YELP Q2 Deep Dive: AI Product Expansion and Macroeconomic Challenges Shape Outlook

August 12, 2025 at 03:25 AM EDT

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Local business platform Yelp (NYSE: YELP) reported revenue ahead of Wall Street’s expectations in Q2 CY2025, with sales up 3.7% year on year to $370.4 million. The company expects the full year’s revenue to be around $1.47 billion, close to analysts’ estimates. Its non-GAAP profit of $1.07 per share was 21.6% above analysts’ consensus estimates.

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Yelp (YELP) Q2 CY2025 Highlights:

Revenue: $370.4 million vs analyst estimates of $365.4 million (3.7% year-on-year growth, 1.4% beat)
Adjusted EPS: $1.07 vs analyst estimates of $0.88 (21.6% beat)
Adjusted EBITDA: $100.5 million vs analyst estimates of $87.55 million (27.1% margin, 14.8% beat)
The company reconfirmed its revenue guidance for the full year of $1.47 billion at the midpoint
EBITDA guidance for the full year is $355 million at the midpoint, below analyst estimates of $359.3 million
Operating Margin: 14.4%, up from 11.1% in the same quarter last year
Market Capitalization: $1.92 billion

StockStory’s Take

Yelp’s second quarter saw revenue and profitability exceed Wall Street expectations, but the market reaction was sharply negative. Management attributed the results to ongoing strength in its services segment and disciplined cost controls, while also noting persistent challenges in the restaurants and retail categories. CEO Jeremy Stoppelman highlighted that services revenue growth, up 8% year-over-year, was the main driver, while the restaurants, retail, and other (RR&O) segment declined by 5% amid macroeconomic pressures. CFO David Schwarzbach discussed that ad budgets increased only modestly, and the typical seasonal lift did not materialize, citing “heightened macroeconomic and policy uncertainties” as material headwinds.

Looking ahead, Yelp’s outlook is shaped by continued investment in AI-powered products and an expectation of ongoing macroeconomic softness. Management emphasized plans to further expand Yelp Assistant across categories and increase its availability, which they believe will drive greater user engagement and advertiser value. Stoppelman signaled optimism about new entry points for logged-out users and partnerships that leverage Yelp’s data for AI search, describing these as “really exciting” for future growth. However, Schwarzbach cautioned that expense pressures—including higher costs of revenue and seasonal sales and marketing—will weigh on margins in the second half of the year.

Key Insights from Management’s Remarks

Management credited the quarter’s performance to services segment momentum, expanding AI features, and disciplined expense management, while acknowledging ongoing weakness in restaurants, retail, and other categories.

Services segment outperformed: The services business, including local professionals like home and auto services, grew 8% year-over-year and was the main contributor to overall revenue growth. This segment benefited from improvements in the request flow and the rollout of AI features like Yelp Assistant, which drove a 400% year-over-year increase in project submissions.
AI product adoption surged: The company expanded AI-powered tools, notably Yelp Assistant and integrations with the workflow automation platform Zapier. Usage of Yelp Assistant grew rapidly, and new entry points were introduced to further increase adoption. Early results from these initiatives have been strong, especially in facilitating more efficient connections between users and service professionals.
Restaurant and retail weakness: The RR&O segment declined 5% year-over-year, with management citing persistent macroeconomic pressures affecting consumer sentiment and advertiser budgets. COO Jed Nachman pointed to inflation and higher operating costs as key factors impacting restaurants, with competitive pressures from food delivery providers playing a secondary role.
Ad engagement trends: Ad clicks fell 7% year-over-year, primarily due to soft demand in RR&O and increased competition. However, average cost-per-click (CPC) rose 11%, reflecting higher demand and fewer clicks overall. The mix shift toward higher-value service ads partly offset declines elsewhere.
Data licensing and AI partnerships: Yelp saw accelerating demand for its data through AI search APIs and licensing partnerships, reporting a $10 million annual run-rate for this line. Management views trusted content as a differentiator in the emerging AI-powered search ecosystem, with recent API usage up 10x in two months and multiple new licensing partners onboarded.

Drivers of Future Performance

Yelp’s guidance is driven by continued investment in AI product rollouts, efforts to expand service offerings, and external macroeconomic headwinds weighing on the RR&O segment.

AI product expansion: Management plans to extend Yelp Assistant across more categories and make it accessible to a broader user base, including logged-out users. They expect these efforts to support user engagement and enhance lead generation for advertisers, but acknowledge execution risk as the rollout broadens.
Macroeconomic and policy headwinds: Ongoing economic uncertainty, cautious consumer sentiment, and elevated operating costs—especially in restaurant and retail—are expected to persist into the next quarter. Management does not anticipate a seasonal revenue uptick and projects flat sequential revenue, with advertising budgets remaining under pressure.
Cost discipline and margin outlook: While disciplined expense management supported margin expansion this quarter, CFO David Schwarzbach warned of higher costs in the second half of the year due to increased marketing spend and cost of revenue. The company’s focus on lowering stock-based compensation as a percentage of revenue is expected to benefit long-term profitability, though it will be a headwind to adjusted EBITDA in the near term.

Catalysts in Upcoming Quarters

Looking forward, the StockStory team will be watching (1) the pace and breadth of Yelp Assistant’s rollout across categories and user types, (2) whether macroeconomic headwinds in restaurants and retail begin to ease and translate into improved advertiser demand, and (3) continued growth in AI data licensing partnerships and API usage. Progress in expanding adoption of new AI-powered features will be a key marker for sustained revenue growth.

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