Yelp Leans on AI as Margins Tighten in 2026

Yelp Inc ((YELP)) has held its Q4 earnings call. Read on for the main highlights of the call.

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Yelp’s latest earnings call carried a mixed but cautiously optimistic tone, as management paired record annual revenue and solid profitability with clear warnings about softening demand in key categories and near‑term margin pressure. Executives leaned heavily into an AI‑driven future, arguing that today’s investments and category headwinds lay the groundwork for stronger, more diversified growth over time.

Steady Full-Year Growth and Record Net Revenue

Yelp reported 2025 net revenue of $1.46 billion, up 4% year over year and the highest in its history. Management framed this modest but steady growth as proof of resilience amid macro softness, emphasizing that revenue expansion came despite clear pressure in several of its legacy advertising categories.

Profitability and EPS Continue to Climb

Net income rose 10% to $146 million, keeping the company at a 10% net margin for the year. Diluted EPS jumped 19% to $2.24, more than quadruple the 2021 level, underscoring how Yelp has turned prior restructuring and efficiency efforts into durable bottom‑line gains for shareholders.

Robust Adjusted EBITDA Supports Investment Capacity

Adjusted EBITDA increased 3% to $369 million in 2025, representing a 25% margin that management highlighted as a key strength. This profitability gives Yelp room to fund AI initiatives and paid traffic acquisition, even as it warns investors to expect some compression in margins during 2026.

Services Advertising Leads the Top Line

Advertising revenue from services categories grew 8% to a record $948 million, with services again doing the heavy lifting for the top line. Average revenue per location reached a new annual high, signaling that Yelp is extracting more value from each paying business even as overall advertiser counts slip.

High-Growth “Other Revenue” Gains Momentum

“Other revenue” – including transactions, subscriptions and data licensing – surged 17% year over year, with fourth‑quarter growth accelerating to roughly 30–33%. Management pointed to this category as a strategic growth engine, less exposed to the cyclicality weighing on traditional advertising spending.

AI and Product Innovation Show Early Traction

The company rolled out more than 55 products and features in 2025, many powered by AI, and highlighted strong adoption metrics from its Request‑A‑Quote tools. RAQ projects grew about 15% excluding paid search, while RAQ submissions via Yelp Assistant soared more than 400% and now represent roughly 5% of all project requests.

Expanding SaaS Footprint with Yelp Host and Hatch

Yelp Host, an AI call‑answering solution for local businesses, has already fielded over 190,000 calls and handled thousands of reservations, showcasing demand for automation tools. The recently closed Hatch acquisition, an AI lead‑management platform that grew ~70% year over year pre‑deal, is expected to accelerate Yelp’s push into SaaS‑style recurring revenue.

Strong Cash Generation and Aggressive Buybacks

Operating cash flow reached $372 million in 2025, while free cash flow hit a record $324 million, underscoring the cash‑rich nature of the model. Yelp returned $292 million via share repurchases last year and has shrunk its fully diluted share count by 22% since 2021, with an additional $500 million buyback now authorized.

Data Licensing Partnerships Monetize First-Party Content

Yelp signed a data licensing agreement with OpenAI and noted rising interest in its content from AI players, positioning itself as a valuable local data supplier. With 330 million reviews, roughly 500 million photos and more than 8 million business listings, management sees a growing monetization runway in licensing.

Content Base Continues to Deepen

Users added 22 million new reviews in 2025, pushing the total to about 330 million and reinforcing Yelp’s moat in first‑party local content. Executives argued that this expanding review base supports both the core marketplace and its emerging data and AI partnerships over the long term.

Restaurants, Retail & Other Face Category Weakness

The Restaurants, Retail & Other segment posted a 6% revenue decline for 2025 to $444 million, with Q4 particularly weak at a 12% year‑over‑year drop to $107 million. Management acknowledged that these categories are under meaningful pressure, citing softer demand from local merchants and more cautious ad spending.

Fourth-Quarter Softness Tempers the Full-Year Story

Fourth‑quarter net revenue slipped 1% year over year to $360 million, breaking the growth trend seen earlier in the year. Net income fell 10% to $38 million and adjusted EBITDA dropped 15% to $86 million, with management pointing to category‑level weakness and ad engagement declines as key drivers.

Advertiser Count and Ad Engagement Under Strain

Total paying advertising locations shrank 3% for the year and 5% in Q4 to 496,000, showing that some businesses are stepping back from paid placements. Ad clicks fell 7% even as average cost per click rose 10%, reflecting a mix shift toward higher‑value or more targeted inventory but also revealing softer user ad engagement.

Services Demand Decelerates Into Year-End

Despite full‑year strength, management noted that services demand weakened as 2025 progressed and revenue growth in the segment decelerated in Q4. This slowdown, layered on top of existing RR&O pressure, creates a near‑term drag on growth momentum even as Yelp pushes into new products and AI.

Higher Investment to Squeeze Margins Near Term

The company warned that adjusted EBITDA will fall to $310–$330 million in 2026 from $369 million in 2025, driven by stepped‑up AI, Hatch and paid traffic spending. While this implies margin compression versus the 25% level achieved last year, management framed the move as a deliberate investment cycle to reposition Yelp for the next leg of growth.

Small Dip in User Engagement

App unique devices slipped about 2% year over year, a modest decline that executives linked partly to consumers visiting restaurants less frequently. While not a dramatic erosion, the trend underscores the importance of AI features and better consumer tools to re‑energize engagement on the platform.

Guidance Points to Flat Revenue and Lower Margins

For Q1 2026, Yelp guided revenue to $350–$355 million and adjusted EBITDA to $58–$63 million, signaling a soft start to the year. Full‑year 2026 revenue is expected at $1.455–$1.475 billion, roughly flat with 2025, while EBITDA is set to decline, even as management reiterates plans for disciplined headcount, reduced stock‑based compensation and continued buybacks.

Yelp’s earnings call painted a picture of a profitable, cash‑generative platform leaning aggressively into AI while navigating real pressure in restaurants, retail and ad engagement. For investors, the trade‑off is clear: near‑term growth and margins will be constrained, but management is betting that today’s product and data investments will unlock a more diversified, AI‑driven growth story over time.

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