Wendy Lim - IR Jeremy Stoppelman - CEO Rob Krolik - CFO Geoff Donaker - COO.

Lloyd Walmsley - Deutsche Bank Mark Mahaney - RBC Capital Markets Gene Munster - Piper Jaffray Jason Helfstein - Oppenheimer Kevin Kopelman - Cowen and Company Stephen Ju - Credit Suisse Brian Nowicki - Morgan Stanley Eric Sheridan - UBS Blake Harper - Wunderlich Securities Justin Post - Bank of America Merrill Lynch Youssef Squali - Cantor Fitzgerald Heath Terry - Goldman Sachs Mark May - Citi Ron Josey - JMP Securities Brian Fitzgerald - Jefferies Rob Sanderson - MKM Partners.

Welcome to the Q1 2015 Yelp Incorporated Earnings Conference Call. My name is Adrian and I'll be your operator for today's call. [Operator Instructions]. I'll now turn the call over to Wendy Lim. Wendy Lim, you may begin..

Good afternoon, everyone and thank you for joining us on Yelp's first-quarter 2015 earnings conference call. Joining me on the call to are CEO Jeremy Stoppelman and CFO Rob Krolik and COO Geoff Donaker will join us for Q&A. Before we begin, 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 revisions to these forward-looking statements in light of new information or future events.

In addition, we're subject to a number of risks that may significantly impact our business and financial results. 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 our results.

During our call today, we will discuss adjusted EBITDA, non-GAAP net income and non-GAAP EPS which are non-GAAP financial measures.

In our press release issued this afternoon and our filings with the SEC, each of which is posted on our website, you'll find additional disclosures regarding these non-GAAP financial measures and a reconciliation of historical net income to adjusted EBITDA and non-GAAP net income. With that, I'll turn the call over to Jeremy..

Thanks, Wendy and welcome, everyone. We had a solid start to 2015. Revenue grew 55% year-over-year to $118.5 million. On our Q4 call, we outlined our focus areas for the year -- increasing consumer awareness, daily engagement and closing the loop with local businesses. I'm pleased with our progress on these key initiative in Q1.

The consumer experience is our highest priority at Yelp and we want people to think of Yelp whenever they're looking for a local business. In February, we acquired Eat24, a leading online food ordering service and one of our first partners on Yelp Platform.

I want to take this opportunity to publicly welcome the Eat24 family to Yelp and express how excited I am to build upon what this talented team has already created. Our goal with the acquisition of Eat24 is to increase daily engagement in one of our most important verticals -- restaurants.

Based on the Nielson study we commissioned this month, approximately 70% of food orders in the U.S. were placed offline and we believe there's significant opportunity for growth if those orders shift online.

By leveraging Eat24's product with our traffic and our more established brand, we believe we can grow Eat24's online food ordering business, much like we've done with our reservation solutions.

As an example of the type of growth we can achieve, SeatMe and Yelp Reservations had over 12,000 restaurants and night life establishments accepting online reservations in the first quarter which represents 50% increase over the fourth quarter of 2014.

Prior to SeatMe and Yelp Reservations, online booking capabilities for restaurants were constrained and limited by expensive and complicated reservation solutions.

Our inexpensive, cloud-based solution represents a significant market expansion, as we've seen nontraditional customers adopt SeatMe, ranging from a winery in Rhode Island to an arcade bar in Tennessee.

We're continuing to invest in our reservations products and we look forward to extending reservation capabilities to an even broader array of restaurants and night life establishments. While Yelp's mission is to connect people with great local businesses, we also want to enable consumers to take the next step and transact.

As of the end of Q1, we had 1.5 million transactions completed on Yelp Platform since inception in July 2013. We initially launched with online food ordering partners and have since extended Platform into new verticals, covering outdoor activities, florists, golf courses, night clubs and lawyers.

That said, it's still early days and there are more partners to come. This is a multi-year endeavor and we believe it will ultimately increase consumer loyalty, drive further engagement and generate additional leads for local businesses. Another means of driving incremental leads to local businesses is via our performance-based advertising products.

Qype-based advertising allows businesses to connect advertising dollars more directly to the revenue they get from advertising on Yelp. In Q1, approximately 40% of our local advertising revenues came from CPC advertisers, up from 32% in Q4 2014.

This rapid shift to performance-based advertising has occurred faster than expected and we're still relatively early in the development of our CPC product. We're investing additional resources to scale functionality and expect CPC to remain a promising area of growth for our local advertising business.

