# YELP INC (YELP) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from YELP INC's 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1345016/000134501622000026/yelp-20211231.htm
Accession: 0001345016-22-000026
Filing date: 2022-02-28
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/YELP/
All MD&A years: /company/YELP/mda/
Next year: /company/YELP/mda/fy2022/ (FY 2022)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Annual Report. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs, and involve risks and uncertainties. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those discussed in the section titled “Risk Factors” included under Part I, Item 1A and elsewhere in this Annual Report. See “Special Note Regarding Forward-Looking Statements” in this Annual Report.

Overview

As one of the best known internet brands in the United States, Yelp is a trusted local resource for consumers and a partner in success for businesses of all sizes. Consumers trust us for our more than 220 million ratings and reviews of businesses across a broad range of categories, while businesses advertise with us to reach our large audience of purchase-oriented and generally affluent consumers. We believe our ability to provide value to both consumers and businesses not only fulfills our mission to connect consumers with great local businesses, but also positions us well in the local, digital advertising market in the United States.

We generate substantially all of our revenue through the sale of performance-based advertising products, which our advertising platform matches to individual consumers through auctions priced on a CPC basis. In the year ended December 31, 2021, our net revenue was $1.0 billion, up 18% from the year ended December 31, 2020 and 2% from the year ended December 31, 2019, and we recorded net income of $39.7 million and adjusted EBITDA of $246.3 million. In the year ended December 31, 2020, our net revenue was $872.9 million, which represented a decrease of 14% from the year ended December 31, 2019, and we recorded a net loss of $19.4 million and adjusted EBITDA of $140.3 million. For information on how we define and calculate adjusted EBITDA and a reconciliation of this non-GAAP financial measure to net income (loss), see “—Non-GAAP Financial Measures” below.

In 2021, we delivered record annual revenue and profitable growth despite a difficult operating environment through consistent execution of our strategic initiatives and an elevated pace of product innovation:

•we built increasingly differentiated product experiences for both consumers and businesses in our Services categories through the launch of new products and features that help better match consumers with the right Services businesses, resulting in an increase in the percentage of monetized leads and record average revenue per paying advertising location in our Services categories;

•improvements to the claim and ad purchase flows as well as marketing improvements drove record customer acquisition and strong retention in our Self-serve channel; revenue from this channel grew 45% year over year to reach a new record in 2021 and also increased as a percentage of our total advertising revenue;

•our Multi-location sales team’s efforts to strengthen customer relationships as well as our introduction of new Multi-location ad products, expansion of our attribution solution and full launch of our off-platform solution drove record revenue from our Multi-location channel, which increased by approximately 30% year over year and also increased as a percentage of our total advertising revenue;

•we delivered more value to advertisers through many new ad formats as well as improvements to our advertising system, resulting in ad clicks increasing by 24% and average CPC decreasing by 5% year over year, even as our consumer traffic remained impacted by ongoing concerns about COVID-19 and its variants; and

•the savings from our smaller local sales force, efficiencies resulting from our growth initiatives and our decision to remain working on a distributed basis permanently helped us achieve positive net income and a record annual adjusted EBITDA margin in 2021.

Our performance in 2021 demonstrates that the initiatives we began in 2019 successfully transformed Yelp into a stronger, more efficient and product-led business. In 2022, we plan to build on the structural improvements to our business by continuing to invest in our key strategic initiatives as set forth below, as well as expanding our focus to include the consumer experience:

•Grow quality leads and monetization of our Services categories. We continue to believe that differentiating the Services experience will allow us to both monetize more of our consumer traffic and convert more Services businesses into

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advertisers. In addition to differentiating the product experience, we plan to explore opportunities to improve lead quality as well as the distribution of leads to match more consumers with the right Services businesses for their projects.

•Drive sales through our most efficient channels. In 2022, we are continuing to explore ways to drive businesses through our fully digital Self-serve channel by marketing and a more streamlined ads purchase flow, offering new tools to drive business owner engagement and providing businesses with more control over their ad campaigns. We also plan to further expand our Multi-location product offerings and attribution solutions as well as leverage our strengthened customer relationships to both acquire new Multi-location customers and expand our business with existing customers.

•Deliver more value to advertisers. In 2022, we plan to continue improving the relevance and value of our ads by introducing new formats as well as by driving efficiency through ad system optimizations and improved matching.

•Enhance the consumer experience. We plan to invest in a broad set of consumer product and marketing initiatives designed to drive consumer engagement and content contributions. We are also investing in product initiatives to further differentiate the experience between categories and increase engagement, as well as bring the consumer experience on our Android app in line with our iOS app.

We expect that our expenses will remain relatively flat throughout the year following an increase from the fourth quarter of 2021 to the first quarter of 2022 as we invest in our strategic initiatives. We also expect that revenue will grow relatively consistently on an absolute basis throughout the year as the benefits of our initiatives build following a slight decrease from the fourth quarter of 2021 to the first quarter of 2022, reflecting seasonal trends.

Factors Affecting Our Performance

COVID-19. The COVID-19 pandemic has had, and may to continue to have, a significant adverse impact on our business and results of operations. Although vaccines are currently available and some public health restrictions have eased, the number of COVID-19 cases has continued to fluctuate, negatively impacting consumer confidence and user activity on our platform in turn. User activity in our Restaurants, Retail and Other categories has been particularly sensitive to changes in consumer confidence and, as a result, traffic and revenue in these categories remained below their pre-pandemic 2019 levels in 2021. While the positive trends we have seen in user activity during periods of higher consumer confidence and looser public health restrictions give us confidence that traffic will return organically as the pandemic recedes, it is not possible for us to predict the remaining duration of the pandemic, the severity of future COVID-19 variants and resulting restrictions, or the duration or magnitude of the adverse impact on our business. Even after the COVID-19 pandemic has subsided, health measures taken by governments and private industry in response to the pandemic may have a long-term adverse effect on the economy. Adverse macroeconomic conditions have historically been particularly challenging for the SMBs on which we rely and any protracted economic downturn would have significant negative effects on our business.

Investment in Growth. In 2022, we plan to invest heavily in our strategic initiatives to grow quality leads and monetization of our Services categories, expand our Self-serve and Multi-location channels, deliver more value to advertisers and enhance the consumer experience. These initiatives will require substantial investments that may not prioritize short-term financial results, depend on our ability to develop innovative, relevant and useful products in a timely manner, and involve significant risks and uncertainties. For example, new products may fail to generate sufficient revenue, operating margin or other value to justify the investments we made in them, which is a particular risk for new products that are unproven or that are outside of our historical core business. While we believe these initiatives will ultimately drive revenue growth, our investments in them will increase our operating expenses, and any increase in revenue resulting from these product innovations will likely trail the increase in expenses.

Our Ability to Attract, Retain and Engage Consumers. We generate substantially all of our revenue based on our users' engagement with the ads that we display. Because traffic to our platform and user engagement on our platform together determine the number of ads we are able to show, affect the value of those ads to businesses and support the content creation that drives further traffic, our ability to attract, retain and engage visitors on our platform is critical to our business and financial success. While we believe our largest growth opportunity will be to monetize a greater portion of our existing traffic, rather than to grow traffic generally, we are also investing in a broad set of consumer initiatives to support the long-term growth of our traffic and business.

