Ronald Clark - Yelp, Inc. Jeremy Stoppelman - Yelp, Inc. Charles C. Baker - Yelp, Inc. Jed Nachman - Yelp, Inc..

Mark Mahaney - RBC Capital Markets LLC Matthew C. Thornton - SunTrust Robinson Humphrey, Inc. Cory A. Carpenter - JPMorgan Securities LLC Rob J. Sanderson - MKM Partners LLC Chris Kuntarich - Deutsche Bank Securities, Inc. Stan Velikov - Jefferies LLC Mark A. May - Citigroup Global Markets, Inc. Alec Brondolo - Oppenheimer & Co., Inc.

(Broker) Youssef Squali - Cantor Fitzgerald Securities Heath Terry - Goldman Sachs & Co. Justin Post - Bank of America Merrill Lynch. Brian Nowak - Morgan Stanley & Co. LLC Samuel James Kemp - Piper Jaffray & Co..

Good day, ladies and gentlemen, and welcome to the Yelp, Inc. Q4 2016 Earnings Conference Call. As a reminder, this conference call is being recorded. I'd like to introduce your host for today's conference, Mr. Ron Clark, Head of Investor Relations. Sir, please begin..

Good afternoon, everyone, and thanks for joining us on Yelp's fourth quarter and year-end 2016 earnings conference call. Joining me today on the call are CEO, Jeremy Stoppelman, and CFO, Lanny Baker. Our Chief Operating Officer, Jed Nachman, will also join us for Q&A. Before we begin, I'll read our Safe Harbor statement.

We'll 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 revision to these forward-looking statements in light of new information or future events.

In addition, we are 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'll discuss adjusted EBITDA and adjusted EBITDA margin, which are non-GAAP financial measures.

In our press release issued this afternoon and our filings with the SEC, each of which are posted on our website, you'll find additional disclosures regarding these non-GAAP financial measures, as well as a reconciliation of GAAP net income to adjusted EBITDA and GAAP profit margin to adjusted EBITDA margin.

And with that, I'll turn the call over to Jeremy..

Thanks, Ron, and welcome, everyone. Our strong 2016 results reflect the successful execution of our priorities for the year. We grew local revenue 39% compared to 2015 by driving strong productivity in our local SMB business, while also expanding our go-to-market strategy.

We unlocked significant potential in the self-serve channel, doubling revenue with better marketing and improved merchandising. International and multi-location business tailored ad solutions and sales force growth drove client spending higher. We also made excellent progress in building our transactions capabilities.

The number of Yelp Eat24 orders, Yelp Platform transactions and Yelp Reservations bookings grew 40% in 2016 and transactions per user increased by more than one-third. Across Yelp, we expanded the number of transaction-enabled businesses and categories and improved conversion through efforts such as streamlining the checkout process.

With the integration of Nowait, we also added the ability for consumers to remotely join waitlists at approximately 3,600 restaurants. We were particularly excited to facilitate more than 4.5 million consumer inquiries through Request-A-Quote in its first full year.

Increasing awareness and engagement was another important goal for 2016 and we saw great results. Our ad campaigns drove awareness and familiarity to their highest levels and reached over 200 million consumers on television and online.

On the product side, servicing the best content and providing actionable suggestions and reminders contributed to a more engaging user experience.

Our ad campaign and focus on product helped propel Yelp into the top 30 in Apples app store by the end of the year, with app unique devices up 25% and page use per user growing approximately 20% compared to 2015.

Executing well on these priorities sets Yelp up for continued growth in 2017 and we're excited about the potential we see in the year ahead. Local advertising dollars continue to shift online at a fast pace.

In fact, a recent BIA/Kelsey report forecasted within the next two years local ad spending in digital media will surpass local print media for the first time. To capture more of this large opportunity, we are focusing on three priorities for 2017; driving usage and engagement, increasing transaction activity and broadening our sales strategy.

To drive usage and engagement, we plan to invest in product and performance advertising. Coming into the year, we've started allocating a greater proportion of our advertising budget to direct marketing with the objectives of increasing app usage, spurring transaction volumes and attracting new business customers to Yelp.

With mobile users already generating the majority of new content and ad clicks, driving mobile activity should also increase the value of Yelp to consumers and businesses. To do so, we are focusing on in-app messaging to bring consumers closer together with businesses.