The way consumers contribute and consume content today is rapidly becoming mobile-centric. And as one of the first apps in the Apple App Store, we've been at the forefront of this trend. Mobile has been and continues to be one of our top product priorities and we've seen that focus result in strong mobile consumer traffic and engagement.

In Q1, more than 50% of our reviews and photos were contributed via the app. And for the first time, our mobile unique visitors were roughly equal to our desktop unique visitors. In the same quarter, mobile devices accessing our app grew 47% year-over-year to about 16 million and those users have become our most valuable and engaged.

In the coming years, we see consumers continuing their transition toward a mobile-centric world. We believe having high quality content and a great mobile experience will position us well for this important shift. Now, I'll turn the call over to Rob for the financial details..

Thanks, Jeremy. Please note that we have posted a few slides and a data sheet on our Investor Relations web page that accompanies the financial portion of the webcast. In the first quarter, revenue grew 55% year-over-year to $118.5 million and adjusted EBITDA grew 92% year-over-year to $16.3 million.

For the first quarter, local revenue was $98.6 million, up 51% over last year. As additional color on local revenue, we implemented a territory change within our sales organization at the beginning of January in an effort to increase our reach to more local businesses. But the change had a negative impact on sales productivity.

Realizing this, we reversed this change in early March and have seen productivity recover with continued strength through April. We also see strength in our national, mid-market and franchise businesses. And we're excited about the large opportunity they represent.

These large businesses that operate locally are eager to connect with consumers on Yelp and we plan to continue to grow the sales team focused on this segment. Brand advertising revenue was $6.6 million, down 11% year-over-year.

We have experienced industry headwinds related to the shift to programmatic advertising and the industry's desire to have advertising products that are disruptive to the consumer experience. Given our focus on the consumer, we don't generally support those types of ad products.

Brand advertising revenue is a relatively high-margin business for us and our lower than expected brand advertising revenue negatively impacted our ability to achieve our adjusted EBITDA outlook in Q1.

Other revenue increased 254% year-over-year to $13.3 million, primarily reflecting our acquisition of Eat24 in the first quarter of 2015 which contributed about $5 million to revenue and our partnership with YP.com which contributed about $3 million revenue in the quarter.

International revenue contributed about 3% of total revenue in the first quarter. In Q1, we launched in Taiwan and we continue to invest internationally, as we believe international represents a significant opportunity over the long term.

Total sales and marketing was approximately 53% of revenue in the first quarter, compared to approximately 59% in the same period last year. Sales head count in the first quarter grew roughly 25% year-over-year.

Product development was approximately 20% of revenue, compared to 18% in the first quarter last year, as we continued to invest in developing innovative consumer features and advertising products. G&A was 17% of revenue which was flat compared to the first quarter last year.

GAAP net loss was $1.3 million and GAAP EPS was negative $0.02 in the first quarter. Non-GAAP net income which consists of net income excluding stock-based compensation and amortization, was $7.9 million in the first quarter. Non-GAAP EPS which is non-GAAP net income divided by our fully diluted share count, was $0.10.

We generated approximately $26 million in cash flow from operations in the quarter and finished the first quarter with $331 million of cash and cash equivalents and marketable securities on the balance sheet. Before I turn to our outlook, I want to go through our operating metrics for the quarter.

Cumulative reviews grew 36% year-over-year to approximately 77 million. A record 6 million reviews were contributed in the quarter. Average monthly mobile unique visitors grew 29% year-over-year to approximately 79 million. Average monthly desktop unique visitors were down 3% year-over-year to approximately 80 million.

International traffic was flat, at approximately 31 million unique visitors on a monthly average basis. Average monthly unique visitors which consists of desktop and mobile web unique visitors, grew 8% over the year to roughly 142 million.

Going forward, we do not plan to disclose total monthly unique visitors and will instead provide a separate break out of desktop monthly uniquely visitors and mobile monthly unique visitors to provide greater variability into our business.

Local advertising accounts grew 43% year-over-year to approximately 90,200 [indiscernible] local businesses were approximately 2.2 million, up 35% year-over-year.

Our customer repeat rate which we now calculate as a percentage of existing local advertising accounts from which we recognize revenue in the immediately preceding 12 month period, was 76% for the first quarter of 2015.

Calculating the repeat rate based on local advertising accounts rather than active local business account has no material impact on the repeat rate which was consistent at 76%. Going forward, we will no longer calculate the repeat rate based on active local business accounts.

While we had a misstep in assigning sales territories in Q1, we continue to be confident in our business. Local sales productivity has recovered since the territory change reversal and with the increased investment in our CPC product, we believe CPC will be an important driver of our sales growth.

