Yelp (YELP) Q3 2026 earnings review
Yelp's AI revenue almost doubles, but its ad sales shrink
Yelp's newer AI software and data-licensing products are growing fast, but its core advertising business is now shrinking across every category. Total revenue dipped 1% from a year ago to $371 million — or 4% by our math excluding the Hatch acquisition — as a 6% drop in ad sales outweighed an 82% jump in other revenue. Chief executive Jeremy Stoppelman and finance chief David Schwarzbach beat their third-quarter profit plan on lower employee costs, yet cut their full-year revenue forecast.
| Net revenue | $370.9M −1.4% from a year ago (−3.8% excluding Hatch, by our math) |
|---|---|
| Advertising revenue | $337.0M −5.7% from a year ago (Services −2.3%, RR&O −13.0%) |
| Other revenue (AI, Hatch, licensing) | $33.9M +81.5% from a year ago ($136M yearly pace) |
| Full-year net revenue outlook | Cut $7.5M middle of the range: $1.458B (−0.5% from 2025) |
⚖️ Verdict: 🔴 Bearish
The story got worse because the advertising slowdown spread into home and professional Services, the division that had been holding the company up. Services ad revenue fell 2% after growing for years, ad clicks dropped 8%, and the fourth-quarter outlook points to a steeper 3% revenue decline. On the positive side, voice AI upgrades lifted Hatch's yearly revenue pace to $37 million and employee stock pay will drop below 6% of revenue next quarter, a year ahead of plan.
The question now is whether AI data licensing and voice software can grow fast enough to replace lost ad clicks before ad prices turn negative. Either the fourth-quarter outlook is cautious like past profit plans, or shrinking Services locations mark a lasting drop in core advertising. Fourth-quarter Services ad revenue and price-per-click growth will tell.
🐂 Bull Case
AI Licensing and Voice Tools Lift Other Revenue
Yelp wants non-advertising sales — software subscriptions, food-ordering fees and data licensing — to reach a $250 million yearly pace by late 2028. Finance chief David Schwarzbach said this other revenue rose 82% from a year ago to $33.9 million, or a $136 million yearly pace. By our math, sales from businesses owned a year ago still grew about 32% after stripping out Hatch, the lead-management software bought in February.
Chief executive Jeremy Stoppelman said "demand for our trusted local content across the AI ecosystem drove growth in revenue from data licensing", naming OpenAI and Meta. Yelp also added GPT-Live-1 voice technology to Yelp Host, its automated phone receptionist for restaurants, and to Hatch. Yearly call volume on Yelp Host reached a 2.5 million pace in October, up from 1.5 million in April, while Hatch's yearly revenue pace rose 6% from June to $37 million, easing concerns after a slow second quarter.
What to watch: other revenue in the fourth quarter. Because the Hatch purchase turns one year old in February, steady sequential gains above $35 million are needed to keep the 2028 target on track.
Stock Pay Drops Early and Past Buybacks Lift EPS
Yelp had promised to lower employee stock pay below 6% of revenue by the end of 2027. This quarter, stock pay fell 2.5 percentage points from a year ago to 6.2% of revenue, and Schwarzbach expects it to drop below 6% in the fourth quarter, a full year ahead of schedule.
Combined with $200 million of share buybacks completed earlier this year, the diluted share count fell 14.7% from a year ago to 54.8 million. That lower share count turned a 12.1% drop in net income into a 3.3% gain in profit per share, which reached $0.63.
What to watch: employee stock pay in the annual report. Because Yelp said it will "no longer plan to provide regular updates on this metric" outside its financial tables, the income statement footnotes will show whether the sub-6% ceiling holds in 2027.
🐻 Bear Case
Ad Revenue Shrank Across Every Category
Advertising still brings in 91% of Yelp's revenue, and for two years the home and professional Services category carried the business while restaurants and shops pulled back. This quarter, Services broke its growth streak and fell 2.3% from a year ago, pulling total advertising sales down 5.7% to $337.0 million.
- Total net revenue: $370.9 million, down 1.4% from a year ago (down 3.8% excluding Hatch, by our math)
- Services advertising revenue: $238.2 million, down 2.3% after growing 7% a year ago
- Restaurants, Retail & Other (RR&O) advertising revenue: $98.8 million, down 13.0%
- Full-year net revenue outlook: cut by $7.5 million at the middle of the range to $1.455–1.460 billion
Although third-quarter revenue beat the top of Yelp's own outlook by $1 million, the company cut its full-year revenue forecast and warned of "increased pressure on advertising revenue across categories" in the fourth quarter. That outlook settles last quarter's debate over whether the third-quarter plan was merely cautious: advertising demand is weakening faster than the new AI products can grow.
What to watch: Services advertising revenue in the fourth quarter. Another decline against last year's easier comparison would show that the core business is shrinking alongside restaurants and retail.
Clicks Keep Falling While Ad Prices Stall
Yelp makes most of its money when a user clicks an ad, and for the past year higher prices per click made up for fewer clicks. That cushion is gone: user ad clicks fell 8% from a year ago — the seventh straight quarterly drop — while the average price per click rose just 2%, down from 14% a year ago.
The company blamed a tough economy and "competitive pressures from food ordering and delivery providers" in its restaurant and retail segment, where both clicks and prices fell. Meanwhile, paying advertising locations in Services dropped by 11,000 from last quarter to 248,000, down 3.9% from a year ago. Multi-location chains lifted restaurant and retail locations by 2.8% to 261,000, but average spending per location still fell.
What to watch: average price per click and Services paying locations next quarter. If price growth turns negative while clicks keep falling, advertising revenue will drop faster even if total customer locations hold near 509,000.