We're also providing app users with refined search options and adding social features that better facilitate sharing. Growing transaction activity remains a top strategic objective this year. A recent Nielsen study indicates Yelp is the review site consumers use most often to find great local businesses in over a dozen large categories.

To get more of these consumers to take the natural next step and transact directly with the business they discover on Yelp, we plan to further embed transactions functionality throughout the user experience. As I mentioned a moment ago, we're testing performance marketing to promote awareness around our transactions capabilities.

Since the start of 2017, we've begun to extend Request-A-Quote to logged out traffic, providing millions more users with the seamless ability to connect with the merchants and service providers they're looking for.

While we are still in the experimental stages of Request-A-Quote monetization, we're learning quickly about consumer needs and business center preferences. Finally, we're broadening our sales strategy to tap into more of the revenue opportunity from existing customers, new advertisers and new products.

In 2016, our efforts around self-serve and national helped drive revenue growth, while improving the efficiency of our model, and we're pursuing a number of initiatives to continue to drive profitable long-term growth. For years, we provided our national and multi-location advertisers with client partners.

We now have client partners serving our large and growing base of local SMB advertisers, helping them get better results. To provide large and medium-sized advertisers with greater access to Yelp ads, we've started to work with select agencies and resellers.

Lastly, we are piloting new products for national and multi-location advertisers to improve their ad targeting. I'm extremely proud of what our employees have accomplished, not just in 2016, but over the nearly 13 years since our founding. When we went public in 2012, one of our goals was to achieve ubiquity and we made great progress.

From being featured in segments on The Tonight Show and Ellen, to powering local search in Apple's iOS, to being used as a verb in everyday conversation, consumers have come to know and rely upon Yelp. As a leader in local search and with the trust we have established along the way, we have a tremendous opportunity in front of us.

We believe expanding Yelp's reach and creating deeper connections between consumers and business centers will help us capture even more of that opportunity in the years to come. With that, I'll turn it over to Lanny to take you through the numbers..

advertising, transactions and other. The advertising category includes revenue from local businesses, agencies and partners who are purchasing or reselling the core marketing services provided by Yelp. We expect advertising revenue to grow in the mid-20% range in 2017.

The transaction category includes revenue arising from local purchases that are supported and enabled by Yelp. Eat24 accounts for the majority of this revenue today, with the remainder originating from products like Yelp Deals and from transactions flowing through the Yelp Platform to partners.

We expect transaction revenue to grow at or below the overall company growth rate in 2017. Other revenue is a bit of a catchall and includes subscription fees for products like Yelp Reservations, licensing payments for access to Yelp data and other non-advertising, non-transaction services.

This line was only $5 million in 2016 and we expect it to grow by a few million in 2017. Based on our current revenue outlook and planned investment activity for 2017, our outlook for adjusted EBITDA for the year is in the range of $150 million to $165 million.

At the midpoint of that range, our outlook anticipates adjusted EBITDA growth of just over 30% in 2017. I think it might be helpful to add a little more color on our expense and investment plans for 2017. First, we expect cost of revenue to remain in the high-single digits as a percentage of revenue, consistent with 2016 and with our long-term model.

Next, we expect sales and marketing expenses to grow in line or slightly faster than revenue in 2017, reflecting continued investment in our local and national sales teams and expansion of account management.

Also within this line, we're planning for important marketing initiatives intended to drive self-serve, elevate performance marketing and promote the Yelp app. We plan to shift the marketing mix toward performance-oriented programs in 2017, while modestly reducing the total amount invested in branding.

Product and development spending is expected to grow significantly in 2017, though at a slower year-over-year rate than in 2016. We're investing in mobile, transactions and increasing the activity across Yelp. General and administrative expenses are expected to grow at a double digit rate in 2017.

However, we expect G&A expense to decline relative to revenue again this year. Depreciation and amortization expenses are expected to be between 4.5% and 5% of revenue for 2017. Stock-based compensation expense is expected to be $110 million to $112 million for 2017.

Finally, we expect the full-year share count to be in the range of 86 million to 88 million on a diluted basis for 2017. As indicated in our press release, our current outlook for first quarter 2017 revenue is a range of $195 million to $199 million, an increase of 25% year-to-year at the midpoint.

