# YELP INC (YELP) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from YELP INC's 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1345016/000134501625000007/yelp-20241231.htm
Accession: 0001345016-25-000007
Filing date: 2025-02-27
Report date: 2024-12-31
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/
Previous year: /company/YELP/mda/fy2023/ (FY 2023)
Next year: /company/YELP/mda/fy2025/ (FY 2025)

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.

The following section also includes information regarding 2024 and 2023 and year-over-year comparisons between these periods. A full discussion of 2022 items and year-over-year comparisons between 2023 and 2022 can be found in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023.

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 the more than 280 million ratings and reviews available on our platform 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 from 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, 2024, our net revenue was $1.41 billion, up 6% from the year ended December 31, 2023 and 18% from the year ended December 31, 2022, and we recorded net income of $132.9 million and adjusted EBITDA of $358.0 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 2024, we delivered another year of record annual revenue and profitable growth through the consistent execution of our product-led strategic initiatives:

Deliver the best Home Services experience for consumers and service pros

•The Home Services category was the major focus of our strategy in 2024 and has been the largest driver of growth in the Services categories for nearly a decade. In 2024, we launched a number of new products and features to facilitate even better connections between consumers and service professionals. These included our AI chatbot, Yelp Assistant, which has particularly resonated with consumers, with project submissions through this feature increasing by more than 50% from the third to fourth quarter of 2024. To help service professionals more easily evaluate leads — phone calls, requests and website clicks — we enhanced the business owner inbox by providing brief AI-powered summaries of crucial job information. Improvements to the Request-a-Quote flow led to an approximately 25% year-over-year increase in projects in 2024. These efforts drove record advertising revenue from Services businesses in 2024, which grew 11% year over year to $879 million, led by approximately 15% year-over-year revenue growth in our Home Services category.

Provide the most trusted local search and discovery platform

•In 2024, we continued our efforts to grow the trusted content that has made Yelp a leading resource for consumers to search for and discover great local businesses. Our users contributed 21 million new reviews in 2024, bringing our cumulative reviews to 308 million. We introduced a number of new features and updates, including dozens of AI-powered updates, to enhance the Yelp experience and drive user engagement. For example, we updated the Yelp app’s home feed to surface additional types of content while also making it a more visual experience by showcasing user-generated videos. We also introduced trending searches and businesses to inspire exploration and highlight popular new spots nearby, and redesigned Yelp business pages to make it even easier for users to discover businesses that suit their needs. These improvements to the search experience benefited consumer searches following their implementation. For consumers engaging with our trusted reviews, we launched Review Insights, which leverages LLMs to gauge reviewer sentiment about common aspects of a business, such as the quality of its food, service,

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ambiance, wait time and drinks. We also made a number of user experience and backend improvements to our mobile and desktop websites that together led to year-over-year increases in desktop and mobile web unique devices in 2024.

Optimize advertiser value through our advanced technology

•In 2024, our improved matching and ad formats delivered more value to our advertisers in the form of more clicks at compelling prices. We introduced smart selection, an AI-powered feature for advertisers that automatically selects the best reviews and photos to showcase, optimizing ads for the highest return. We also expanded local advertiser reach through a variety of partnerships, including by leveraging users’ on-Yelp search intent to surface relevant Yelp ads to them on local platforms like Facebook. As a result, ad clicks increased by 6% year over year as users interacted with even more relevant content while average CPC remained flat in 2024, resulting in an improvement in our retention of non-term advertisers’ budgets compared to 2023.

Drive profitable growth through our most efficient channels

•By prioritizing investments in our Self-serve and Multi-location channels, we have significantly shifted our go-to-market mix toward our most efficient channels in recent years. In 2024, revenue from these channels together accounted for approximately 50% of our total advertising revenue, a significant expansion from approximately 30% in 2018. Our product and marketing efforts contributed to another year of record Self-serve customer acquisition in 2024, which drove annual revenue growth of approximately 15% year over year in this channel. For example, we continued to enhance the business owner experience through budget recommendations and billing optimizations as well as new competitive insights on the business owner dashboard, such as page view comparisons.