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Our Ability to Attract and Retain Advertisers. Our revenue growth is driven by our ability to attract and retain advertising customers. To do so, we must deliver tailored advertising products at a competitive price in a highly competitive market. A substantial portion of our advertisers have the ability to cancel their advertising campaigns at any time. Their decisions to renew depend on the degree of satisfaction with our products as well as a number of factors that are outside of our control, including their ability to continue their operations and spending levels. Although the opportunity presented by our Multi-location channel is a strategic priority, we continue to rely heavily on SMBs that often have limited advertising budgets, may view online advertising products like ours as experimental and unproven, and are disproportionately impacted by macroeconomic conditions.

Our Ability to Attract and Retain Talent. Our ability to execute on our strategic initiatives depends on our continuing ability to attract, develop, motivate and retain highly qualified and skilled employees. Qualified individuals are in high demand and we expect to continue to face significant competition from other companies in hiring such personnel, particularly for technical roles. In 2021, we made substantial investments in our engineering, sales and marketing organizations, which has required us to effectively integrate, develop and motivate a large number of new employees in a remote environment while maintaining the beneficial aspects of our company culture. Our employee operations are complex and place substantial demands on management and our operational infrastructure, particularly in the primarily remote work environment that we plan to maintain. For example, our ongoing efforts to hire technical employees outside of the United States has resulted in the expansion of our international operations, which adds complexity and may be disruptive to our product development efforts. We believe our decision to remain working on a distributed basis permanently will provide even greater flexibility to our employees, who now have the opportunity to relocate within the countries where we operate so they can live where they want to live and work where they will feel most effective, will result in improved employee retention as well as allow us to access and attract great talent from a more diverse pool of candidates across the United States, Canada and Europe.

Stock Repurchases. Since July 2017, our board of directors has authorized us to repurchase up to an aggregate of $1.2 billion of our outstanding common stock, $194.7 million of which remained available as of February 18, 2022 and which does not have an expiration date. During the year ended December 31, 2021, we repurchased on the open market 6,995,170 shares for an aggregate purchase price of $262.9 million. During the year ended December 31, 2020, we repurchased on the open market 803,691 shares for an aggregate purchase price of $24.4 million. During the year ended December 31, 2019, we repurchased on the open market 14,190,409 shares for an aggregate purchase price of $481.0 million. The actual timing and amount of repurchases remain subject to a variety of factors, including liquidity, cash flow and market conditions. In addition, the terms of our Credit Agreement with Wells Fargo Bank, National Association, which we entered into in May 2020 (the "Credit Agreement"), impose limitations on our ability to repurchase shares during the term of our revolving credit facility. We have funded the repurchases, and expect to fund future repurchases under the stock repurchase program, with cash available on our balance sheet. As a result, this program could diminish our cash reserves and reduce our ability to invest in our business, in addition to affecting the trading price and volatility of our stock.

Corporate Development Activities. As part of our business strategy, we may decide to expand our product offerings and grow our business through the acquisition of complementary businesses or technologies, as well as through partnerships. In addition to diverting our management's attention and otherwise disrupting our operations, our corporate development activities will affect our future financial results due to factors such as expenses incurred in identifying, investigating and pursuing transactions, whether or not they are consummated, possible dilutive issuances of equity securities or the incurrence of debt, unidentified liabilities and the amortization of acquired intangible assets. Maintaining relationships with partners also requires significant time and resources, as does integrating their data, services and technologies onto our platform. We may not realize the full benefits of synergies, innovation and operational efficiencies that may be possible from a corporate transaction; similarly, if our relationships with partners deteriorate, we could suffer increased costs and delays in our ability to provide consumers and advertisers with our content or services.

Seasonality and Cyclicality. Our business is affected by seasonal fluctuations in Internet usage and advertising spending. Based on historical trends, our revenue is typically lowest in the first quarter and increases through the year to its highest level in the fourth quarter. Multi-location ad budgets are generally lowest at the beginning of the year and peak in the fourth quarter, though our SMB customers tend to decrease their spending at that time. Our traffic is also typically weakest in the fourth quarter of the year in connection with year-end holidays.

Key Metrics

We regularly review a number of metrics, including the key metrics set forth below, to evaluate our business, measure our performance, identify trends in our business, prepare financial projections and make strategic decisions.

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Ad Clicks

Ad clicks represent user interactions with our pay-for-performance advertising products, including clicks on advertisements on our website and mobile app, clicks on syndicated advertisements on third-party platforms and Request-A-Quote submissions. Ad clicks include only user interactions that we are able to track directly, and therefore do not include user interactions with ads sold through our advertising partnership. We do not expect the exclusion of such user interactions to materially affect this metric.

Because we generate revenue primarily from the sale of performance-based ads, our ability to increase our revenue depends largely on our ability to increase ad clicks. We report the year-over-year percentage change in ad clicks on a quarterly basis as a measure of our success in monetizing more of our consumer traffic and delivering more value to advertisers.

The following table presents year-over-year changes in our ad clicks for the periods indicated (expressed as a percentage):

[[GREPCENT_TABLE]]
[["","Three Months Ended December 31,"],["","2021","","2020","","2019"],["Ad Clicks","14%","","(22)%","","33%"]]
[[/GREPCENT_TABLE]]

Average CPC

We define average CPC as revenue from our performance-based ad products — excluding certain revenue adjustments that do not impact the outcome of an auction for an individual ad click, such as refunds, as well as revenue from our advertising partnerships — divided by the total number of ad clicks for a given three-month period.

Average CPC, when viewed together with ad clicks, provides important insight into the value we deliver to advertisers, which we believe is a significant factor in our ability to retain both revenue and customers. For example, a positive change in ad clicks for a given three-month period combined with lower growth or a negative change in average CPC over the same period would indicate that we delivered more ad clicks at lower prices, thereby delivering more value to our advertisers; we would expect this to have a positive impact on retention. This was the case in the fourth quarter of 2021, when growth in ad clicks outpaced growth in average CPC, helping drive increases in our NTC retention rate and advertising revenue in turn. We believe that average CPC and ad clicks together reflect one of the largest dynamics affecting our advertising revenue performance.

The following table presents year-over-year changes in our average CPC for the periods indicated (expressed as a percentage):

[[GREPCENT_TABLE]]
[["","Three Months Ended December 31,"],["","2021","","2020","","2019"],["Average CPC","7%","","4%","","(16)%"]]
[[/GREPCENT_TABLE]]

Ad Revenue by Category

Our advertising revenue comprises revenue from the sale of our advertising products, including the resale of our advertising products by partners and syndicated ads appearing on third-party platforms.

To reflect our strategic focus on creating two differentiated experiences on Yelp, we provide a breakdown of our advertising revenue attributable to businesses in two high-level category groupings: Services and Restaurants, Retail and Other. Our Services categories consist of home, local, auto, professional, pets, events, real estate and financial services. Our Restaurants, Retail and Other categories consist of restaurants, shopping, beauty & fitness, health and other.

