Yelp Inc. (YELP) - Q2 2026 10-Q Summary
Business Context and Reporting Period
This summary covers Yelp Inc.'s unaudited financial results for the quarterly period ended June 30, 2026. Yelp operates as a single reporting segment, generating revenue primarily through performance-based advertising and subscription services. The quarter was marked by the integration of the Hatchify Inc. ("Hatch") acquisition, completed in February 2026, and continued strategic investments in artificial intelligence (AI) to transform consumer and business experiences.
Key Financial Metrics
| Metric | Q2 2026 | Q2 2025 | Y/Y Change |
|---|---|---|---|
| Net Revenue | $375.5 million | $370.4 million | +1% |
| Net Income | $31.7 million | $44.1 million | -28% |
| Diluted EPS | $0.57 | $0.67 | -15% |
| Adjusted EBITDA | $91.4 million | $100.5 million | -9% |
| Operating Cash Flow (6mo) | $133.6 million | $156.0 million | -14% |
| Cash & Equivalents | $94.1 million | $216.1 million (Dec '25) | -56% |
| Debt (Revolving Credit) | $100.0 million | $0 | New Borrowing |
Material Changes vs. Prior Period
- Revenue Composition: Total revenue grew 1% year-over-year, driven by a 98% increase in "Other" revenue (subscriptions, data licensing, and Hatch contributions). This growth offset a 3% decline in total advertising revenue.
- Advertising Dynamics: Advertising revenue declined due to a 10% drop in Restaurants, Retail & Other (RR&O) revenue, caused by lower ad clicks and average cost-per-click (CPC). Services advertising revenue remained flat.
- Profitability Pressure: Net income decreased 28% due to higher operating expenses, including increased depreciation and amortization ($18.1M vs $12.4M) driven by the Hatch acquisition, and higher cost of revenue from AI infrastructure investments.
- Liquidity Shift: Cash and cash equivalents decreased significantly from $216.1 million to $94.1 million, primarily due to the $271.2 million cash acquisition of Hatch. To fund this and maintain liquidity, the company drew $100 million on its revolving credit facility.
- Share Repurchases: The company repurchased approximately $175.1 million of stock in the first half of 2026. Management announced a pause on repurchases for the remainder of 2026 to prioritize debt repayment and working capital.
Guidance, Outlook, and Risks
- Q3 2026 Outlook: Management expects a slight year-over-year decrease in net revenue for Q3 2026 due to persistent macroeconomic challenges affecting local businesses. Expenses are expected to increase sequentially due to AI investments and Hatch integration, leading to a projected year-over-year decrease in Adjusted EBITDA.
- Strategic Initiatives:
- AI Transformation: Continued rollout of "Yelp Assistant" and "Yelp Host" (AI call answering). Yelp Host reached an annual run rate of 2.4 million calls in July 2026.
- Data Licensing: Strong demand for data licensing, including partnerships with OpenAI (ChatGPT) and Apple Maps. Targeting an annual run rate of $250 million in "Other" revenue by end of 2028.
- Risks & Contingencies:
- Macroeconomic Conditions: Adverse local economic conditions continue to impact advertiser spending, particularly in the RR&O sector.
- Legal Proceedings: Ongoing federal antitrust lawsuit against Google LLC (filed August 2024), with trial scheduled for September 2028.
- Integration Risks: Execution risks associated with integrating Hatch and scaling AI products.
Investor Verification Checklist
- Debt Covenants: Verify compliance with the revolving credit facility covenants (leverage ratio max 3.75:1, interest coverage min 3.00:1) given the new $100M drawdown.
- Acquisition Integration: Monitor Hatch's revenue contribution and integration costs against the $30M post-closing compensation obligation.
- Share Repurchase Pause: Confirm the timeline for resuming buybacks (expected 2027) and the impact on capital allocation strategy.
- Non-GAAP Reconciliation: Review the reconciliation of Net Income to Adjusted EBITDA to understand the magnitude of acquisition-related and stock-based compensation adjustments.
- Deferred Tax Assets: Assess the realization of the $115.5 million in net deferred tax assets, noting the risk of valuation allowances if future taxable income targets are not met.