Adjusted EBITDA is expected to be $25 million to $28 million for the first quarter, up from $13 million in the first quarter of 2016. In conclusion, we're excited about how the company's positioned as 2017 starts.

Last year's achievements not only strengthened our product, brand and business model, they also opened the door to new areas of investment and growth. We're encouraged by opportunities we see in places like performance marketing, transactions, account management and our newer sales channels.

We look forward to pursuing these priorities in 2017 as we continue on our mission of connecting consumers to great local businesses. Let's now open up the call for your questions..

Thank you. Our first question is from Mark Mahaney of RBC Capital Markets. Your line is open..

Okay.

Just one question then on the – in terms of the margin guidance for 2017, would you say there's anything structurally changed in the business or are these mostly elective investments, particularly in product development? And I guess what I'm trying to tease out is, as some of the other areas really build out transactions, for example, does that have a sustainably dilutive impact on the profitability margins of the business? Thank you..

Sure, Mark. I don't think there's anything structurally changing in the business. We had kind of a 30% plus incremental profitability in 2016, which I think is the best in four, five years for the company. And you saw in the second half the incremental profitability north of 50%, even while the revenue has grown pretty well.

So, we were in a year in which we were increasing our brand spend in 2016, a year in which we were walking away from brand advertising revenue dollars and showed that kind of leverage. And I think that's inherent and unchanged in the model.

But when we turn and we look at the opportunity ahead of Yelp, $700 million of revenue is sizeable, but we're still pretty small in terms of long-term opportunity, we believe. We've got 138,000 advertisers in a market that is 20 million local businesses. And I'd point out 3.4 million claims businesses on Yelp.

So we've got a strong brand, we've got a great product experience for consumers and businesses, and we think it makes sense to continue to invest in that.

So, we're making elective decisions to invest in our product, in our marketing, particularly around performance marketing, and in our sales channels with the goals of driving users, businesses, and new ways to make money.

So, I think the trade-off of maybe another few margin points we might otherwise deliver this year is for more revenue growth in the long term rather than any kind of structural thing..

Okay. Thank you, Lanny..

Thank you. Our next question is from Matthew Thornton of SunTrust. Your line is open..

Yes, hey. Good afternoon, guys. Thanks for taking the question. I was hoping to get maybe an update on the Request-A-Quote initiative. I think you guys did 1.2 million inbounds last quarter, if I'm not mistaken. I'm kind of curious how that tracked in the fourth quarter.

And then as we look out to 2017, I'm just wondering if the guidance kind of embeds any Request-A-Quote type revenue or how you're thinking about the kind of monetization timeline going forward there? Any color would be very helpful. Thank you..

This is Jeremy. I can take the first half and maybe, Lanny, you can touch on the second half of the question here. But Request-A-Quote continues to be a new and robust and exciting offering. In the year we did north of 4 million messages from consumers to business owners and so we're looking forward to seeing even more momentum carrying into 2017.

On the monetization side, we're still in the experimental phases right now, we're taking about half of traffic and that is becoming monetized. We're doing some ad experimentation there, and so we'll keep you apprised on our progress. It's still early days, but we're seeing promising signs..

From a business outlook perspective, there have been some attempts to sort of quantify a specific dollar amount of the incremental product revenue stream from Request-A-Quote and we're not yet at the stage where we're fully baked on what the exact monetization by category, by advertiser type, national versus local is going to be around this product experience.

And so we're not quite yet thinking about it at that level. I mean, there's a bit of revenue coming from Request-A-Quote for sure, but it's not sort of as a discrete standalone line item at this time..

Thank you. Our next question is from Douglas Anmuth of JPMorgan. Your line is open..

Hi. This is Cory Carpenter on for Doug Anmuth. Thanks for the question.

Maybe as we think about the 2017 revenue guide of $150 million to $165 million, could you help us frame just some of the factors that could drive the outcome maybe either to the lower end or the higher end of the range there? And maybe as a follow-up, sales count said – sorry, sales head count dipped down last quarter I think for the first time in a while.

Could you just help us frame how you're thinking about that growing next year in the context of the guide? Thank you..

Sure.

Let me give you a little context around the EBITDA, I think, because you said revenue, but you referenced numbers that are EBITDA, which were you more curious about, revenue or?.

