Yelp’s 2026 Q2 Earnings Call: Advertiser Softness Persistence, Hatch Margin Investments, and AI Strategy Shifts Clash

Date of Call: Aug 6, 2026

Financials Results

• Revenue: $376 million, up 1% YOY
• Operating Margin: Net income margin of 8% and adjusted EBITDA margin of 24%

Guidance:

• Q3 net revenue expected in range of $365 million to $370 million.
• Full year net revenue expected between $1.460 billion and $1.470 billion, range narrowed.
• Q3 adjusted EBITDA expected in range of $70 million to $75 million.
• Full year adjusted EBITDA expected between $315 million and $325 million, range narrowed.

Business Commentary:

Revenue and Economic Environment:

• Yelp's second-quarter net revenue increased by 1% year-over-year to $376 million.
• The growth was tempered by a challenging economic environment for local businesses, affecting advertising metrics.

Ad Revenue and Business Locations:

• Services ad revenue was flat year-over-year at $241 million, while RR&O ad revenue decreased by 10% year-over-year to $102 million.
• Overall paying advertising locations declined by 1% year-over-year to 510,000, reflecting the tough operating conditions for local businesses.

AI-Driven Revenue Streams:

• Other revenue increased by 98% year-over-year to a record $33 million.
• This was driven by the inclusion of revenue from Hatch, data licensing, and food ordering, showcasing the growth potential of AI-driven offerings.

Investments and Future Goals:

• Yelp plans to invest in strategic initiatives like Hatch, Yelp Host, and data licensing to drive growth.
• The company aims to reach an annual run rate of $250 million in other revenue by the end of 2028, focusing on AI transformation and operational efficiencies.

Stock Repurchases and Capital Allocation:

• Yelp repurchased $15 million worth of shares in Q2 and an additional $25 million in Q3, totaling $200 million for the year.
• The company plans to resume repurchases in 2027, aiming to return more than 50% of free cash flow to shareholders annually.

Sentiment Analysis:

Overall Tone: Positive

• Confident in AI transformation plans, seeing 'meaningful signs of improvement' and 'early positive signs' in product engagement. Excited about Hatch and Yelp Host growth potential, robust demand for licensing products, and 'encouraging traffic trends' in the quarter despite a challenging economic environment.

Q&A:

• Question from Alex (Goldman Sachs): What investments are planned for Hatch to support other revenue, and what are the potential structural margin differences from core advertising?
  Response: Investing in Hatch across go-to-market, product, and engineering to scale operations; long-term margin profile expected similar to subscription businesses, but near-term heavy investment to capture market opportunity.

• Question from Sergio Segura (KeyBank): How does Yelp capture economic value from AI long-term, through driving users back, generating leads, or licensing data?
  Response: Sees AI partnerships (like OpenAI) as a significant distribution channel over time, similar to existing licensing deals with major platforms, which can drive traffic and consumer awareness back to Yelp.

• Question from Sergio Segura (KeyBank): Are there notable differences in quality or conversion of leads from AI platforms versus other channels?
  Response: Too early to have strong data on conversions; AI platform merchandising is currently minimal but sees potential. Overall traffic gains noted from SEO, consumer downloads, and partner network, along with Google algorithmic shifts favoring user-generated content.

• Question from Zach (Baird): Is there early success cross-selling ads with Yelp Host, and can it open new partnerships?
  Response: Some positive synergies in selling Host, ads, and Guest Manager to restaurants, but not a game-changer yet; Host's compelling value for restaurants provides opportunity for those conversations.

• Question from Nitin Bansal (Bank of America): What changed in resuming lead acquisition via paid search, and what gives confidence in its impact?
  Response: Now specifically targeting multi-location services businesses, which can commit significant budgets; confidence in ROAS from sourcing quality leads to drive scale for these customers.