Additionally, we expect brand advertising revenue to be up sequentially, as we've seen stronger pipelines in Q2 and expect to open up mobile inventory and programmatic advertising this year. Now, I'll turn to our outlook for second-quarter and full-year 2015.

For the second quarter, we expect revenues in the range of $131 million to $134 million, representing a 49% year-over-year increase. We expect adjusted EBITDA for the second quarter to range between $22 million and $24 million.

We also expect stock-based compensation to raise between $14 million and $15 million and depreciation and amortization to be approximately 5% of revenue. We expect our tax rate to be approximately 40%.

For the full year 2015, we're affirming our outlook and expect full-year 2015 revenue to be in the range of $574 million to $579 million or approximately 53% growth over 2014. For the full year, we expect adjusted EBITDA to range between $102 million and $105 million, a 46% increase over 2014.

We expect stock-based compensation to range between $58 million and $60 million and depreciation amortization to be approximately 5% of revenue. For modeling purposes in the second quarter, we expect our weighted average fully-diluted share count to be approximately 81 million shares.

For the full year, we expect our weighted average fully-diluted share count to be approximately 82 million shares. We feel we have a long runway and we'll focus on investing to capture the large market opportunity ahead of us. We continue to believe we can be a $1 billion revenue Company in 2017.

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

[Operator Instructions]. And we have Lloyd Walmsley from Deutsche Bank online with the question. Please go ahead..

Wondering if you could give us a little bit more color on the territory change you did on the sales portion, how much of the salesforce did that apply too? Like how long were you operating under it? What kind of testing you did beforehand.

Seems like sequential growth and local ad revenue was down 20, something in the 20% range year-over-year despite having a much bigger salesforce. Just trying to figure out what happened..

This is Geoff Donaker. So every year for the last five or six years we've reassigned territories at the beginning of the year and there's always a number of different tweaks that go in to that but does apply for the local salesforce. This year for the first time we made a change where we took geography out of the equation.

The reason we did that is we wanted to make sure we got leads in to the hands of reps faster than allow so we did remove geography from the equation. We learned pretty quickly though in the months of January and February was that geography turned out to be really important.

The truisms of local sports teams scores and weather and when you're talking to two different clients right after the other turned out to be pretty important.

By the end of February we identified that problem and turned it around pretty quickly, reassigned territories based on the geographically territory system then in March we saw performance on the sales team recover and seeing that continued strength in April. So the short version is January and February, then moved on in March..

So just as the sales force grows we should expect sequential ramps kind of in line with salesforce growth with local advertising as we move forward?.

As we've talked about in the past, the sales team is oriented toward revenue rather than local advertising accounts. So I want to make sure we're distinguishing separately from those things. We're seeing strong performance in March and April..

And the next question comes from Mark Mahaney from RBC Capital Markets. Please go ahead..

The guidance in terms of revenue growth for the balance of the year requires revenue growth that kind of stabilized and yet you've seen pretty consistent deceleration not only in revenue growth but local ad revenue and some of the key metrics.

What makes you think growth will stabilize? Is it you feel like you had this quick switch in recovery and salesforce productivity in the back half of the March quarter? Is it Eat24? What is it that gives you that confidence?.

In terms of the confidence, we identified the problem and the mistake that we made with the territory change. We reversed it in March. And I've seen productivity recover in March.

It gives us confidence and continued strength in April because confidence especially with all the new existing sales people we hired and the fact that we're going to hire more because of confidence that we're going to achieve our full year guidance and that's as we reaffirm it..

And then one of the metrics, the international unique visitors if I'm reading it right was kind of flattish year-over-year? You're still pretty early stage in those markets and you've launched in a good number of them recently. I'm surprised to see that.

Is there any particular explanation behind that?.

Since there was an algorithmic change that happened last year on the side, we have seen some flatness. It's not perfectly flat across all markets. There's been adjustments. Some markets up, some markets down. The good news is the community growth is still there.

So we're getting more and more content internationally which ultimately means our app is becoming more valuable and we're seeing some app growth internationally.

That's really where our focus lies now, primarily on continuing to grow the community of the content-based and then finding our way to app users rather than relying on the traditional SEO growth there..

And our next question comes from Gene Munster from Piper Jaffray. Please go ahead..

And I guess kind of a follow-up to Mark's question on some of the transaction based and some of the recent acquisitions you've done with SeatMe and Eat24. Is there a certain outlook you'd have on that business maybe on the back half of this year and longer-term, how we could think about that and the potential impact.