In 2021, we refined our methodology for determining the business category with which advertising revenue is associated to be based on the business category of each advertising location rather than the business category of the business account that paid for the advertising. While business locations associated with a single payment account are generally part of the same business, they may offer a variety or a combination of services that differ by location; accordingly, we believe our new methodology provides a more precise breakdown of our advertising revenue between our Services and Restaurants, Retail and Other categories.

The categorization of business locations can change over time and historical business categories for individual business locations are not available; as a result, it is impracticable to apply our new methodology to prior-year amounts based on the

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business categorizations in effect during the prior-year periods. However, applying our new methodology to 2019 and 2020 advertising revenue based on the current business categories of the associated advertising locations does not result in a materially different breakdown than previously reported for such periods. Due to the differences between the types of business categories comprising our Services and Restaurants, Retail and Other categories, we do not believe a significant number of businesses are re-categorized such that they move from one high-level category grouping to the other, and so do not believe the result would be materially different based on the then-current categorizations.

The following table presents our advertising revenue by category for the periods presented (in thousands):

[[GREPCENT_TABLE]]
[["","Three Months Ended December 31,","","Year Ended December 31,"],["","2021","","2020","","2019","","2021","","2020","","2019"],["Services","$","157,242","","","$","138,887","","","$","137,501","","","$","607,770","","","$","515,019","","","$","512,729"],["Restaurants, Retail & Other","104,205","","","83,735","","","121,451","","","377,455","","","321,096","","","464,196"],["Total Advertising Revenue","$","261,447","","","$","222,622","","","$","258,952","","","$","985,225","","","$","836,115","","","$","976,925"]]
[[/GREPCENT_TABLE]]

Paying Advertising Locations

Paying advertising locations comprise all business locations associated with a business account from which we recognized advertising revenue in a given month, excluding business accounts that purchased advertising through partner programs other than Yelp Ads Certified Partners, averaged over a given three-month period. We also provide a breakdown of paying advertising locations between our Services categories and Restaurants, Retail and Other categories.

We provide our paying advertising locations on a quarterly basis as a measure of the reach and scale of our business; however, this metric may exhibit short-term volatility as a result of factors such as seasonality and macroeconomic conditions. For example, macroeconomic factors, such as ongoing concerns about COVID-19 and its variants as well as labor and supply chain challenges, have had a predominant negative impact on Restaurants, Retail and Other paying advertising locations in recent quarters. Short-term fluctuations in paying advertising locations may also reflect the acquisition or loss of single advertising accounts associated with large numbers of locations, or the pausing/restarting of advertising campaigns by such multi-location advertisers.

The following table presents the number of paying advertising locations for the periods presented (in thousands):

[[GREPCENT_TABLE]]
[["","Three Months Ended December 31,"],["","2021","","2020","","2019"],["Services","219","","224","","235"],["Restaurant, Retail & Other","309","","296","","330"],["Total Paying Advertising Locations","528","","520","","565"]]
[[/GREPCENT_TABLE]]

Reviews, Traffic and Active Claimed Local Business Locations

We report our reviews, traffic and active claimed local business locations metrics on an annual basis as measures of the volume of our content, the size of our audience and the scope of our business, respectively.

Reviews

Number of reviews represents the cumulative number of reviews submitted to Yelp since inception, as of the period end, including reviews that were not recommended or had been removed from our platform. In addition to the text of the review, each review includes a rating of one to five stars. We include reviews that are not recommended and that have been removed because all of them are either currently accessible on our platform or were accessible at some point in time, providing information that may be useful to users to evaluate businesses and individual reviewers. Because our automated recommendation software continually reassesses which reviews to recommend based on new information that becomes available, the “recommended” or “not recommended” status of reviews may change over time. Reviews that are not recommended or that have been removed do not factor into a business’s overall star rating. By clicking on a link on a reviewed business’s page on our website, users can access the reviews that are not currently recommended for the business, as well as the star rating and other information about reviews that were removed for violation of our terms of service.

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As of December 31, 2021, 244.4 million reviews had been submitted to our platform, of which 224.4 million reviews were available on business pages, including 51.4 million reviews that were not recommended, and 20.0 million reviews had been removed from our platform, either by us for violation of our terms of service or by the users who contributed them. The following table presents the number of cumulative reviews as of the dates indicated (in thousands):

[[GREPCENT_TABLE]]
[["","As of December 31,"],["","2021","","2020","","2019"],["Reviews","244,435","","224,162","","205,382"]]
[[/GREPCENT_TABLE]]

Traffic

Traffic to our website and mobile app has three components: mobile devices accessing our mobile app, visitors to our non-mobile optimized website, which we refer to as our desktop website, and visitors to our mobile-optimized website, which we refer to as our mobile website. App users generate a substantial majority of activity on Yelp, including the page views and ad clicks that we monetize, and we expect that traffic to our website will fluctuate and generally decline over time. While we believe our largest growth opportunity will be to monetize a greater portion of our existing traffic, rather than to grow traffic generally, we are also investing in a broad set of consumer initiatives to support the long-term growth of our traffic and business.

Traffic levels fluctuated in 2021 as consumer confidence levels changed in response to the emergence of COVID-19 variants and the severity of local public health restrictions, particularly in our Restaurants, Retail and Other categories. As a result, although our traffic recovered in 2021 compared to the prior year, it remained below our pre-pandemic 2019 traffic. While we believe that traffic will rebound organically as the pandemic recedes, we cannot predict the remaining duration of the pandemic or the magnitude of its impact on our traffic, and we expect that our traffic levels will continue to fluctuate with consumers’ level of confidence.

We use the metrics set forth below to measure each of our traffic streams. An individual user who accesses our platform through multiple traffic streams will be counted in each applicable traffic metric; as a result, the sum of our traffic metrics will not accurately represent the number of people who visit our platform on an average monthly basis.

App Unique Devices. We calculate app unique devices as the number of unique mobile devices using our mobile app in a given month, averaged over a given twelve-month period. Under this method of calculation, an individual who accesses our mobile app from multiple mobile devices will be counted as multiple app unique devices. Multiple individuals who access our mobile app from a shared device will be counted as a single app unique device.

The following table presents app unique devices for the periods indicated (in thousands):

[[GREPCENT_TABLE]]
[["","","","Year Ended December 31,"],["","","","","","","","2021","","2020","","2019"],["App Unique Devices","","","","","","","33,085","","31,132","","36,250"]]
[[/GREPCENT_TABLE]]

Desktop and Mobile Website Unique Visitors. We calculate desktop unique visitors as the number of “users,” as measured by Google Analytics, who have visited our desktop website at least once in a given month, averaged over a given twelve-month period. Similarly, we calculate mobile website unique visitors as the number of “users” who have visited our mobile website at least once in a given month, averaged over a given twelve-month period.

Google Analytics, a product from Google Inc. that provides digital marketing intelligence, measures “users” based on unique cookie identifiers. Because the numbers of desktop unique visitors and mobile website unique visitors are therefore based on unique cookies, an individual who accesses our desktop website or mobile website from multiple devices with different cookies may be counted as multiple desktop unique visitors or mobile website unique visitors, as applicable, and multiple individuals who access our desktop website or mobile website from a shared device with a single cookie may be counted as a single desktop unique visitor or mobile website unique visitor.