Sorry. I mean EBITDA, yes..

Well, I think one of the big levers is we're going to make some shifts in our marketing spending to elevate performance marketing and we're – it's something we've been doing a bit of at Yelp, but it has been the minority of the dollars that we've spent historically and our hope is to have performance marketing be the majority of our spending in the coming year.

And as we do that, the goal there is very much to drive users into transactable flows, it's to drive users into our most valuable product experiences and there can be over time flywheels developing around that performance marketing.

We're building on capabilities that we have at this point, so there isn't a high expectation from us about the performance – sort of the return on those performance dollars. We're committed to building that capability within our marketing arsenal, and over time, I think we'll see the revenue return build from that investment..

And hi, Cory. This is Jed. In terms of the head count, I think in the beginning of the year, we had called for kind of 20% to 30% head count growth across the year and ended up coming in quarter-over-quarter around 11%.

A couple of factors to consider there that did not include the international shutdown on the sales and marketing side and so that certainly contributed to portions of the shortfall. And then we did a lot of shifting from our accounting executive position over to our local client partner position.

And those were, in fact, shelling heads and contribute to kind of production. If you kind of factor those two together, we are more in the range of that 20% that we had indicated. In terms of our hiring and retention right now, feeling really strong about that right now going into the new year. That being said, it's a trend that I think will continue.

We are decoupling a little bit from kind of head count growth and our ability to drive revenue.

And you look at some of those initiatives, certainly self-serve is not dependent on that head count growth, both our LCP team and our national client partner team, and then we're doing some exploration around kind of the reseller channel and the agency channel as well.

And so, while head count certainly will be important to grow and we expect that to kind of move in the double digit zone over 2017, you're also going to continue to kind of see that decoupling over time..

Great. Thank you..

Thank you. Our next question's from Rob Sanderson of MKM Partners. Your line is open..

Yes, thank you. I'd like to ask a question about the local active accounts. It's a metric that – reporting metric that a lot of people focus on, I think impersonally it's losing a little bit of meaning as you have different vectors at the national account level versus the lower self-service level.

But how should we be thinking about that metric going forward, as you are sort of pushing agendas that sort of either end of that spectrum of account type? And then second part, the international, the shutdown of marketing sales efforts internationally, how many of that affected the local active account metric this quarter? Thank you..

I can take that one, Rob. This is Jed. So on the local account side, certainly, we are happy with the revenue side of the equation in Q4. You look at things like an accelerating national business, self-serve being up 100% year-over-year.

If I were to point to a weakness and a slowness, it's potentially around kind of the local sales force in the fourth quarter and particularly – it was a modest slowdown that, quite frankly, we think the election and a period around the election both from an output and productivity perspective from the sales force and that kind of bled into vacation time.

It's not something we're super concerned about kind of coming into 2017 and feel like the fundamentals are in place and really strong. And then there's some other factors that contribute to that as well. Certainly, national and self-serve have different dynamics as it relates to local advertising accounts..

And I think from a – international advertisers were probably in the neighborhood of 400 or 500. That's a pretty small portion of the business. Remember, international revenue is about 1% of the total. We did, I think, about $2 million of revenue from international in the fourth quarter and that gives you scaling of the advertiser base there..

Just as a follow-on, if I could, is it wrong to think about your success in the self-serve channel as being potentially a meaningful driver of that metric or is that something we should be looking to, to gauge success in the self-serve portion of the business?.

Yes, it is. I mean you made an interesting point to start, which is this metric is, as the business evolves, we're continually evaluating the metrics that we have. We do see, I would say the majority of our self-serve customers actually wind up looking pretty similar in their behavior to our rep sold customers.

They come in differently, obviously, but they tend to buy Yelp and stay with Yelp.

There is a little bit more of a pattern in the self-serve channel of, what I'd call, kind of an episodic or seasonal buyer, where somebody will come in for a month or two and then they'll be out off not advertising and then their season comes back around Valentine's Day or tax day or summertime, whatever it may be.

So there's a little bit more sort of transactional velocity in the local advertiser account on the self-serve side, but I don't think it's big enough at this point to really merit a change. But you're right. It's coming..

Okay. Thank you, Jed. Thank you, Lanny..