•Multi-location channel revenue was approximately flat year over year in 2024 as businesses in the RR&O categories continued to face a challenging operating environment. However, we remained focused on improving our offerings for multi-location advertisers. For example, we launched a conversion API to provide additional attribution capabilities, expanded Yelp Audiences to include audio platforms and introduced a leads API for multi-location Services businesses.

Looking ahead, we see further opportunities to build upon the success of these strategic initiatives and deliver even more value to both consumers and advertisers by investing in our 2025 strategic initiatives. As we enter 2025, we expect that our expenses will increase from the fourth quarter of 2024 to the first quarter of 2025, primarily reflecting a seasonal increase in expenses from payroll taxes and benefits. We expect stock-based compensation expense as a percentage of revenue to decrease to less than 8% by the end of 2025 and reach less than 6% by the end of 2027. We also expect that our revenue will grow year over year in 2025 as our initiatives gain traction; however, we expect revenue in the first quarter of 2025 to be slightly down sequentially, reflecting seasonal trends and the macroeconomic challenges facing our RR&O categories.

Factors Affecting Our Performance

Macroeconomic Conditions. The United States continues to face widespread macroeconomic uncertainties, including labor shortages, inflation and recessionary concerns, which may be exacerbated by proposed tariffs and changes to U.S. immigration policy. These challenging macroeconomic conditions have had, and may continue to have, a significant adverse impact on our business and results of operations. For example, adverse macroeconomic conditions have had, and may continue to have, a negative impact on the ability and willingness of advertisers to spend on our products and services. Although advertiser demand from Services businesses was strong in 2024, RR&O businesses continued to face a challenging operating environment, including supply chain issues, inflation and its impact on consumer spending, labor shortages and an increased cost of labor, which has negatively impacted their advertising spending with us.

Changes in consumer behavior due to adverse economic conditions have also had, and may continue to have, a negative impact our business. For example, in 2024, economic uncertainty and inflationary pressures contributed to consumer use of our mobile app and web traffic to our platform remaining below pre-pandemic 2019 levels, particularly in our RR&O categories. Because traffic to and user engagement on our platform together impact the number of ads we are able to show as well as the value of those ads to businesses, such negative impacts on consumer activity may also make it more difficult to convince existing and prospective advertisers that our products offer them a material benefit and generate a competitive return relative to other alternatives.

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It is not possible for us to predict the remaining duration of the ongoing adverse macroeconomic conditions or the duration or magnitude of any resulting adverse impact on our business. 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 2025, we plan to invest in our strategic initiatives to lead in Services, drive advertiser value and transform 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 and initiatives 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 and initiatives that are unproven or that are outside of our historical core business, such as our plans to expand our use of AI throughout our platform and business operations. 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 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.

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 multi-location Services businesses remains a strategic focus, 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. Our employee operations are complex and place substantial demands on management and our operational infrastructure, particularly in our fully remote work environment. We believe our decision to maintain distributed operations 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, and will allow us to access and attract great talent from a wider pool of candidates across North America and Europe.

Stock Repurchases. Since July 2017, our Board has authorized us to repurchase up to an aggregate of $1.95 billion of our outstanding common stock, $304.7 million of which remained available as of February 18, 2025 and which does not have an expiration date. During the year ended December 31, 2024, we repurchased on the open market 6,686,518 shares for an aggregate purchase price of $250.9 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 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. For example, in November 2024, we acquired RepairPal to expand our offerings in the Auto Services category. 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

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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. 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 sequentially through the third quarter. Fourth quarter revenue is typically similar to the third quarter as well as to the first quarter of the subsequent year. Multi-location ad budgets typically increase throughout the year, generally starting the year at their lowest and peaking in the fourth quarter, though our SMB customers tend to decrease their spending at that time. With regard to expenses, we generally decrease our marketing expenditures in the fourth quarter before increasing them again in the first quarter of the following year. Our personnel expenses tend to increase from the fourth quarter to the first quarter due to the timing of payroll taxes and benefits, as well as our annual compensation cycle. Our traffic is also typically weakest in the fourth quarter of the year.