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The following table presents our web traffic for the periods indicated (in thousands):

[[GREPCENT_TABLE]]
[["","","","Year Ended December 31,"],["","","","","","","","2021","","2020","","2019"],["Desktop Unique Visitors","","","","","","","45,990","","43,685","","60,252"],["Mobile Web Unique Visitors","","","","","","","56,668","","52,794","","73,722"]]
[[/GREPCENT_TABLE]]

We have discovered in the past, and expect to discover in the future, that portions of our desktop traffic, as measured by Google Analytics, have been attributable to robots and other invalid sources. Because traffic from such sources does not represent valid consumer traffic, our reported desktop unique visitor metric for impacted periods reflects an adjustment to the Google Analytics measurement of our traffic to remove traffic that we have identified as originating from invalid sources to provide greater accuracy and transparency. However, we cannot assure you that we will be able to identify all such traffic for any particular period. For additional information, please see the risk factor included under Part I, Item 1A under the heading “We rely on data from both internal tools and third parties to calculate certain of our performance metrics. Real or perceived inaccuracies in such metrics may harm our reputation and negatively affect our business.”

Active Claimed Local Business Locations

The number of active claimed local business locations represents the number of claimed local business locations — business addresses for which a business representative has visited our platform and claimed the free business page for the business located at that address — that are both (a) active on Yelp and (b) associated with an active business owner account as of a given date. We consider a claimed local business location to be active if it has not closed, been removed from our platform or merged with another claimed local business.

The table set forth below presents the number of active claimed local business locations as of the dates presented (in thousands).

[[GREPCENT_TABLE]]
[["","As of December 31,"],["","2021","","2020","","2019"],["Active Claimed Local Business Locations","5,794","","5,357","","4,889"]]
[[/GREPCENT_TABLE]]

Critical Accounting Estimates

Our consolidated financial statements are prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates and assumptions are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from those estimates.

We consider the estimates discussed below to be critical as we believe that the assumptions and estimates associated with these policies have the greatest potential impact on our consolidated financial statements. For further information on these and our other significant accounting estimates, see Note 2, "Summary of Significant Accounting Policies," of the Notes to Consolidated Financial Statements included elsewhere in this Annual Report.  

Revenue Recognition—We generate revenue from the sale of advertising products, transactions with consumers and other revenue sources, which correspond to our major product lines. We recognize revenue by applying the following steps: the contract with the customer is identified; the performance obligations in the contract are identified; the transaction price is determined; the transaction price is allocated to the performance obligations in the contract; and revenue is recognized when (or as) we satisfy these performance obligations in an amount that reflects the consideration we expect to be entitled to in exchange for those services. We apply the portfolio practical expedient to account for contracts with customers in each category of revenue. We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which the amount of revenue we recognize is equal to the amount we have a right to invoice.

We perform estimates and apply judgment when determining the amount of revenue to be recognized and may accept lower consideration than what is agreed to in the relevant contract. We refer to the difference between the agreed upon consideration amount and the actual consideration estimated to be received as variable consideration; types of variable consideration include cash based incentives, credits and refunds that are estimated based on historical information as well as considering economic

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conditions, which constrain the revenue. For all contracts with customers, estimates and assumptions include determining variable consideration and identifying the nature and timing of satisfaction of performance obligations. We believe that there will not be significant changes to our estimates of variable consideration. To date, actual amounts of consideration received have been materially consistent with the provisions we have made based on our historical estimates. For contracts satisfied over time, we apply the invoice practical expedient to depict the value transferred to the customer and measure of progress towards completion of its obligations. We consider the right to receive consideration from a customer to correspond directly with the value to the customer of our performance completed to date. We do not consider the effects of the time value of money as substantially all of our contracts are invoiced on a monthly basis, one month in arrears.

For revenue generated from arrangements that involve third parties, considerable judgment may be required in evaluating whether we are the principal, and report revenue on a gross basis, or the agent, and report revenue on a net basis. In this assessment, we consider whether we obtain control of the specified goods or services before they are transferred to the customer as well as other indicators, such as whether we are the party primarily responsible for the fulfillment, inventory risk and discretion in establishing price. The assessment of whether we are considered the principal or agent in a transaction could impact our revenue and cost of revenue recognized on our consolidated statements of operations. Changes in judgments with respect to assumptions and estimates could impact the amount of revenue recognized.

Website and Internal-Use Software Development Costs—Costs related to website and internal-use software are primarily related to our website and mobile app, including support systems. We capitalize our costs to develop software when: preliminary development efforts are successfully completed; management has authorized and committed project funding; and it is probable that the project will be completed and the software will be used as intended. We use judgment to determine which projects will be capitalized and the estimated useful life over which the related asset will be amortized. Costs incurred for enhancements that are expected to result in additional material functionality are capitalized and amortized over the estimated useful life of the upgrades. Such costs are amortized on a straight-line basis over the estimated useful life of the related asset, which is generally three years. This estimated useful life of three years has not historically changed and actual useful lives have been materially consistent with our estimates. While we do not believe that there is a reasonable likelihood of material change in our estimates, factors including obsolescence, the pace of changes in technology, changes in the expected use of the software, competition and other economic factors could require us to change the estimated useful life, which would result in a change to the amount of amortization that we record on our consolidated statements of operations.

Income Taxes—Significant judgment is required to determine our provision (benefit) for income taxes and income tax assets and liabilities, including evaluating uncertainties in the application of accounting principles, complex tax laws, or variances between our actual and anticipated operating results. Therefore, actual income taxes could materially vary from these estimates.

We record income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our financial statements or tax returns. In estimating future tax consequences, we generally consider all expected future events other than enactments or changes in the tax law or rates. In assessing the realization of deferred tax assets, we consider whether it is more likely than not that all or some portion of deferred tax assets will not be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Valuation allowances are provided to reduce deferred tax assets to the amount that is more likely than not to be realized. In determining the need for a valuation allowance, the weight given to positive and negative evidence is commensurate with the extent to which the evidence may be objectively verified. The determination of future taxable income requires significant judgment and relies on various estimates and assumptions using forecasted amounts. Changes in various factors, including economic and political conditions, could drive actual results in future years to differ from our current assumptions, judgments and estimates. We evaluate the ability to realize net deferred tax assets and the related valuation allowance on a quarterly basis.

We operate in various tax jurisdictions and are subject to audit by various tax authorities. We provide for tax contingencies whenever it is deemed probable that a tax asset has been impaired or a tax liability has been incurred for events such as tax claims or changes in tax laws. Tax contingencies are based upon their technical merits, relative tax law and the specific facts and circumstances as of each reporting period. Changes in facts and circumstances could result in material changes to the amounts recorded for such tax contingencies.

We recognize a tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. However, the outcome of tax audits cannot be predicted with certainty. If

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any issues addressed in our tax audits are resolved in a manner not consistent with our expectations, we could be required to adjust our provision for income taxes in the period such resolution occurs.

Results of Operations

The following tables set forth our results of operations for 2021, 2020 and 2019 (in thousands, except percentages). The period-to-period comparison of financial results is not necessarily indicative of future results.