Thank you. Our next question is from Lloyd Walmsley of Deutsche Bank. Your line is open..

Hey, guys. This is Chris Kuntarich on for Lloyd today.

If we could go back to the Request-A-Quote tool and from a categories perspective, as you guys roll out the Request-A-Quote tool to more categories, are you seeing any sort of interesting trends, positive, negative, around user engagement with the product? And then from more of a product development perspective, have there been any recent product enhancements to the Request-A-Quote module within existing categories that have driven higher engagement?.

Sure. Hi, Chris. This is Jeremy. So we did spend some time last year working on category expansion for Request-A-Quote and we have seen success there and some of the increase in volume has come from that effort.

I think there's still probably categories out there that might need to be enabled and haven't been, but for the most part I think we're now covering a wide variety, and that's really exciting.

That's one of the most powerful things about the feature is, it was relatively simple to build, we turn it on and then both customers can flow in and it can really impact businesses across the entire spectrum of Yelp.

And then your second question was around product features that would drive engagement in Request-A-Quote and one of the newer ones that we just started rolling out was being able to communicate by attaching photos and potentially documents like PDFs and invoices and so forth.

And so that's just started rolling and so far we're seeing some uptake in that. And we think that's really great. We want the conversation to happen on Yelp and ultimately we'd love to have calendar appointments drop on and transactions potentially happen.

So there's a lot that we can do with this messaging functionality to take it much deeper with business owners and consumers..

Great. And, hey, if could just follow-up more on some of your older cohorts that are using the Request-A-Quote tool.

Have you seen trends as far as from a repeat basis? Are they using it across more in different categories or are some of the users just not coming back altogether?.

I don't have hard numbers in front of me for that, but from what I remember, definitely user satisfaction is high. The response rate on a typical Request-A-Quote is very high, and the speed of response is very high because we created centers for business owners, specifically around showcasing the response time.

So there is an element of encouraging business owners to be very responsive and that results in a more positive consumer experience..

Great. Thanks, guys..

Thank you. Our next question is from Brian Fitzgerald of Jefferies. Your line is open..

Hi. Good afternoon. This is Stan Velikov for Brian. Thank you for taking my question. We're seeing that the repeat rate keeps increasing.

Actually it looks like it hit an all-time high, but still from those local advertisers that do not finish their relationship with Yelp, what do you hear as the most common reason for that?.

I can take that one on the repeat rate. Obviously, repeat rate is a mix of folks who have advertised with us in the past and that's at an all-time high right now, and while we're really encouraged by our kind of strong, embedded client base and that's a really kind of healthy number to understand that those folks are coming back.

You know it's a double-edged sword because we also think that making sure that we get enough new clients into the pipeline is a really important initiative for the company. And so we're not alarmed in any way about kind of where we are in the repeat rate side, but you'd love to see, again, adding the number of local advertising accounts.

Even if we were up in the 7,000, 8,000, 10,000 range, based on the opportunity that we actually have in this marketplace with millions of businesses that have claimed their presence on Yelp, we think we're still in the very early stages and we've got to look at both sides of the coin here, making sure that we're driving new business and taking advantage of kind of the existing client base that has very nice trends behind it..

And I think from stuff that we've seen in terms of advertiser sentiment about Yelp products, it's funny. The reason that people stay with us for three and four and five years is the same reason that another advertiser might decide to stay with us for three or four or five weeks.

And that is, they all ask the question of, am I seeing a return on the advertising? And we've got 80% of them who are saying I'm repeating because I see the value and we've got another chunk who we haven't yet documented well enough for them the value of Yelp advertising. And we're working on that from a product perspective all the time..

Got it. Thank you..

Thank you. Our next question is from Mark May of Citi. Your line is open..

Hello?.

Hello..

Hi. Thanks. Couple of questions. Sorry if these were already addressed. I know that you're winding down, I believe, some of your international operations. Can you give us a sense of how much of that is going to benefit your EBITDA or earnings this year? And then just a question on local ad business.

Can you update us on the rough mix of revenue in local advertising between kind of more recurring subscription and more variable kind of CPC based advertising and how you expect that mix to evolve this year? Thanks..

Sure. I think on the former question of international, as we said, it's about 1% of revenue in 2016 and we expect that to trail off pretty quickly in 2017.