Is this something that's just incremental to your existing business or is it something that could be more substantial for longer-term optimism?.

The SeatMe business we acquired a couple years ago has gone exceedingly well. We're up to 12,000 reservations businesses.

From a revenue standpoint, it's fairly small, those that are actually paying for the SeatMe product versus Yelp reservation is a minority of that 12,000 and they only pay $99 a month but from a consumer standpoint very positive one. On the Eat24 business, we had about $5 million of revenue in the quarter. That's in the stump period.

So when you look at that, if you were to take that over the whole period, it grew about 63% or say $9 million which we could expect would happen as well in Q2. There is some seasonality to that kind of business. So for the rest of the year, we see that business actually doing quite well and growing at a fairly substantial rate.

Also included in other line items..

Okay. And I guess just a follow-up. We understand there was a little bit of -- kind of an iPad giveaway I guess, I don't know if it was Eat24 or SeatMe or both of those.

Was that something that had a measurable impact on that business and those growth rates? Or do you feel like those are more organic growth rates you just outlined?.

I think what you're talking about is a promotion we've been experimenting with on the SeatMe side. So we continue to see really healthy growth in signing up at restaurants. This is for our full service product. We have two products in the marketplace right now, Yelp Reservations which is light weight and doesn't involve an iPad.

Then a more heavyweight front house management solution. It kind of made sense to kind of pair that with the hardware since you generally want to get that anyways. We have seen positive results. We continue to play around with that. But as far as whether that's going to be there forever, can't say at this point..

And our next question comes from Jason Helfstein from Oppenheimer. Please go ahead..

I just want to go back to a point you made in the comments. Did I get it right that you said there was 47% growth users using the mobile app or was that 47% of mobile users for the app then I have a follow-up on that..

So we're talking about the mobile app. We saw 47% year-over-year growth to about 16 million app users..

And so just to follow up on that, as we're all trying to understand the health of the business and clearly people paying a lot of attention to the deceleration, some of the user metrics, do you think that's a statistic you should be providing going forward? And more representative of the health of the business? And then kind of talk to what you're doing to ultimately drive that either through marketing or organic initiatives.

Thanks..

Mobile unique and mobile app numbers is something that we've historically given out so I think we'll continue to do so. If you fast forward a few years in to the future, you can imagine that our business is quite reliant on mobile traffic.

And that's where we frankly continue to invest a lot of our time and attention and resources particularly on the products and engineering side. And the good news is it seems to be paying off. Mobile web, if you include mobile web you're looking at 29% year-over-year and then we talked about the app number being even stronger.

So we feel good about where the business is headed but it's certainly a period of transition where you are seeing desktop decline as users give up their desktop machines and switch over to iPhones and whatnot..

And your next question comes from Kevin Kopelman from Cowen and Company. Please go ahead..

You talked about the Yelp platform rating, 1.5 million transactions, just given some of the functionality improvements that you've had recently, can you give us any color on what the growth trajectory looks like in Q2?.

We continue to invest in Platform. We have lots of partners signed up and we give out the transactions number just as a marker that it continues to grow and become more interesting part of our business. That said, we're still quite focused on how it's driving the consumer experience.

One of our goals this year is around increasing engagement and making sure consumers keep coming, have an excuse to keep coming back to the app all the time.

We think being able to transact and close the loophole with local businesses is an important feature for consumers, being able to put that credit card in and know that every company you find and local business, you're not just having to make a phone call but you're able to get what you're trying to accomplish done.

We like how that fits in to a consumer value proposition..

This is Rob. From a revenue standpoint that amount is in other revenue. It's a fairly small amount. It's definitely growing at a fairly fast clip. But for right now, we're continuing to as Jeremy said focus on the consumer experience and then we'll see what happens over the next couple years as we do that..

Okay. Definitely thinking about it just on transactions. Just a separate question on EBITDA. It was a little light in Q1 versus the guidance you put out there.

Is that also just related to the revenue shortfall on the salesforce change? Any other spending items? And can you give us an update on your advertising programs?.

In adjusted EBITDA a piece I think the majority is really that difference in our guidance and what we ended up at was driven by the brand revenue. It's a high margin business. And it didn't meet our expectations internally. So came in short. Therefore we kind of missed on what we had expected.

That being said, on the brand side, they came in to Q2 with a much more robust pipeline and we feel that they've got things back on track. That being said, there still is a lot of industry things that are going on including programmatic which we're adjusting to as well..

You had asked about our advertising program, but I wasn't sure -- if you're still on the line. We may have lost you, no? Okay. I'm going to assume the advertising programs that we sell. So I think as Rob mentioned during the call, CPC advertising is doing really well for us.