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.

Ad Clicks and Average CPC

The amount of revenue we generate from our pay-for-performance advertising products is determined by the number of ad clicks we deliver to advertisers and the price we charge for each ad click (“CPC”).

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, among others. 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 partnerships. We do not expect the exclusion of such user interactions to materially affect this metric. We report the year-over-year percentage change in ad clicks as a measure of our success in monetizing more of our consumer activity and delivering more value to advertisers.

Average CPC is calculated 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 period. Average CPC represents the average amount we charge advertisers for each ad click.

We believe that ad clicks and average CPC together reflect one of the most significant dynamics affecting our advertising revenue performance: the interplay of advertiser demand and consumer activity. At the level of an auction for an individual ad click, advertiser demand — consisting of advertiser budgets and the number of advertisers competing to purchase the ad click — intersects with the supply of consumer activity — consisting of the predicted levels of relevant consumer traffic and engagement — to determine CPC, with higher advertiser demand putting upward pressure on the CPC and higher consumer activity putting downward pressure on the CPC. In aggregate, advertiser demand consists of the number of business locations advertising with us (which we refer to as paying advertising locations, as discussed below) and the aggregate budget they allocate to purchasing our advertising products. Aggregate monetizable consumer activity depends on the levels of consumer traffic and engagement with our ads, the numbers of locations where we can display ads and other monetizable features, and our click-through rate, which is the ratio of ad clicks to the number of times the ads were displayed to consumers. The relative strengths of these factors in aggregate are reflected in average CPC.

Ad clicks and average CPC also provide 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 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. Conversely, growth in average CPC paired with a negative or lower growth rate in ad clicks would indicate we charged more without delivering more ad clicks; we would expect this to have a negative impact on retention unless we are able to increase the value we deliver through higher performing ad clicks.

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The following table presents year-over-year changes in our ad clicks and average CPC for the periods presented (each expressed as a percentage):

[[GREPCENT_TABLE]]
[["","Three Months Ended December 31,","","Year Ended December 31,"],["","2024","","2023","","2024","","2023"],["Ad Clicks","5%","","9%","","6%","","5%"],["Average CPC","\u2014%","","4%","","\u2014%","","9%"]]
[[/GREPCENT_TABLE]]

In each of the three and twelve months ended December 31, 2024, advertising revenue grew 6% year over year due to year-over-year increases in ad clicks. The increases in ad clicks in both periods were driven by improvements to our advertising technology and, to a lesser extent, our acquisition of Services projects through paid search. Average CPC remained flat in each of the three and twelve months ended December 31, 2024.

Advertising 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 RR&O. Our Services categories consist of home, local, auto, professional, pets, events, real estate and financial services. Our RR&O categories consist of restaurants, shopping, beauty & fitness, health and other.

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

[[GREPCENT_TABLE]]
[["","Three Months EndedDecember 31,","","% Change","","Year Ended December 31,","","% Change"],["","2024","","2023","","","2024","","2023"],["Services","$","224,840","","","$","203,140","","","11%","","$","879,092","","","$","793,112","","","11%"],["Restaurants, Retail & Other","120,798","","","124,231","","","(3)%","","469,928","","","483,406","","","(3)%"],["Total Advertising Revenue","$","345,638","","","$","327,371","","","6%","","$","1,349,020","","","$","1,276,518","","","6%"]]
[[/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 RepairPal business locations as well as business accounts that purchased advertising through partner programs other than Yelp Ads Certified Partners, averaged over a given three- or twelve-month period. We also provide a breakdown of paying advertising locations between our Services categories and RR&O categories.

We provide our paying advertising locations 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 the current inflationary pressures and labor and supply chain challenges, have had a predominant negative impact on RR&O paying advertising locations over the past year. 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.