Our net EBITDA loss in international in 2016 was in the high-teens millions of dollars and those – sort of the difference between that revenue and those losses overseas are investment dollars that we plan to put into product, into sales and into marketing.

And really one of the sort of push factors for us in making the decision on international was feeling a growing number of opportunities to invest domestically and comparing that to the appeal of continuing to invest in international at this time, and we decided to shift those resources to what we think are more urgent, promising and lucrative opportunities here domestically.

In terms of the revenue mix of recurring subscription versus CPC, the way we are delivering advertising services today is almost entirely on a CPC basis.

There are perhaps a very small number of old legacy CPM type advertising relationships out there, but nothing new is being sold that way and sort of the entirety of our revenue model is an advertiser provides a budget that they're willing to invest with Yelp, and as we deliver clicks against that budget, we recognize that revenue on a CPC basis..

Thank you. Our next question is from Jason Helfstein of Oppenheimer. Your line is open..

Hi. This is Alec filling in for Jason. Thanks for the question. From a big picture perspective, you guys are in Request-A-Quote, you're in transactions, advertising, self-service. Do you think at some point you become more of a full back-end enterprise tool for small businesses? And then I have a follow-up..

Hi, Alec. I can take this.

I think certainly as we deepen our relationship with local businesses, there'll be an opportunity for us to provide more and more kind of the back end, but I think this is still the early days, so that it might be truly long-term vision of 5 year or 10 year horizon before we get that – all of the systems required to really feel like, wow, we're able to power the entire platform of a local business.

Right now, we're just focused on what are the touch points where we can really provide value. And so on the consumer side, we've got Request-A-Quote because those users are doing searches and they want more information.

We've got transactions because they've found the business that they want to order from, and they want to just tap into the menu right there. And then we've got ads for business owners that want to amplify the word of mouth that's already on Yelp.

So we're really trying to reach out to the needs of both our consumers and business owners with the assets that we've got today. But I think in a 10-year horizon, yes, I think that's the natural direction..

Okay.

And then, I guess, on a bit of an unrelated note, as you look to spend against app downloads at unique devices, do you find that it costs more today than it does a year ago to drive an incremental download? And how's your outlook on that for 2017?.

I don't think we're seeing any negative trends there, meaning, I don't think app downloads are getting more expensive. If anything, we're developing the muscle required to be more efficient there. And in addition to that, the vast majority of downloads of the app that we're getting are organically driven.

And so through our large mobile web footprint, for example, also there's desktop traffic where we have a chance to convince you to go and download that app. And then, our relationship with iOS and Apple also drives downloads. So, we feel like there's a lot of different levers there for us to tune to keep app growth nice and healthy..

Okay. Thank you..

Thank you. Our next question is from Youssef Squali of Cantor Fitzgerald. Your line is open..

Okay. Thanks. Hey, guys. Two questions, or well I guess they're somewhat related.

I guess given that the local ad account metric may start losing some of its meaning over time, can you just help us maybe quantify the contribution of the national accounts into self-serve initiatives through the quarter, either in terms of contribution to growth or contribution in dollars? And how big can these businesses grow over time? Is it realistic to assume that they may actually account for the bulk of the business over time, obviously, in the next couple years? And just to clarify something here.

On the metrics data sheet, can you just talk about the app unique devices? Why were they down? And I think even the mobile web unique visitors were also done. Maybe you can touch on those. Thanks..

Sure. Let me talk first about those two sales channels. And from a source of growth in terms of dollars, the majority of the dollar growth is still very much coming from our sort of wheelhouse engine that is our local sales team. And we think there is a lot of track ahead of that team to continue to penetrate the marketplace.

But right now, the national and the self-serve are contributing a greater percentage of revenue in the fourth quarter than they ever have before. And when we look at the – self-serve's interesting one. Self-serve contribution year-over-year in terms of its role in the revenue is it's almost twice as big of a revenue contributor year-over-year.

And in terms of its contribution to the growth, it's still significantly bigger in terms of its contribution to the growth than it is to the base. So I think all of those trends say to us that self-serve in national have the opportunity and the momentum to continue to be more of our mix going forward. And we have and it's not just happenstance.