• Question from Nitin Bansal (Bank of America): What drove the healthy acceleration in paying advertising locations, and how to think about future growth given the revenue guide was lowered?
  Response: Encouraging trends with best restaurant PAL performance in years and services PAL flat; overall PAL decline of 1% YOY is a big improvement from Q1. Sees lag due to macro pressures, but traffic trends and pipeline offer long-term potential to impact PAL count and ARPU.

• Question from Kishan Patel (Raymond James): Can you elaborate on Google traffic tailwinds post-May/June core updates, and delineate paid vs. organic?
  Response: Bucked the AI overview traffic trend as their categories are highly monetizable and AI overviews not typically at the top. Traffic is largely organic with some limited paid optimization, especially for multi-location services.

Contradiction Point 1

Full-Year Revenue Guidance Trajectory and Drivers

Contradiction on whether March advertiser softness continued into Q2.

Sergio Segura (KeyBank) - Sergio Segura (KeyBank)

2026Q2: The unchanged full-year revenue guide incorporates uncertainty from local business challenges and the March advertiser softness. - [David Schwarzbach](CFO)

Why was the full-year guidance maintained despite Q1 revenue and EBITDA beating expectations, and was Q1 macro stronger with Q2 weaker? - Nitin Bansal (Bank of America)

2026Q1: A softness in advertiser budgets emerged in March due to the conflict in the Middle East... This dynamic, persisted from 2025, continued into Q2 and is expected to carry through the year. - [David Schwarzbach](CFO)

Contradiction Point 2

Growth and Monetization Strategy for Yelp Host

Contradiction on the monetization model and feature rollout for Yelp Host.

Zach (Baird) - Zach (Baird)

2026Q2: Recent additions like OpenTable integration and food ordering functionality (no commission fees). - [Jeremy Stoppelman](CEO)

Has cross-selling ads with Yelp Host shown early success, and could this lead to new or expanded partnerships? - Sergio Segura (Keybank)

2026Q1: The market opportunity... soon to add food ordering over the phone functionality. - [Jeremy Stoppelman](CEO)

Contradiction Point 3

Hatch Business Margin Profile and Growth Focus

Contradiction on near-term margin focus versus long-term SaaS convergence.

Alex (Goldman Sachs) - Alex (Goldman Sachs)

2026Q2: Long-term margin profile for Hatch is expected to be similar to other subscription businesses. Near-term margins will be impacted by continued investments to scale and capture market share. - [David Schwarzbach](CFO)

What specific investments are being made to support the revenue push, particularly for Hatch, and what are the potential structural margin differences compared to core advertising? - Kishan Patel (Raymond James)

20260213-2025 Q4: The immediate focus for Hatch is driving top-line growth, not margins. Over time, its margin profile is expected to converge with a typical SaaS profile. - [David Schwarzbach](CFO)

Contradiction Point 4

Strategic Focus and Valuation of AI Partnerships

Shift from broad data licensing to specific platform integrations for distribution.

Sergio Segura (KeyBank) - Sergio Segura (KeyBank)

2026Q2: Views AI platform integrations as a significant potential distribution channel over time. - [Jeremy Stoppelman](CEO)

How does Yelp plan to maximize long-term economic value from AI? - Cal Bartyzal (Craig-Hallum)

20251107-2025 Q3: Conversations with various players in the space are excellent, and there is still significant momentum and opportunity in both data licensing and APIs. - [Jeremy Stoppelman](CEO)

Contradiction Point 5

Assessment of Macroeconomic Pressures on Advertiser Spend

Shift from expecting macro pressures to ease, to acknowledging persistent pressures.

Nitin Bansal (Bank of America) - Nitin Bansal (Bank of America)

2026Q2: Macroeconomic pressures (inflation, gas costs) persist, so no massive economic turnaround is expected. - [Jed Nachman](CFO)

How has the strategy for resuming lead acquisition through paid search changed, and what factors give confidence it will drive incremental advertising budgets? - Josh Beck (Raymond James)

20251107-2025 Q3: Restaurant input costs (ingredients and labor) are significant, and as inflationary pressures ease, restaurants may improve margins and increase advertising. - [David Schwarzbach](CFO)