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

[[GREPCENT_TABLE]]
[["","Three Months EndedDecember 31,","","% Change","","Year Ended December 31,","","% Change"],["","2024","","2023","","","2024","","2023"],["Services","250","","245","","2%","","252","","239","","5%"],["Restaurants, Retail & Other","271","","299","","(9)%","","274","","316","","(13)%"],["Total Paying Advertising Locations","521","","544","","(4)%","","526","","555","","(5)%"]]
[[/GREPCENT_TABLE]]

Total paying advertising locations decreased in the three and twelve months ended December 31, 2024 compared to the prior-year periods, as the decreases in paying advertising locations in our RR&O categories were partially offset by increases in paying advertising locations in our Services categories over the same periods. We believe the decreases in RR&O paying advertising locations reflect the challenging operating environment facing businesses in these categories and, to a lesser extent, competition for ad spend from such businesses, including from food ordering and delivery providers.

Reviews and Traffic

We report our reviews and traffic metrics on an annual basis as measures of the volume of our content and the size of our audience, respectively. Although measures of our content (including our reviews metric) and traffic do not factor directly into the advertising arrangements we have with our customers, this dynamic underpins our ability to deliver ad clicks and drive conversion of advertisers’ products and services. Consumer engagement metrics validate our value proposition to businesses as they seek easy-to-use and effective advertising solutions.

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. Users can access the reviews that are not currently recommended, as well as the star rating and other information about reviews that were removed for violation of our terms of service, through a link on the business’s page.

As of December 31, 2024, 308.1 million reviews had been submitted to our platform, of which 281.8 million reviews were available on business pages, including 46.9 million reviews that were not recommended, and 26.3 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 December 31, 2024 and 2023 (in thousands):

[[GREPCENT_TABLE]]
[["","As of December 31,","","% Change"],["","2024","","2023"],["Reviews","308,100","","287,364","","7%"]]
[[/GREPCENT_TABLE]]

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Traffic

Traffic to our website and mobile app has three components: mobile devices accessing our mobile app, devices accessing our non-mobile optimized website, which we refer to as our desktop website, and devices accessing our mobile-optimized website, which we refer to as our mobile website.

A substantial majority of each of these traffic streams goes to our RR&O categories, with traffic to our mobile app particularly heavily weighted toward RR&O. Because RR&O traffic is particularly sensitive to changes in consumer confidence levels, our overall traffic levels generally fluctuate with macroeconomic conditions. For example, although our traffic has recovered from its lowest levels during the pandemic in 2020, it has remained below our pre-pandemic 2019 traffic levels due to ongoing economic uncertainty and inflationary pressures, among other macroeconomic concerns. We cannot predict the remaining duration of these conditions, or the duration or magnitude of any resulting adverse impacts on our traffic, and we expect that our traffic levels will continue to fluctuate with consumers’ level of confidence.

In addition, we have historically benefited from the integration of our content into Apple Maps, driving a significant amount of traffic to our website and downloads of our mobile app. However, the volume of traffic and app downloads from this source has declined following certain changes to the display of our content in Apple Maps and it may to continue to decline in the future.

As a result of these dynamics, as well as the maturation of our business and high penetration rates in most major geographic markets within the United States and Canada, we generally expect our traffic to continue fluctuating and to decrease in certain periods going forward. In 2025, we expect RR&O traffic to remain challenged as consumers continue to face economic uncertainty and inflation, likely offsetting modest growth in Services traffic. 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.

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. Prior to 2024, we calculated 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. As a result of our ongoing efforts to improve the accuracy of our key metrics, in 2024, we updated our methodology for measuring app unique devices to exclude devices that access our mobile app in a given month but do not meet a minimum level of engagement with it during such month by, for example, viewing a business, performing a search, viewing or submitting content, or other similar interactions (“minimum required level of engagement”). Under both our current and historical methodologies, 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.