[[GREPCENT_TABLE]]
[["","Year Ended December 31,","","$ Change","","% Change(1)"],["","2021","","2020","","2019","","2021 vs. 2020","","2020 vs. 2019","","2021 vs. 2020","","2020 vs. 2019"],["Consolidated Statements of Operations Data:"],["Net revenue by product:"],["Advertising revenue by category(2):"],["Services","$","607,770","","","$","515,019","","","$","512,729","","","$","92,751","","","$","2,290","","","18","%","","NM(3)"],["Restaurants, Retail & Other","377,455","","","321,096","","","464,196","","","56,359","","","(143,100)","","","18","%","","(31)","%"],["Advertising","985,225","","","836,115","","","976,925","","","149,110","","","(140,810)","","","18","%","","(14)","%"],["Transactions","13,196","","","15,017","","","12,436","","","(1,821)","","","2,581","","","(12)","%","","21","%"],["Other","33,418","","","21,801","","","24,833","","","11,617","","","(3,032)","","","53","%","","(12)","%"],["Total net revenue","$","1,031,839","","","$","872,933","","","$","1,014,194","","","$","158,906","","","$","(141,261)","","","18","%","","(14)","%"],["Costs and expenses:"],["Cost of revenue (exclusive of depreciation and amortization shown separately below)","$","78,097","","","$","57,186","","","$","62,410","","","$","20,911","","","$","(5,224)","","","37","%","","(8)","%"],["Sales and marketing","454,224","","","437,060","","","500,386","","","17,164","","","(63,326)","","","4","%","","(13)","%"],["Product development","276,473","","","232,561","","","230,440","","","43,912","","","2,121","","","19","%","","1","%"],["General and administrative","135,816","","","130,450","","","136,091","","","5,366","","","(5,641)","","","4","%","","(4)","%"],["Depreciation and amortization","55,683","","","50,609","","","49,356","","","5,074","","","1,253","","","10","%","","3","%"],["Restructuring","32","","","3,862","","","\u2014","","","(3,830)","","","3,862","","","(99)","%","","NM(3)"],["Total costs and expenses","1,000,325","","","911,728","","","978,683","","","88,597","","","(66,955)","","","10","%","","(7)","%"],["Income (loss) from operations","31,514","","","(38,795)","","","35,511","","","70,309","","","(74,306)","","","(181)","%","","(209)","%"],["Other income, net","2,204","","","3,670","","","14,256","","","(1,466)","","","(10,586)","","","(40)","%","","(74)","%"],["Income (loss) before income taxes","33,718","","","(35,125)","","","49,767","","","68,843","","","(84,892)","","","(196)","%","","(171)","%"],["(Benefit from) provision for income taxes","(5,953)","","","(15,701)","","","8,886","","","9,748","","","(24,587)","","","(62)","%","","(277)","%"],["Net income (loss)","$","39,671","","","$","(19,424)","","","$","40,881","","","$","59,095","","","$","(60,305)","","","(304)","%","","(148)","%"]]
[[/GREPCENT_TABLE]]

(1) Percentage changes are calculated based on rounded numbers and may not recalculate exactly due to rounding.

(2) Please refer to “—Key Metrics—Ad Revenue by Category” for information on a methodology change adopted in 2021.

(3) Percentage change is not meaningful.

Years Ended December 31, 2021, 2020 and 2019

Net Revenue

Advertising. We generate advertising revenue from the sale of our advertising products — including enhanced business pages and performance and impression-based advertising in search results and elsewhere on our platform — to businesses of all sizes, from single-location local businesses to multi-location national businesses. Advertising revenue also includes revenue generated from the resale of our advertising products by certain partners and monetization of remnant advertising inventory through third-party ad networks. We present advertising revenue on a disaggregated basis for our high-level category groupings, Services and Restaurants, Retail and Other.

Advertising revenue increased in 2021 compared to 2020 due to higher customer spend, an increase in paying advertising locations and an improved retention rate of non-term advertiser budgets. The increase in revenue from Restaurants, Retail and Other businesses was also attributable to our reduction of COVID-19 relief incentives as pandemic-related operating restrictions eased and businesses were able to operate at a greater capacity.

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Advertising revenue decreased in 2020 compared to 2019, primarily reflecting lower revenue from businesses in our Restaurants, Retail and Other categories due to the pandemic and related shelter-in-place orders, which forced many of them to either close or reduce their advertising budgets. The decrease was also the result of the relief that we provided in 2020, primarily consisting of $13.5 million of waived advertising fees, which reduced the amount of revenue that we recognized. We also paused certain advertising campaigns that were scheduled to run from April to May 2020 and offered free advertising products during those months with a total value of $14.5 million. All paused advertising campaigns that were not cancelled by the customers resumed by the end of May 2020. Advertising revenue from our Services categories in 2020 remained relatively consistent with 2019.

Transactions. We generate revenue from various transactions with consumers, primarily through our partnership integrations, which are mainly revenue-sharing arrangements that provide consumers with the ability to complete food ordering and delivery transactions through third parties directly on Yelp. We earn a fee for acting as an agent for transactions placed through these integrations, which we record on a net basis and include in revenue upon completion of a transaction.

Transactions revenue decreased in 2021 compared to 2020, primarily due to a combination of fewer orders and a lower per-order transaction fee from Grubhub, which took effect in October 2020. Order volume decreased as public health restrictions eased and restaurants increased their dine-in capacity compared to the prior year.

Transactions revenue increased in 2020 compared to 2019, primarily due to an increase in food takeout and delivery orders, particularly from Grubhub, as the pandemic forced many restaurants to eliminate or reduce dine-in services.

Other Revenue. We generate revenue through our subscription services, which include our Yelp Reservations and Yelp Guest Manager products. We also generate revenue through our Yelp Knowledge and Yelp Fusion programs, which provide access to Yelp data for a fee, as well as other non-advertising partnerships.

Other revenue increased in 2021 compared to 2020, primarily reflecting substantially lower COVID-19 relief incentives — mainly in the form of waived fees — for our subscription product customers in 2021. The increase also reflects higher revenue from our Yelp Fusion program, which we introduced in May 2020, as well as the continued growth of our Yelp Knowledge program.

Other revenue decreased in 2020 compared to 2019, primarily as a result of the COVID-19 relief incentives that we began providing customers in early 2020.

Trends and Uncertainties of Net Revenue. Net revenue in the year ended December 31, 2021 increased by 18% year over year and by 2% from 2019, driven by continued momentum in our Services categories and further recovery in our Restaurants, Retail and Other categories, despite the spread of COVID-19 variants as well as ongoing labor and supply chain headwinds. Although we anticipate that net revenue will decrease sequentially from the fourth quarter of 2021 to the first quarter of 2022, reflecting historical seasonal trends, we also expect that net revenue will grow relatively consistently on an absolute basis over the remainder of the year as the benefits of our strategic initiatives build.

Costs and Expenses

Cost of Revenue (exclusive of depreciation and amortization). Our cost of revenue consists primarily of credit card processing fees and website infrastructure expense, which includes website hosting costs and employee costs (including stock-based compensation expense) for the infrastructure teams responsible for operating our website and mobile app, and excludes depreciation and amortization expense. Cost of revenue also includes third-party advertising fulfillment costs.