That's the function of investment and plans and product and marketing work and sales work that we're doing to drive those that sort of layer on top of that the main line part of the business, which is our local team. So I think in the future, it will continue to grow. How far it goes really remains to be seen.

There's an awful lot of this local market that we have not yet penetrated. These two vehicles are helping us find new parts of the market and address it better and more quickly and more efficiently.

And I look at some of the competitors out there, other companies, whether it's some of the people that I'm familiar with in the vacation rental marketplace or the recruitment marketplace or where LinkedIn got to. And I think there's still a lot of upside for us for these two channels..

And on the second part of your question around app uniques and the sequential growth pattern there, what we typically see is towards the end of the year there's a seasonal affect, and so earlier in the year's generally where we peak out as far as traffic. And so that's something we've seen virtually every year.

Overall, up 20% year-over-year, we feel good about that. Page views follow similarly with 20% year-over-year. Transactions similarly. And one of the things we're most encouraged by, we broke in the last quarter top 30 most downloaded apps in the iTunes store. And so we're doing quite well with our rankings there.

So we feel great about how app downloads are going and we'll see how it goes in 2017..

Thanks, Jeremy..

Sure..

Thank you. Our next question is from Heath Terry of Goldman Sachs. Your line is open..

Great. Thanks. I was wondering if you could just give us a sense of what kind of pricing you're seeing on the self-serve channel as it matures, to the extent that you're seeing more adoption around self-serve and just CPC in general. How competitive the ad environment is among your base..

Yes. I can take that one, Heath. This is Jed. So, we've been really encouraged on kind of the spending habits within the self-serve channel. In fact, we're really approaching parody with our full-serve programs, when you look at kind of the ad budgets that are getting put forward through the self-serve channel.

And in fact, we think we have a lot of room to grow there. When you look at some of the things that we're doing, certainly better merchandising, better experience for that self-serve advertiser when they're provisioning and continue to be clients with us.

We moved from the monthly to daily budgeting and on the merchandising side, we continue to optimize on all of the flows.

I think when we look at self-serve today, we're still in the early innings of kind of conversion and making sure that we're taking that $3 million business pool of claim businesses and making sure that they're getting the proper exposure to what we can offer on the self-serve side.

So we're certainly going to put some efforts around product, as well as on the marketing side towards converting, first of all, more folks into claim businesses and more of those claimed businesses into paying advertisers. So, overall really happy with the trends there..

Great. Thanks very much..

Thank you. Our next question's from Justin Post of Bank of America. Your line is open..

Great.

I apologize if you've already talked about this, but last year was a nice driver of margin improvement across a lot of areas and I was just thinking out maybe two or three years, where do you see the opportunities there? Can you still grow like you have been? And is that really driving the new sales areas that maybe have lower sales intensity? And then, on the Request-A-Quote side, we've seen some ads around those pages, but have you discussed at all how you're thinking about monetizing all that activity? Thank you..

We talked about just a little bit a few minutes ago, so I'll be kind of brief. I think that the margin leverage that we saw last year I think gives you a really good representation of sort of the inherent earnings power of the business. And it also gives us, in thinking about the long-term, a great pool of resources to continue to invest.

So I think we had a year in which 30% of the revenue went down to the bottom line. We had a second half of the year in which 50% of the revenue went down to the bottom line.

So, our long-term prospects for profitability at Yelp are outstanding and we turn and we look at the opportunity ahead of us and think it just makes all the sense in the world to continue to invest in our product, our marketing and our sales to get after that..

And on the Request-A-Quote monetization side, yeah, the first step that we took was the one that was essentially the low-hanging fruit, which is considering Request-A-Quote after you submit your initial request to a business, you land on a page and there's essentially an opportunity to provide inventory, which is the other businesses that might receive that quote.

And so that's how we're thinking about pricing it and so it's very similar to advertising in how we would bill and it allows us to turn on Request-A-Quote as a product for our thousands of advertisers. We may approach it differently and sell it in other ways in the future, but this is kind of our first stab and was the easiest to do.

So we're running that test at about 50% right now and we're still evaluating the performance..

Thank you. Our next question is from Brian Nowak of Morgan Stanley. Your line is open..

Thanks for taking my questions. I have two. The first one, just to go back to Request-A-Quote in the 2017 outlook.