App users generate a substantial majority of activity on Yelp, including the page views and ad clicks that we monetize. The following table presents app unique devices for the periods presented (in thousands):

[[GREPCENT_TABLE]]
[["","","","Year Ended December 31,","","% Change"],["","","","","","","","2024","","2023"],["App Unique Devices"],["Updated Methodology","","","","","","","28,595","","29,842","","(4)%"],["Historical Methodology","","","","","","","30,660","","31,909","","(4)%"]]
[[/GREPCENT_TABLE]]

In 2024, app unique devices decreased year over year as consumers visited restaurants less frequently amid macroeconomic pressures. It also continued to be negatively impacted by the reduced volume of app downloads driven by Apple Maps.

Desktop and Mobile Website Unique Devices. Prior to 2024, we calculated our desktop and mobile web traffic metrics based on the number of “users,” as measured by Google Analytics, who had visited our desktop website and mobile website, respectively, at least once in a given month, averaged over a given twelve-month period. We referred to these metrics as desktop unique visitors and mobile web unique visitors. However, as of July 1, 2024, Google discontinued the Universal Analytics version of Google Analytics that we previously used.

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We now calculate desktop web traffic and mobile web traffic as (1) the number of devices identified by our internal measurement tools that have visited our desktop website and mobile website, respectively, at least once in a given month, (2) adjusted to exclude devices that do not meet our minimum required level of engagement during such month, (3) averaged over a given twelve-month period. We believe this methodology will allow us to better analyze web traffic data. We refer to our web traffic metrics calculated under this methodology as unique devices rather than unique visitors to conform to the name of our app unique devices metric as well as to better reflect that these metrics measure devices that visit our website rather than individuals who visit our website, as discussed below.

Our internal measurement tools and Google Analytics measure devices and “users,” respectively, based on unique identifiers. As a result, an individual who visits our website from multiple devices with different identifiers may be counted as multiple unique devices or unique visitors, as applicable, and multiple individuals who visit our website from a shared device with a single identifier may be counted as a single unique device or unique visitor. Accordingly, the calculations of our unique visitors and unique devices may not accurately reflect the number of individuals who actually visit our website.

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

[[GREPCENT_TABLE]]
[["","","","Year Ended December 31,","","% Change"],["","","","","","","","2024","","2023"],["Desktop Unique Devices"],["Internal Measurement","","","","","","","40,341","","39,959","","1%"],["Google Analytics","","","","","","","N/A","","36,301","","N/A"],["Mobile Web Unique Devices"],["Internal Measurement","","","","","","","63,987","","62,013","","3%"],["Google Analytics","","","","","","","N/A","","60,282","","N/A"]]
[[/GREPCENT_TABLE]]

Improvements to our desktop and mobile websites, including matching improvements and a more visually appealing user experience, drove slight year-over-year increases in desktop and mobile web unique devices in 2024.

Active Claimed Local Business Locations

We report active claimed local business locations annually as a measure of the scope of our Local advertising business. 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,","","% Change"],["","2024","","2023"],["Active Claimed Local Business Locations","7,736","","7,056","","10%"]]
[[/GREPCENT_TABLE]]