Cost of revenue increased in 2021 compared to 2020, primarily as a result of:

•an increase in advertising fulfillment costs of $10.3 million driven by the expansion of Yelp Audiences;

•an increase in website infrastructure expenses of $7.9 million as a result of higher traffic; and

•an increase in merchant credit card processing fees of $2.6 million associated with increased advertising revenue.

Cost of revenue decreased in 2020 compared to 2019, primarily due to:

•a decrease in website infrastructure expense of $6.0 million as a result of reduced traffic and cost-cutting measures; and

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•a decrease in merchant credit card processing fees of $2.1 million due to lower advertising revenue.

These decreases were partially offset by an increase of $3.4 million in advertising fulfillment costs driven by expanded efforts to syndicate advertising budgets on third-party sites.

Sales and Marketing. Our sales and marketing expenses primarily consist of employee costs (including sales commission and stock-based compensation expenses) for our sales and marketing employees. Sales and marketing expenses also include business and consumer acquisition marketing, community management, as well as allocated workplace and other supporting overhead costs.

Sales and marketing expenses increased in 2021 compared to 2020, primarily driven by an increase in marketing and advertising costs of $35.8 million, reflecting our investment in targeted business owner acquisition and regional consumer campaigns. This increase was partially offset by:

•a decrease in employee costs of $10.5 million, primarily reflecting our lower average sales headcount compared to the prior year, which we maintained following the terminations and furloughs that took place in 2020 under the restructuring plan we announced on April 9, 2020 ("Restructuring Plan"); and

•a decrease in workplace operating costs of $8.2 million due to reductions in our amount leased office space, which began in the first quarter of 2021 and, to a lesser extent, our office closures, which began at the end of the first quarter 2020.

Sales and marketing expenses decreased in 2020 compared to 2019, primarily driven by:

•a decrease in employee costs of $49.0 million, primarily due to lower sales headcount following the terminations and furloughs associated with the Restructuring Plan; and

•a decrease in allocated workplace costs of $12.5 million due to lower office operating costs as a result of our office closures.

We expect sales and marketing expenses to increase in 2022 as we hire across our sales and marketing teams and invest in marketing initiatives. However, we also expect sales and marketing expenses to decrease as a percentage of revenue compared to 2021 as the composition of our sales force shifts toward more tenured and multi-location sales reps.

Product Development. Our product development expenses primarily consist of employee costs (including stock-based compensation expense, net of capitalized employee costs associated with capitalized website and internal-use software development) for our engineers, product management and corporate infrastructure employees. In addition, product development expenses include allocated workplace and other supporting overhead costs.

Product development expenses increased in 2021 compared to 2020 primarily driven by an increase in employee costs of $41.6 million, which reflects higher headcount and stock-based compensation expenses in 2021 and lower employee costs in the prior-year period. The lower employee costs in 2020 resulted from the reduced-hour work weeks implemented in the second quarter of 2020 under the Restructuring Plan, which remained in place for a portion of the third quarter, and lower headcount in the fourth quarter.

Product development expenses increased slightly in 2020 compared to 2019 primarily due to an increase in employee costs of $3.7 million associated with higher headcount in the three months ended March 31, 2020, partially offset by the impact of the reduced-hour work weeks as part of the Restructuring Plan in the second and third quarters and lower headcount in the fourth quarter.

We expect product development expenses to increase in 2022 as we expand our product and engineering teams and invest to support our product initiatives, but decrease as a percentage of revenue compared to 2021 as our distributed operations provide leverage.

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General and Administrative. Our general and administrative expenses primarily consist of employee costs (including stock-based compensation expense) for our executive, finance, user operations, legal, people operations and other administrative employees. Our general and administrative expenses also include our provision for doubtful accounts, consulting costs, as well as workplace and other supporting overhead costs.

General and administrative expenses increased in 2021 compared to 2020, primarily due to:

•an increase in employee costs of $15.5 million, primarily reflecting an increase in stock-based compensation expense related to performance-based restricted stock units granted during 2021 for which we expect the performance conditions to be met and, to a lesser extent, an increase in headcount; and

•an impairment charge of $11.2 million related to the right-of-use assets and leasehold improvements associated with certain of our office space that we subleased in 2021.

These increases were partially offset by a decrease of $17.7 million in our provision for doubtful accounts due to improvement in collection rates and a release of a portion of our COVID-19-related bad debt reserves following a decline in the rate of customer delinquencies. We also recorded a net gain on lease termination of $3.7 million resulting from the termination of an office lease. See Note 9, "Leases," of the Notes to Consolidated Financial Statements for further detail.

General and administrative expenses decreased in 2020 compared to 2019 primarily due to:

•fees related to shareholder activism of $7.1 million incurred during 2019 that were not repeated in 2020; and

•a decrease in employee and consulting costs of $6.5 million, driven by lower headcount following the terminations and furloughs associated with the Restructuring Plan and other workforce reductions.

These decreases were partially offset by an increase of $9.7 million in our provision for doubtful accounts primarily associated with an increase in the rate of customer delinquencies related to the COVID-19 pandemic, particularly in the first half of the year.

We expect general and administrative expenses to increase year over year in 2022 due to increased headcount to support business growth and an increase in provision for bad debt as a result of continued macroeconomic challenges, partially offset by savings from our office space reductions as we continue to operate on a distributed basis.

Depreciation and Amortization. Depreciation and amortization expense primarily consists of depreciation on computer equipment, software, leasehold improvements, capitalized website and software development costs, and amortization of purchased intangible assets.

Depreciation and amortization expense increased in 2021 and 2020 compared to the prior-year periods due to increases in depreciation expense associated with capitalized website and internal use software development costs as we invested in new and enhanced products for business owners and consumers, as well as accelerated depreciation in 2021 for assets related to the termination of an office lease.

Restructuring. On April 9, 2020, we announced the Restructuring Plan to help manage the near-term financial impacts of the COVID-19 pandemic. On July 13, 2020, we announced an additional workforce reduction. We incurred $3.9 million in restructuring costs during the year ended December 31, 2020, which consisted of severance, payroll taxes and related benefits costs for terminated employees. The additional costs we incurred during the year ended December 31, 2020 to support furloughed employees are excluded from restructuring expenses and are recorded in operating expenses in the consolidated statements of operations. No further material expense in connection with terminations is expected. No goodwill, intangibles or other long-lived assets were impaired as a result of the Restructuring Plan. See Note 19, "Restructuring," of the Notes to Consolidated Financial Statements for further detail.

Other Income, Net

Other income, net consists primarily of the interest income earned on our cash, cash equivalents and marketable securities, research and development tax credits, the portion of our sublease income in excess of our lease cost, amortization of debt issuance costs, credit facility fees and foreign exchange gains and losses.

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Other income, net decreased in both 2021 and 2020 compared to the prior-year periods, primarily driven by lower interest income as a result of the change in our investment strategy in the first quarter of 2020 to reduce our holdings of marketable securities in favor of holdings that are more liquid, mainly money market funds, which offer lower interest rates. We changed our strategy to preserve liquidity as a result of the uncertainties surrounding the COVID-19 pandemic and its impact on our business. For more information on this change, see Note 5, "Marketable Securities," of the Notes to Consolidated Financial Statements. We do not expect any further impacts to other income, net as a result of this change in investment strategy.