It's actually now up to 40% of advertiser relationships are CPC rather than CPM and that shift is going faster than we expected to. By and large it's a really positive thing. A lot of work for us to continue to do to make sure that product is doing everything it's supposed to do. But we feel good about the direction..

And our next question comes from Stephen Ju from Credit Suisse. Please go ahead..

So Jeremy or Geoff, can you share with us the differences in the level of activity between your app users and the desktop users? You continue to roll out some of the functions that used to be desktop only into the mobile app.

So I'm just wondering if this is improving engagement overall or whether this improves the rate at which folks are uploading reviews or content. And also just following up on the CPC-based advertisers being 40% now.

What was that number a year ago and what optionality does this open up for you in terms of pricing if at all over the longer-term? Thanks..

All right, Stephen. I'll talk to the activity point. One thing we're quite encouraged by, as users do shift from desktop to mobile, particularly mobile app, we do see much higher engagement. Just as an indicator that we're seeing 65% of searches now are happening on mobile.

We're also seeing more and more content, I think it's about close to 50% of content is now north of 50% of content is coming from mobile and of course a big portion of that, vast majority is coming from the mobile app.

So as that transition happens I think it speaks to really good things happening fundamentally from a content perspective, from a traffic standpoint and ultimately that should lead in to inventory to sell as well. And a little bit more about CPC as well. 40% of advertisers in this past quarter were on CPC. In the previous quarter it was 32%.

While I don't have year ago, I believe in the third quarter of last year it was 24% of advertisers so you could see a pretty rapid sort of step change in that. You asked the question of what could this do in terms of pricing over the long-term or what not. Use your imagination there.

Certainly we do believe that there is opportunity for better price acquisition and what's now in auction based system. So what that should mean in geography categories that are very competitive then prices will go up. And in others where we have unlimited inventory, you could have lower prices and advertises could get a great deal.

That's certainly the goal..

And our next question comes from Brian Nowicki from Morgan Stanley. Please go ahead..

I have two.

Just to go back to the last one, what the CPC model opens up for options, can you talk about how long it would take to roll out a new more optimized pricing structure with maybe lower dollar commitments for some customers to drive faster growth? How long would it take to roll out a new pricing option and pricing tier for your SMBs? And then the second one on the salesforce.

You mentioned the salesforce head count was up 25% year-on-year in the first quarter. I think in the past you said it was going to be up 40% for the year.

Can you help us understand the cadence of the salesforce growth in the year?.

Sure. It's Geoff again. I'll start with the second one first. You're right on those numbers. We’ve said that we intended to grow the salesforce 40% this year. In this first quarter we came in a little lighter than expected. Our net additions were 25% versus that 40% goal.

So our expectation based on hiring pipe lines and everything else we're seeing is that we should be able to get back in the 40% range, starting rather soon and end the year at the 40% type of level. To your other question about how long theoretically would it take to roll out new pricing, on one hand I'd say not long at all.

That's something we can do at any time. Really this is actually already happening today so many parts of our salesforce do have the ability to sell and what we call an entry level product to local business advertisers where they can start with a smaller price if they want to.

Some are starting as low as $100 or $200 [indiscernible] channel and then on a [indiscernible] basis you do also have advertisers who could come in and select at an even lower price point and some are buying a product that's as low as $25 or $50 a month.

That's not typical but it is a product that is available today on a self-serve basis and increasingly available in full service as well..

And our next question comes from Eric Sheridan from UBS. Please go ahead..

To go back to salesforce productivity, how do you guys think about the salesforce productivity you're getting in the international markets versus U.S. markets where you're a little bit better understood as a brand or maybe more widely deployed on people's mobile phones and brand awareness amongst local business advertisers.

Just want to understand what that difference in productivity might be and how that might have changed over the last year. And second question, there has been some news reports around exclusivity with iOS outside the U.S. for Yelp in maps and search going away from the Apple products.

What sort of headwinds if that's true does that create for you going forward? Thanks..

I'll take the first part of the question on productivity. It's fair to say that internationally our salesforce productivity is lower on average than it is in the U.S. Newer markets as you already pointed out, lower brand awareness and newer and more rookie sales teams in general.

So generally few promising signs but starting off small base but it is lower today than in the U.S..

And this is Jeremy. For your question around iOS and Apple maps. We continue to have a great relationship with Apple. The relationship that we had as it began, it was never meant to be exclusive. We never thought it was going to be. It never was.