Credit Line Paydown Keeps Share Buybacks Paused
In the first half of 2026, Yelp spent $263.6 million in cash to buy Hatch and $175 million to buy back its own stock, drawing $165 million on its credit line to help pay for both. After buying another $25 million of stock in July to reach $200 million for the year, the company "paused our repurchase program to pay down our revolving credit facility".
Yelp repaid $25 million of debt during the third quarter, leaving $75 million on the credit line and $119.8 million in cash. Because the pause remains in place until 2027, the per-share profit boost from shrinking the share count will fade over the next two quarters.
What to watch: the remaining $75 million credit line balance at year-end. With fourth-quarter cash flow ahead, whether Yelp clears the debt this year will show how early in 2027 buybacks can restart.
Risks this quarter didn't answer
Several standing concerns around AI search competition, licensing contracts and marketing returns received no new figures in the third-quarter materials.
- Data-licensing revenue in dollars: Yelp named OpenAI and Meta as buyers, but still groups licensing with Hatch and food ordering; the annual report would need to separate them to show how much growth is recurring.
- AI search traffic impact: the shareholder letter gave no traffic numbers to show whether Google AI Overviews or ChatGPT are taking visitors away, and the promised ChatGPT Request-a-Quote tool was not mentioned (Reservations and Waitlist launched instead).
- Return on paid lead acquisition: Yelp spent more on marketing to buy Services leads — lifting sales and marketing by 0.8 percentage points of revenue — yet Services ad sales still fell 2.3%; management gave no return figures.
👓 Other Themes
Fourth-Quarter Tax Benefit Will Lift Net Income
Yelp expects to record a one-time tax benefit of about $30 million in the fourth quarter from releasing previously unrecognized tax benefits. That accounting credit will lift reported fourth-quarter and full-year net income and profit per share, but Yelp excludes tax items from its adjusted EBITDA outlook of $57 million to $62 million.
💲 Other KPIs
Free cash flow — operating cash flow minus property and software purchases — fell 28.9% from $118.9 million a year ago, representing 22.8% of revenue. Over the first nine months of 2026, free cash flow dropped 24.1% to $190.8 million because of lower net income, working-capital timing and higher software development spending.
Operating profit fell 7.5% from a year ago to $48.9 million, trimming the operating margin by 0.9 percentage points. Product development expenses dropped 3.4 percentage points of revenue to 17.4%, largely because engineers spent more time on platform infrastructure — which moved costs into cost of revenue (+1.7 points to 11.4%) — and on capitalized software, which lifted depreciation and amortization (+1.3 points to 4.7%).
Cash and marketable securities stood at $119.8 million against $75.0 million drawn on the revolving credit line, leaving $44.8 million in net cash by our math. That is up from negative $5.9 million last quarter after Yelp paid down $25 million of debt, but down from $319.4 million in net cash at the end of 2025 before the Hatch purchase.
🔮 Guidance
Cut. The middle of the full-year range moved down $7.5 million to $1.4575 billion, which means full-year sales will shrink 0.5% from 2025 despite adding Hatch in February. Yelp had held the middle of its full-year forecast at $1.465 billion across the previous three quarters even as it beat its first-half quarterly targets.
New. The fourth-quarter plan calls for sales to fall 2.9% from a year ago and 5.8% from the third quarter at the middle of the range. That is a steeper drop than the third quarter's 1.4% decline, even though fourth-quarter sales include Hatch and compare against an easier prior-year period when revenue fell 0.5%.
Raised. After beating its third-quarter target by $17 million at the top end, Yelp lifted the bottom of its full-year range by $5 million, raising the middle of the range by $2.5 million to $322.5 million. That still represents a 12.6% drop from 2025 and excludes about $12 million of retention payments to Hatch employees.
New. The outlook puts fourth-quarter adjusted EBITDA down 30.6% from a year ago at the middle of the range, with the margin dropping to 17.0% from 24.9% in the third quarter as Yelp spends on Hatch and Yelp Host. However, Yelp has beaten the middle of its quarterly EBITDA plan by an average of 23.1% over the last four quarters; if that pattern holds, fourth-quarter EBITDA would land near $73 million by our math.
Accelerated. The full-year forecast stays at roughly 7% of revenue, but Yelp now expects stock pay to fall below 6% in the fourth quarter, one year ahead of its previous end-of-2027 schedule.
Unchanged. Depreciation and amortization will stay near 5% of revenue in the fourth quarter and for the full year, up from 3.3% a year ago because of intangible assets from Hatch and higher capitalized software costs.
❓ Key Questions
How much of Other revenue comes from AI licensing?
Other revenue reached a $136 million yearly pace, driven by Hatch, food ordering and data deals with OpenAI and Meta. Because Yelp does not separate licensing dollars or contract lengths, investors cannot tell how much of that growth is recurring subscription revenue versus one-off deals.
Why did Services paying locations drop by 11,000?
Services paying advertising locations fell from 259,000 in the second quarter to 248,000, and Services ad revenue shrank 2.3% even as Yelp spent more on marketing to acquire Services projects. Management did not explain why extra lead-acquisition spending failed to keep Services advertisers.
What happened to the ChatGPT Request-a-Quote integration?
Last quarter Yelp said its Request-a-Quote tool would launch inside ChatGPT within weeks. This quarter's letter highlighted ChatGPT integrations for restaurant Reservations and Waitlist, but did not mention Request-a-Quote, which serves its largest advertising segment.
Why cut Q4 EBITDA to $57–62M after beating Q3 by $17M?
Yelp beat the top of its third-quarter adjusted EBITDA range by $17 million, yet raised the middle of its full-year target by only $2.5 million. Management cited investments in Hatch and Yelp Host, but did not quantify the fourth-quarter spending step-up.