(Benefit from) Provision for Income Taxes

(Benefit from) provision for income taxes consists of: federal and state income taxes in the United States and income taxes in certain foreign jurisdictions; deferred income taxes reflecting the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes; and the realization of net operating loss carryforwards.

Benefit from income taxes decreased in 2021 primarily due to an increase in profit before tax, partially offset by an increase in benefits from stock-based compensation. The benefit from income taxes in the prior-year period also reflected net operating loss carryback benefits allowed under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”).

Benefit from income taxes increased in 2020 (from a recorded provision in 2019 to a recorded benefit in 2020) primarily due to pre-tax losses, income tax credits and benefits from net operating loss carrybacks to 35.0% tax years as permitted under the CARES Act. The CARES Act was enacted on March 27, 2020 in response to the COVID-19 pandemic. See Note 16, "Income Taxes," of the Notes to Consolidated Financial Statements for further details.

As of December 31, 2021, we had approximately $40.5 million in net deferred tax assets ("DTAs"). At this time, we consider it more likely than not that we will have sufficient taxable income in the future to allow us to realize these DTAs. However, it is possible that some or all of these DTAs will not be realized. Therefore, unless we are able to generate sufficient taxable income from our operations, a substantial valuation allowance to reduce our U.S. DTAs may be required, which would materially increase our expenses in the period in which we recognize the allowance and have a materially adverse impact on our consolidated financial statements. The exact timing and amount of the valuation allowance recognition are subject to change on the basis of the net income that we are able to actually achieve. We will continue to evaluate the possible recognition of a valuation allowance on a quarterly basis.

We expect our GAAP tax rate for 2022 to increase to approximately 38%. While a number of factors are expected to contribute to this increase, all of which are subject to variability, a significant driver of this increase is the new requirement under the Tax Act to capitalize and amortize research and development expenses. Although there is pending legislation in Congress to repeal this requirement or defer it to 2026, the outcome of that legislation is uncertain. If this requirement remains effective, it would have a material and adverse impact on our effective tax rate and cash flows in 2022 as well as future years. We will continue to evaluate the impacts and monitor the issuance of additional regulatory or accounting guidance in addition to any executive or legislative updates.

Non-GAAP Financial Measures

Our consolidated financial statements are prepared in accordance with GAAP. However, we have also disclosed below adjusted EBITDA and adjusted EBITDA margin, each of which is a non-GAAP financial measure. We have included adjusted EBITDA and adjusted EBITDA margin because they are key measures used by our management and board of directors to understand and evaluate our operating performance and trends, to prepare and approve our annual budget and to develop short- and long-term operational plans. In particular, the exclusion of certain expenses in calculating adjusted EBITDA can provide a useful measure for period-to-period comparisons of our primary business operations. Accordingly, we believe that adjusted EBITDA and adjusted EBITDA margin provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.

Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. In particular, adjusted EBITDA should not be viewed as a substitute for, or superior to, net income (loss) prepared in accordance with GAAP as a measure of profitability or liquidity. Some of these limitations are:

•although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and adjusted EBITDA does not reflect all cash capital expenditure requirements for such replacements or for new capital expenditure requirements;

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•adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

•adjusted EBITDA does not reflect the impact of the recording or release of valuation allowances or tax payments that may represent a reduction in cash available to us;

•adjusted EBITDA does not consider the potentially dilutive impact of equity-based compensation;

•adjusted EBITDA does not take into account any income or costs that management determines are not indicative of ongoing operating performance, such as restructuring costs, impairment charges, net gain on lease termination and fees related to shareholder activism; and

•other companies, including those in our industry, may calculate adjusted EBITDA differently, which reduces its usefulness as a comparative measure.

Because of these limitations, you should consider adjusted EBITDA and adjusted EBITDA margin alongside other financial performance measures, net income (loss), and our other GAAP results.

Adjusted EBITDA. Adjusted EBITDA is a non-GAAP financial measure that we calculate as net income (loss), adjusted to exclude: provision for (benefit from) income taxes; other income (expense), net; depreciation and amortization; stock-based compensation expense; and, in certain periods, certain other income and expense items, such as restructuring costs, impairment charges, net gain on lease termination and fees related to shareholder activism.

Adjusted EBITDA margin. Adjusted EBITDA margin is a non-GAAP financial measure that we calculate as Adjusted EBITDA divided by net revenue.

The following is a reconciliation of net income (loss) to adjusted EBITDA, as well as the calculation of net income (loss) margin and adjusted EBITDA margin, for each of the periods indicated (in thousands, except percentages):

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","","2020","","2019"],["Reconciliation of Net Income (Loss) to Adjusted EBITDA:"],["Net income (loss)","$","39,671","","","$","(19,424)","","","$","40,881"],["(Benefit from) provision for income taxes","(5,953)","","","(15,701)","","","8,886"],["Other income, net","(2,204)","","","(3,670)","","","(14,256)"],["Depreciation and amortization","55,683","","","50,609","","","49,356"],["Stock-based compensation","151,679","","","124,574","","","121,512"],["Restructuring","32","","","3,862","","","\u2014"],["Asset impairment(1)","11,164","","","\u2014","","","\u2014"],["Gain on lease termination, net(1)","(3,748)","","","\u2014","","","\u2014"],["Fees related to shareholder activism(1)","\u2014","","","\u2014","","","7,116"],["Adjusted EBITDA","$","246,324","","","$","140,250","","","$","213,495"],["Net revenue","$","1,031,839","","","$","872,933","","","$","1,014,194"],["Net income (loss) margin","4","%","","(2)","%","","4","%"],["Adjusted EBITDA margin","24","%","","16","%","","21","%"]]
[[/GREPCENT_TABLE]]

(1)Recorded within general and administrative expenses on our consolidated statements of operations.

Liquidity and Capital Resources

Sources of Cash

As of December 31, 2021, we had cash and cash equivalents of $479.8 million, which consisted of cash and money market funds. Our cash held internationally as of December 31, 2021 was $25.9 million. As of December 31, 2021, we also had $10.0 million of investments in certificates of deposit with minority-owned financial institutions.

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To date, we have been able to finance our operations and our acquisitions through proceeds from private and public financings, including our initial public offering in March 2012 and our follow-on offering in October 2013, cash generated from operations, and, to a lesser extent, cash provided by the exercise of employee stock options and purchases under the Employee Stock Purchase Plan, as amended, as well as proceeds from our sale of Eat24 to Grubhub in October 2017.

We continue to hold the majority of our investments in highly liquid money market funds following the liquidation of our portfolio of marketable securities in the first half of 2020, which we undertook as a result of our change in investment strategy to preserve liquidity in response to the COVID-19 pandemic. Our remaining investments that were not held in money market funds as of December 31, 2021 were held in certificates of deposit. See Note 5, "Marketable Securities," of the Notes to Consolidated Financial Statements for further details about the liquidation of our portfolio of marketable securities.

We have the ability to access backup liquidity to fund working capital and other capital requirements, as needed, through a three-year, $75.0 million senior unsecured revolving credit facility (including a $25.0 million letter of credit sub-limit) as part of our Credit Agreement with Wells Fargo. As of December 31, 2021, we had $21.5 million of letters of credit under the sub-limit related to lease agreements for certain office locations, which are required to be maintained and issued to the landlords of each facility, and $53.5 million remained available under the revolving credit facility as of that date. The cost of capital associated with this credit facility was not significantly more than the cost of capital that we would have expected prior to the COVID-19 pandemic.