Could you just talk to kind of the blocking and tackling or any of the investments that are needed for Request-A-Quote throughout this year? Is that a material part of the overall investment this year? And what are the main steps that still have to be put into place to scale that? And then secondly, some of the other leaders in the sector have talked about GAAP earnings and treating stock-based comp as a real expense.

I guess, Lanny, I'd be curious to hear about kind of how you think about stock-based comp and just potential processes that you could put in place to maybe manage stock-based comp. Thanks..

So, on the first question, this is Jeremy, for Request-A-Quote. You know it is an area of investment for us, but we have quite a large engineering team and so I wouldn't say it's a massive investment. I think the things that we have to do are relatively straightforward.

The initial product was fairly simple, a bare bones, minimum viable product, messaging back and forth between consumers and businesses. And so we've started really beefing that up in ways that are pretty obvious, things like being able to attach invoices, documents, photos, when a consumer and a business are messaging back and forth.

There's a whole bunch of messaging infrastructure we'd like to build to bring it up to par with something like you would find on an iOS messaging experience for instance, delivery receipts, et cetera. So there's a whole laundry list of exciting features in the pipeline that we'll get to.

From a scaling up standpoint, we continue to see really healthy usage trends there. There's also new things that we're able to turn on that we haven't before, things like even if the consumer doesn't have a registered Yelp account, they can still submit a Request-A-Quote, and so we'll see the impact of those in the quarters to come..

And from a GAAP earnings perspective, we're not shy about that. We had $0.10 of positive GAAP net income in the fourth quarter and that includes a restructuring charge that's a one-time event within that. So, Yelp has GAAP earnings power, no doubt about it. Now, the stock comp question's a little bit different.

We are competing for talent in a part of the economy in which equity compensation is very, very important to be able to attract and retain the best talent that we can have to help us grow this business. And so I think that's going to continue to be a element of our overall compensation package.

Now, as companies grow and they go through transitions in their development, maybe there are periods where equity comps earlier on is really, really important as you become sort of more solidly and reliably cash generative as the company has, you have a lot of other options from a compensation perspective.

And those are all open to us today, and we're thinking about those. And I think as we think about the value of Yelp to our shareholders, it probably at the end of the day comes down to some free cash flow per share kind of calculation as the real bedrock of driving value. That grew, run your own calculations, define your own free cash flow.

It grew up really handsomely over the last year and the last two years. And so we'll continue to evaluate that as investor and analyst preferences move from one metric to another, we'll make sure that our financials are readily readable for you in the way that people want to consume and evaluate companies..

Great. Thanks..

Thank you. Our last question comes from Sam Kemp from Piper Jaffray. Your line is open..

All right. Thanks, guys. So we have heard a lot from some pretty large tech companies in terms of the importance of voice and messenger and consumer interactions in the future, and I was just wondering if you could detail your strategy around that and how you plan to address that shifting funnel.

Then secondly on Eat24 market, can you go into a little bit more depth what you mean by marketing? Is it going to be performance based marketing, and if so, how are you thinking about the returns of that vertical? Thanks..

Hi, Sam. I'll take the first part of that question around voice. We do find it to be a compelling way to interact potentially with Yelp content. Right now the usage on mobile's a little bit limited, but it is baked into things like Siri.

And so if you ask Siri for anything having to do with local, certainly domestically, you're very likely to get a Yelp answer. Also, Amazon, as I'm sure you're aware, has a big hit on its hand with their Alexa and they chose Yelp content to respond to all the local queries to come in. So we feel good about our initial position there.

We're obviously very interested in the space and we'll continue to see where we can play roles. But for right now for all of the obvious places where our content should show up, it is showing up..

Yes. And from Eat24 for the marketing plans there, yes, the performance marketing is very much part of our mix there. The Eat24 has also historically been pretty successful with sort of outdoor and brand advertising sort of non-performance stuff.

We've been working with that throughout the year, and I think as we look into 2017, probably the growth area for us at Eat24 will be performance marketing.

And the return characteristics of that business, there's usually a pretty fast payback on customer acquisition in terms of that initial order comes in and returns quite a bit of what the initial outlay is. And then the repeat orders are where the economics get very, very attractive..

Great. Thanks..

Thank you. Ladies and gentlemen, that concludes today's Yelp conference call. You may all now disconnect. Everyone have a great day..