However, we did have and continue to have the best content in many places around the world and Apple continues to showcase it. I think what they're going for is a level playing field. Something that frankly other folks in this space haven't really strived for. So we're competing on the merits of our content.

If you go in there and look for reviews more often than not virtually all the time you still find Yelp content because it is the strongest out there. We feel good overall about the relationship going forward..

And our next question comes from Blake Harper from Wunderlich Securities. Please go ahead..

Two questions. One in the shift of programmatic with your brand advertising. Can you talk about who - or how you're working with there and if that does impact some of the margins.

You mentioned that was some of the higher margin business and just how would you expect the economics to play out with that shift there?.

We work with a number of partners in that field and we're actually expanding that list as we speak. So there is kind of two pieces of that brand advertising. There is the programmatic side which we've seen fairly large growth in and we’re working with a number of partners to open up our inventory to that.

And then on the other side of their direct sales piece which I think is where we're seeing some of the industry headwinds related to what we have to offer and as well as the lower CPM as we move to programmatic. So those are the two pieces and what we're seeing on the programmatic side is actually pretty encouraging.

We've actually been kind of adding partners to that as we go..

And one more if I could. The Yelp Now product you introduced, if there's anything that's driving either search stuff on mobile for either the directions, calls or platform transactions at all and just see if there has been any change in patterns or behavior there since you've launched that..

This is Jeremy. Talk about the Yelp Now functionalities. So what we're really going for there is to try and create an experience where the consumer is able to transact as quickly and easily as possible. So the areas that we initially focused on have been food delivery and restaurant reservations.

It kind of starts with hey, I want a restaurant reservation and what time, then showing you available inventory from Yelp reservations and SeatMe. And then on the food delivery side we can tap in to all of the different options that are available with Yelp platform. Right now it's not very obvious how to discover it.

There's just a few places you can get in to it. It's still kind of early days and we just launched a feature so we haven't seen a massive impact but I think over time as we tune it and further roll it out we do expect it to have a nice positive impact on transactions..

And our next question comes from Justin Post from Merrill Lynch. Please go ahead..

I was wondering about the Google algorithm changes from a week ago. Have you seen any impact from that? And then looking forward, anything in the pipeline that you think could really help drive traffic to your site? Any big initiatives we should be looking for the rest of the year. Thank you..

Talking about the mobile friendly update that Google announced about a week ago or was supposed to trigger about a week ago.

I think it's still too early to say for sure but the early signs are no massive impact either way and so we're obviously mobile optimized in most places that matter or all places that matter and so we don't expect to see much either way there.

When it comes to traffic I think the thing we're most excited about is the shift to mobile and particularly the strength we're seeing in mobile app. So we have 47% year-over-year growth there and we hope to keep expanding that and see where we end up towards the end of the year..

And our next question comes from Youssef Squali from Cantor Fitzgerald. Please go ahead..

Two quick questions please. So going back to the international monetization question.

Can you remind us how many markets or cities are you in aggregate? How many cities are you monetizing today? And in your oldest city, say London I guess, just where is your productivity there? Where is your monetization levels versus that over the U.S.? And I guess Rob if I look at the cohort's analysis on I think slide number 4, it looks like there has been a pretty substantial deceleration particularly in to most recent cohort 2009-2010 I think it went down to 61% to 100% about two quarters ago.

Just wondering if there's something specific to call out there. Thanks..

So on the international monetization side, first of all we generated about 3% of our revenue internationally. It's up actually about 30% year-over-year in the quarter and if you take out the FX impact it's probably up 57% year-over-year.

We don't necessarily look at it by city, we look at it by country because that's how we internally are thinking about it. When you look at it that way, we're monetizing I think about eight countries outside the U.S.. Sorry, eight countries including the U.S. so seven countries outside the U.S. And we're in about 29 countries or so outside the U.S..

So we're encouraged by what we're doing there. The team actually this year, 57% revenue growth we're pretty pleased with and right now we're trying to scale that. It's a different scaling opportunity given the fact that you can't just like in the U.S., I can hire someone to Chicago or New York to call in to Miami.

Can't necessarily do that because of the language for somebody or France. There's different scaling opportunities. But we're pretty encouraged. As to your question about cohorts, there's a lot of volatility in our cohorts. You can look over the past couple of years and see that.

I think that one of the things to think about is the way we sell is based on revenues so we're actually compensating our sales base on revenue and we're also not assigning them specific cohorts. We're not saying you go after the oldest cohorts and you go after the newest cohorts and all will be good.