The Credit Agreement requires us to comply with a maximum consolidated total leverage ratio and minimum consolidated interest coverage ratio. The Credit Agreement also contains customary limitations on our ability to: create, incur, assume or be liable for indebtedness; dispose of assets outside the ordinary course; acquire, merge or consolidate with or into another person or entity; create, incur or allow any lien on any of our property; make investments; or pay dividends, make distributions or repurchase shares. Such limitations are subject to certain exceptions. In addition, the Credit Agreement provides for certain events of default such as nonpayment of principal and interest when due, breaches of representations and warranties, noncompliance with covenants, acts of insolvency and default on indebtedness held by third parties (subject to certain limitations and cure periods). As of December 31, 2021, we were in compliance with all covenants and there were no loans outstanding under the Credit Agreement.

Material Cash Requirements

Our future capital requirements and the adequacy of available funds will depend on many factors, including those set forth under the heading “Risk Factors” in this Annual Report. We believe that our existing cash and cash equivalents, together with any cash generated from operations, will be sufficient to meet our material cash requirements in the next 12 months and beyond, including: working capital requirements; our anticipated repurchases of common stock pursuant to our stock repurchase program; payment of taxes related to the net share settlement of equity awards; payment of lease costs related to our operating leases; the potential payment of a higher amount of income taxes beginning in 2022, primarily due to the new requirement to amortize certain research and development expenses under the Tax Act; and purchases of property, equipment and software and website hosting services. However, this estimate is based on a number of assumptions that may prove to be materially different and we could exhaust our available cash and cash equivalents earlier than presently anticipated. We may be required to draw down funds from our revolving credit facility or seek additional funds through equity or debt financings to respond to business challenges associated with the ongoing impact of the COVID-19 pandemic or other challenges, including the need to develop new features and products or enhance existing services, improve our operating infrastructure or acquire complementary businesses and technologies.

We lease office facilities under operating lease agreements that expire from 2022 to 2031. Our cash requirements related to these lease agreements are $190.0 million, of which $48.6 million is expected to be paid within the next 12 months. The total lease obligations are partially offset by our future minimum rental receipts to be received under non-cancelable subleases of $43.9 million. See Note 9, "Leases," of the Notes to Consolidated Financial Statements for further detail on our operating lease obligations.

Our cash requirements related to purchase obligations consisting of non-cancelable agreements to purchase goods and services required in the ordinary course of business — primarily website hosting services — are approximately $70.0 million, of which approximately $46.6 million is expected to be paid within the next 12 months.

The cost of capital associated with any additional funds sought in the future might be adversely impacted by the effects of macroeconomic conditions on our business. Additionally, amounts deposited with third-party financial institutions exceed the Federal Deposit Insurance Corporation and Securities Investor Protection Corporation insurance limits, as applicable. These cash and cash equivalents could be impacted if the underlying financial institutions fail or are subjected to other adverse

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conditions in the financial markets. To date, we have experienced no loss or lack of access to our cash and cash equivalents; however, we can provide no assurances that access to our invested cash and cash equivalents will not be impacted by adverse conditions in the financial markets.

Cash Flows

The following table summarizes our cash flows for the periods indicated (in thousands):

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2021","","2020","","2019"],["Consolidated Statements of Cash Flows Data:"],["Net cash provided by operating activities","$","212,655","","","$","176,701","","","$","204,782"],["Net cash (used in) provided by investing activities","$","(27,650)","","","$","248,359","","","$","124,335"],["Net cash used in financing activities","$","(300,489)","","","$","(21,052)","","","$","(491,519)"]]
[[/GREPCENT_TABLE]]

Operating Activities. Net cash provided by operating activities during the year ended December 31, 2021 increased compared to 2020 primarily as a result of an increase in cash inflows from customers due to higher revenue, partially offset by an increase in cash outflows due to higher payments to employees and key vendors as well as the timing of payment of payroll taxes.

Net cash provided by operating activities during the year ended December 31, 2020 decreased compared to 2019 primarily due to a decrease in cash inflows from customers as a result of lower net revenue recognized during the period. This decrease was partially offset by a decrease in cash outflows for employee-related costs as a result of lower headcount following the terminations and furloughs associated with the Restructuring Plan.

Investing Activities. Net cash used in investing activities during the year ended December 31, 2021 primarily reflects purchases of property, equipment and software. Net cash provided by investing activities during the prior-year period primarily reflects the sale of our marketable securities portfolio following the change in our investment strategy to preserve liquidity, which was partially offset by purchases of intangible assets and other investments.

Net cash provided by investing activities during the year ended December 31, 2020 increased compared to 2019 due to the sale of marketable securities discussed above. This increase was partially offset by the purchases of certificates of deposit and intangible assets during 2020 as well as the release of an escrow deposit during 2019 in connection with our sale of Eat24, which did not recur in 2020.

Financing Activities. Net cash used in financing activities during the year ended December 31, 2021 increased compared to 2020 primarily due to an increase in stock repurchases pursuant to our stock repurchase program, which we suspended for a portion of 2020, and, to a lesser extent, an increase in the amount of taxes paid in connection with the settlement of employee tax liabilities upon the vesting of restricted stock units ("RSUs"). The increase in taxes paid primarily resulted from our use of the net share withholding method of settling employee tax liabilities for RSUs in 2021 compared to the sell-to-cover method, which we used during a portion of the year-ago period. Increases in both the number of shares released upon the vesting of RSUs and the average stock price upon release in 2021 also contributed to this increase in taxes paid.

Net cash used in financing activities during the year ended December 31, 2020 decreased compared to 2019 primarily due to the suspension of share repurchases under our stock repurchase program for most of 2020 as well as our use of the sell-to-cover method of settling employee tax liabilities for RSUs during a portion of the year, which reduced the amount of taxes paid during 2020.

Stock Repurchase Program

Since its initial authorization in July 2017, our board of directors has authorized us to repurchase up to an aggregate of $1.2 billion of our outstanding common stock, $194.7 million of which remained available as of February 18, 2022.

We may purchase shares at our discretion in the open market, privately negotiated transactions, in transactions structured through investment banking institutions, or a combination of the foregoing. The program is not subject to any time limit and may be modified, suspended or discontinued at any time. The amount and timing of repurchases are subject to a variety of factors, including liquidity, cash flow and market conditions.

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During the year ended December 31, 2021, we repurchased 6,995,170 shares on the open market for an aggregate purchase price of $262.9 million. During the year ended December 31, 2020, we repurchased 803,691 shares on the open market for an aggregate purchase price of $24.4 million, which reflects our suspension of share repurchases under our stock repurchase program between April 2020 and November 2020 to maintain liquidity as a result of the uncertain impact of COVID-19 on our business. During the year ended December 31, 2019, we repurchased 14,190,409 shares on the open market for an aggregate purchase price of $481.0 million.

We have funded all repurchases to date and expect to fund future repurchases with cash available on our balance sheet.