Yelp (YELP) Q2 2026 earnings review
The AI Pivot Outpaces the Core Business's Decline
Yelp delivered a mixed quarter that highlights a company in deep transition. Net revenue barely eked out a 1% YoY gain, masking a violent divergence beneath the surface. The 'Other Revenue' segment—powered by the Hatch acquisition and AI data licensing—almost doubled (+98% YoY). However, Yelp's core advertising engine is stalling out. The previously resilient Services segment decelerated to 0% growth, and Restaurants, Retail & Other (RR&O) shrank by 10%. With heavy investments in the AI transition compressing margins and forcing a pause on share buybacks, Yelp is racing against the clock to replace eroding ad dollars with SaaS and licensing revenue.
🐂 Bull Case
Driven by the Hatch acquisition and AI data licensing, Other Revenue grew 98% YoY to $33M. Hatch reached a $35M annual run rate in June (+59% YoY), and management is targeting a $250M run rate for this segment by the end of 2028.
Yelp Host (AI voice answering) scaled rapidly, hitting a 2.4M annual call run rate in July (up >3x from January). This demonstrates early success in shifting Yelp from a passive directory to an active SaaS provider for local businesses.
🐻 Bear Case
The Services advertising segment, which carried the company through 2024 and 2025, decelerated abruptly to 0% YoY growth. If this highly profitable segment turns negative, overall top-line contraction is inevitable.
Net income fell 28% YoY and Adjusted EBITDA fell 9%. More concerningly, the aggressive share buyback program has been paused as the company works to pay down a $100M draw on its revolving credit facility used for the Hatch acquisition.
⚖️ Verdict: 🔴
Bearish. The growth in AI and SaaS initiatives is impressive, but it is too small to offset the rapid deceleration in the core advertising business. With margins compressing and capital returns paused, the risk/reward profile is deteriorating.
Key Themes
Services Segment Grinds to a Halt
This is the most critical data point of the quarter: Services advertising revenue was flat YoY at $241M. Just three quarters ago, it was growing at 7%. Management has historically relied on this segment to mask the secular decline in Restaurant & Retail advertising. With Services growth Reversing from positive to flat, Yelp's primary revenue engine is failing.
Hatch and Data Licensing Deliver
Accelerating growth in Other Revenue (+98% YoY to $33M) is Yelp's brightest spot. The Hatch acquisition is performing well, reaching a $35M annual run rate in June. Additionally, Yelp's proprietary review data is becoming a must-have for AI players; ChatGPT is now utilizing Yelp ratings and reviews for local search queries, driving high-margin licensing revenue.
Buyback Program Paused, Leverage Added
Yelp aggressively bought back stock in prior quarters ($125M in 26Q1). In 26Q2, they bought $50M, then an estimated $25M in Q3, leaving $339M on the authorization. However, management explicitly stated they have 'paused' the program to pay down the $100M drawn on their revolving credit facility. This Reversing capital allocation strategy removes a key pillar of EPS support.
Advertising Volume Continues to Shrink
Consumer engagement on ads continues its Decelerating trend. Total ad clicks dropped 5% YoY in Q2. To keep revenue flat, Yelp has had to rely on a 1% increase in Average CPC. Rising prices on falling volume is a toxic dynamic that highlights shrinking advertiser ROI.
The ChatGPT Integration
Yelp secured its position as the top organically cited home services discovery platform by LLMs (3.4x more citations than the BBB). The upcoming integration of 'Request-a-Quote' directly into ChatGPT represents a major pipeline shift from traditional search engines to AI chat interfaces, positioning Yelp to capture off-platform intent.
Other KPIs
Decelerating. Down 9% YoY. Adjusted EBITDA margin compressed by 300 basis points from 27% to 24%. This was driven by a 18% spike in Cost of Revenue (infrastructure for AI/Hatch) and a 3% rise in G&A.
Stable decline. Total locations fell 1% YoY. While RR&O locations fell from 255k to 251k, the real concern is that Services locations actually decreased slightly YoY (260k down to 259k).
Guidance
Decelerating. At the midpoint ($367.5M), this implies a YoY decline of ~2.2% compared to 25Q3 revenue of $376M. This signals that the macro headwinds in the core advertising business will outweigh the fast growth in 'Other Revenue' next quarter.
Decelerating aggressively. At the midpoint ($72.5M), this implies a ~26% YoY collapse compared to $98M in 25Q3. Management noted sequential expense increases for AI transformation, Hatch integration, and consumer marketing.
Stable. The range was narrowed slightly from $1.455B-$1.475B. The midpoint implies essentially zero growth compared to FY25 ($1.465B).
Stable guidance update. Narrowed from $310M-$330M. Implies an ~13% YoY decline from FY25's $369M, cementing 2026 as a heavy margin-compression investment year.
Key Questions
Services Deceleration
Services advertising revenue went from +8% growth in FY25 to perfectly flat in 26Q2. Is this a temporary macro-driven air pocket, or are we reaching total market saturation for Yelp in the home services category?
Buyback Program Pause
You generated $61M in Free Cash Flow this quarter, yet you paused buybacks to pay down the $100M revolver. What is the target debt level before buybacks are resumed, and does this signal lower confidence in near-term cash generation?
Hatch Margin Profile
With Hatch driving significant top-line growth but requiring heavy investments in product, engineering, and sales, when do you expect Hatch to break even on an EBITDA basis?