It's all based on geography and where the leads are coming from and traffic is good. If you look at our oldest cohort, still growing like 45% year-over-year which for a business that we've been in the market for 10 years and still growing at 45%, still pretty encouraging. And our newest market is growing in the mid 60%.

From our standpoint it gives you a sense of there's a huge market opportunity there and we're encouraged by and think will continue..

And our next question comes from Heath Terry from Goldman Sachs. Please go ahead..

I do want to spend a little more time on international. Maybe first to just understand where your goals are. When you talk about that billion-dollar number in 2017, how much of that do you see as coming from international? I know we've generally been seeing international growth sort of stay around this 2.5%, 3% of revenue level.

So I'm just sort of curious if that's what's implied in that longer term outlook. And then maybe more of a focus than the monetization at the moment was just looking at the international monthly active user numbers that you reported, that didn't grow at all year-over-year.

Wondering what's driving that? Is that still a function of the Google algorithm changes and what the strategy is to reaccelerate growth there..

It's Rob. So in the first part of the international monetization question, we do feel comfortable with a billion-dollar revenue target in 2017. We really haven't said in terms of how much of a percent the international piece would be.

If you assume it stays 3%, then about $30 million, I think it will probably be beyond that at that point but we haven't broken anything out internationally versus domestic. The good news for us is domestic is still growing at a pretty phenomenal rate. I think right now the continued focus on the U.S.

market is something that we love because it's growing so fast and that's where we're hiring most if you look at our sales head count, that's where we're hiring..

And then to the bigger question about international traffic and users and whatnot, I guess taking a step back, why are we in all these international markets? We think the Yelp opportunity for customers to find great local businessicize a global phenomenon and we think it actually makes the Yelp product more useful for American users as well as users all over the world to bring to new markets.

We've been able to do that pretty cost effectively. You asked the question about the traffic standpoint. I think Jeremy touched on this a little bit earlier.

Yes, we believe that's a Google driven phenomenon based on their algorithmic changes last year but the metrics we're really looking at more regularly are the community strength itself, the contributions coming in from international and therefore the utility and usage on the app and all those metrics are quite strong.

We're generally feeling really good about the pattern. The user traffic notwithstanding [Technical Difficulty]..

And the next question comes from Mark May from Citi. Please go ahead..

Sorry, I'm rolling in here a little late. Sorry if you've addressed these already. On Yelp platform, as you've begun to integrate some of the partners that you announced last year, what if any impact are you seeing that have on sales conversion and maybe churn if at all.

And then in terms of your stepped up marketing plans for this year that you talked about last quarter, where are we and sort of you getting all your in-house stuff in order to really start to act on that? And I had one follow-up if I could. Thanks..

Let me try to take the two. First off, Yelp Platform, Jeremy mentioned that's really a consumer focused exercise at this point. We felt great about it. Got a potential to be an interesting part of the business in the out years.

Really not having any impact that I can speak to on either sales or retention standpoint from a local advertising business perspective. It's interesting from a [indiscernible] sometimes we talk about it with the customer but not our main focus. Marketing plans.

Yes, on the last call we mentioned we were intending to spend approximately $30 million on marketing this year. We still intend to do that. Most of that spend will happen in Q3 and Q4. We spent a couple million dollars on marketing in the first quarter. That was a mix of online and a little bit offline activity.

I'm not going to break out the specifics on it. Generally feel good about what we're seeing so far and I think you'll continue to see an evolution there. We'll step it up a little bit more in Q2 and assuming those tests go well, then more in Q3 and Q4..

If I could ask a follow-up, can you give us a sense of how much you're investing in your international operations today? Thank..

So right now, I think in Q1 we invested approximately $10 million for that international group and we generated about $3 million, $3.5 million in revenue..

And your next question comes from Ron Josey from JMP Securities. Please go ahead..

I wanted to go back to the CPCs. I think Jeremy, you mentioned CPC add revenue was coming in faster than expected. But that it's still early on building this out, so I'm wondering what still needs to be built out. And then sort of a bigger question, I know Geoff you mentioned you have a self-service channel now with $25 to $50 minimums.

Why not roll that out faster? Why not build out self-service versus adding salesforce? Thanks..

It's Geoff. I guess I'm happy to take both parts of that question. What still needs to happen from a CPC perspective. Kind of auction based pricing for us is no longer new, we've been doing this for a couple years now.

It's something that obviously there is a lot of expertise out in the marketplace and now with 90,000 advertisers and even more than that in terms of locations, there's just a lot to be done to continue to make sure we're doing the best we can for all our advertisers from the self and full serve perspective.

As to the question about why couldn't we go even faster on self-serve, it's growing quite fast as our full serve channel.

