertainties will persist in the fourth quarter, leading to a sequential decrease in net revenue from Q3 2025, alongside typical seasonality in Services categories. For the full year 2025, Yelp has revised its net revenue guidance to a range of $1.460 billion to $1.465 billion.

Despite the tempered revenue outlook, Yelp has narrowed and increased its full-year 2025 adjusted EBITDA guidance to $360 million to $365 million. This upward revision underscores the company's disciplined expense management and its ability to drive profitability even in a challenging environment. Management expects expenses to remain relatively consistent with Q3 2025 levels in the fourth quarter. Key to this profitability strategy is the commitment to maintaining approximately flat headcount year-over-year by the end of 2025 and reducing stock-based compensation (SBC) expense to less than 8% of revenue by the end of 2025, with a further target of less than 6% by the end of 2027. These efforts are expected to improve the quality of adjusted EBITDA and benefit GAAP profitability over time.

Key risks to this outlook include the ongoing macroeconomic uncertainties, which could further impact consumer behavior and advertiser spending, particularly in the already pressured RR&O categories. Competition from larger, more diversified tech companies and specialized platforms remains a constant factor. Additionally, the realization of Yelp's deferred tax assets (DTAs) is subject to generating sufficient future taxable income, and a substantial valuation allowance could materially impact expenses. The company's reliance on internal tools for key metric measurement also presents inherent limitations.

Conclusion

Yelp is in the midst of a significant transformation, strategically leveraging its deep reservoir of trusted local content and an accelerating embrace of AI to redefine its value proposition. The company's focused investment in Services categories, bolstered by innovations like Yelp Assistant and new AI-powered call answering solutions, is driving robust revenue growth and demonstrating resilience against broader economic headwinds. While the Restaurant, Retail & Other segment continues to face macro-driven challenges, Yelp's disciplined expense management and commitment to improving profitability metrics, such as its adjusted EBITDA margin, are clear.

The investment thesis for Yelp hinges on its ability to capitalize on its unique content moat through advanced AI applications, expanding its reach in high-growth service verticals, and forging strategic partnerships that enhance its ecosystem. The increasing demand for Yelp's data licensing from emerging AI search platforms further validates the strategic importance of its proprietary content. Investors should monitor the continued execution of its AI roadmap, the performance of its Services segment, and its ability to maintain expense discipline as it navigates a dynamic competitive and macroeconomic landscape. Yelp's journey from a review platform to an AI-powered local commerce facilitator presents a compelling long-term growth story.