We feel good about our 55% revenue growth overall and I think at the end of the day while we will continue to invest in our self-serve channel, what we continue to find in the marketplace is that local business owners actually want to talk to us on the phone. They want to be handheld through that experience.

Whether they ultimately choose to do some of that work on a self-provisioning basis which we think of as sort of assisted self-serve or from a pure and full self-serve which is of course where we do all the setup for them. These are in many cases not marketing experts.

They're folks out running their businesses every day and they actually want to speak to somebody on the phone who can actually walk them through it..

And our next question comes from Brian Fitzgerald from Jefferies. Please go ahead..

Maybe a follow-up to Ron's question on the CPCs, 40% of local now, where do you think that can go long term and the year, can you remind us -- that has been 100% rolled out to the salesforce? If not, what's the cadence there? And then just one last one.

In terms of your own advertising or marketing formats, to what degree are you using app install ads? Are you increasing that or decreasing that? Are you seeing any pricing elasticity in terms of those? Thanks..

Geoff again. On the first question, 40%, where could that go? In the long-term my suspicion would be that most of our advertisers shift over to a CPC based pricing format for their advertising. What is the timeframe for that? I can't really say, it has shifted faster than we expected and so we don't have a particular target for it in mind.

Over a couple years I wouldn't expect it to be most of advertisers are shifting in that direction but don't know in the short-term. As to the question about ad formats that we're exploring as we purchase advertising elsewhere, there have been a range of both on and offline formats. We have tried app install ads.

There has been quite a bit of price elasticity in there. The good news is we know what we're willing to pay that's profitable for us so we can kind of stick there as prices go up and we just spent less..

Brian, to your question about how much of the spend the CPC product has been rolled out to the salesforce, it's been fully rolled out to the salesforce. We did that early in September of 2014..

And our last question comes from Rob Sanderson from MKM Partners. Please go ahead..

A few questions. Want to start with how much did the brand advertising miss versus your expectations? I'm just trying to reconcile the comment related to the impact on EBITDA which missed your midpoint by almost $4 million and you also missed your hiring expectations.

So I'm just trying to figure out how much of this was really related to brand or other?.

So we would say the majority of the brand advertising drove EBITDA miss, so there was probably a couple million dollars' worth of brand advertising and because it's such a high margin business, it really drove the adjusted EBITDA.

There is obviously a component to local because of the territory change that we made at the beginning of the year which we reverted back to in March, obviously had some impact but when you're talking about what was the majority of the reason for adjusted EBITDA is really the brand advertising but there was other items that affected it..

Okay, got it. And then you mentioned seasonality on Eat24. I assume this means slower summer, bigger holidays. Can you expand on that and how much higher in the Q4 period or some sense of progress through the year would be helpful.

And tying again on the second half acceleration question, I think the salesforce, do you feel the salesforce geography changes behind you.

You're getting a full quarter of Eat24 in Q2 versus the stub in Q1 and your Q2 guidance is 48% to 51% of revenue growth if I'm doing the calculation right but your full year guidance implies back half would be 52 % to 54%.

What should we be thinking about in the second half? How much is seasonality for Eat24 and what other factors including step up and marketing spend? How does that all fit together?.

So couple question s there. So in terms of seasonality for SeatMe, start there. We did about $5 million in the quarter of Q1. If you do -- that was on a stub period basis. If you do it on a full quarter basis, it's about $9 million. You can kind of expect the same in Q2 and that's kind of how we're thinking about it.

We're not going to specific guide individual line items of other brand or locals. At least for Eat24 that's how we're thinking about it. I think it does ramp in the fourth quarter as well as first quarter next year given the seasonality of the business.

But generally speaking at least what we've seen from other competitors and market Q2 and Q3 is a little bit softer than Q4, Q1. In terms of the question about second half acceleration, yes. We believe that salesforce, staff and productivity is behind us.

We've reverted back to the geographic allocation and we saw very strong return in March and continued strength in April. So we think that's behind us and we'll will obviously help drive acceleration throughout the rest of the year. Plus there's a piece CPC that's modeled in here as well.

As our business shifts to CPC, as Geoff was saying, there's a lot of product enhancements if you will that we can do.

We're not optimized right now because of the I would say inventory nature of the business given the fact that it's grown so fast I think there is a lot of opportunity there to help that product along and realize better realization on a bidding platform. So I think that's why we're confident in the business.

And brand I think we entered the quarter, Q2 with a more robust pipeline than we did in Q1 and so there's some confidence behind our brand, expectations for the rest of the year..

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