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Results of Operations

The following table sets forth our results of operations for 2024 and 2023 (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,"],["","2024","","2023","","","","$ Change","","","","% Change(1)"],["Consolidated Statements of Operations Data:"],["Net revenue by product:"],["Advertising revenue by category:"],["Services","$","879,092","","","$","793,112","","","","","$","85,980","","","","","11","%"],["Restaurants, Retail & Other","469,928","","","483,406","","","","","(13,478)","","","","","(3)","%"],["Advertising","1,349,020","","","1,276,518","","","","","72,502","","","","","6","%"],["Other(2)","63,044","","","60,544","","","","","2,500","","","","","4","%"],["Total net revenue","1,412,064","","","1,337,062","","","","","75,002","","","","","6","%"],["Costs and expenses:"],["Cost of revenue (exclusive of depreciation and amortization shown separately below)","123,684","","","114,229","","","","","9,455","","","","","8","%"],["Sales and marketing","585,978","","","556,605","","","","","29,373","","","","","5","%"],["Product development","325,992","","","332,570","","","","","(6,578)","","","","","(2)","%"],["General and administrative","184,958","","","212,431","","","","","(27,473)","","","","","(13)","%"],["Depreciation and amortization","40,407","","","42,184","","","","","(1,777)","","","","","(4)","%"],["Total costs and expenses","1,261,019","","","1,258,019","","","","","3,000","","","","","\u2014","%"],["Income from operations","151,045","","","79,043","","","","","72,002","","","","","91","%"],["Other income, net","31,915","","","26,039","","","","","5,876","","","","","23","%"],["Income before income taxes","182,960","","","105,082","","","","","77,878","","","","","74","%"],["Provision for income taxes","50,110","","","5,909","","","","","44,201","","","","","748","%"],["Net income attributable to common stockholders","$","132,850","","","$","99,173","","","","","$","33,677","","","","","34","%"]]
[[/GREPCENT_TABLE]]

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

(2)    For the year ended December 31, 2024, other revenue includes revenue generated from transactions with consumers, which we reported separately as transactions revenue in prior periods. Prior-period amounts have been reclassified to conform to the current-period presentation.

Years Ended December 31, 2024 and 2023

Net Revenue

Advertising. We generate advertising revenue from the sale of our advertising products — including Yelp Ads and business page upgrades — 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 advertising inventory through third-party ad networks, as well as revenue from the RepairPal Network. We present advertising revenue on a disaggregated basis for our high-level category groupings, Services and RR&O.

Advertising revenue increased in 2024 compared to 2023, primarily driven by a 6% increase in ad clicks.

Other. We generate other revenue through non-advertising contracts, such as our subscription services, which include our Yelp Guest Manager product, and through our Yelp Fusion and Yelp Fusion Insights programs, which provide Yelp content and data for a fee. In addition, we now report transactions revenue together with other revenue to reflect that neither transactions revenue nor the underlying business is a core part of our current business model. As a result, other revenue now includes revenue from various transactions with consumers. We generate revenue from such transactions through our partnership integrations, which are mainly revenue-sharing arrangements that provide consumers with the ability to place food orders for pickup and delivery 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.

Other revenue increased in 2024 compared to 2023, primarily due to the continued growth of our Yelp Fusion, Yelp Guest Manager and Yelp Fusion Insights programs, partially offset by a lower volume of food takeout and delivery orders.

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Trends and Uncertainties of Net Revenue. Net revenue in the year ended December 31, 2024 increased by 6% year over year as momentum in our Services categories continued. We expect net revenue for the first quarter of 2025 to decrease slightly from the fourth quarter of 2024, reflecting typical seasonality and ongoing operating challenges for businesses in our RR&O categories.

Costs and Expenses

Cost of Revenue (exclusive of depreciation and amortization). Our cost of revenue consists primarily of 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 and credit card processing fees.

Cost of revenue increased in 2024 compared to 2023, primarily as a result of an increase in website infrastructure expense of $8.8 million, primarily as a result of investments in maintaining and improving our infrastructure as well as higher cost of labor.

We expect cost of revenue to increase on an absolute dollar basis in 2025 compared to 2024.

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 2024 compared to 2023, primarily due to:

•an increase in marketing and advertising costs of $23.0 million, driven by increased investments in acquiring Services projects through paid search; and

•an increase in employee costs of $16.2 million resulting from higher cost of labor, partially offset by lower average headcount.

These increases were partially offset by a decrease in workplace operating costs of $9.8 million resulting from reductions in our leased office space. See Note 10, “Leases,” of the Notes to Consolidated Financial Statements for further detail.

We expect sales and marketing expenses to increase in 2025 compared to 2024 as our sales and marketing employees become more tenured as well as additional headcount from the acquisition of RepairPal. However, we expect sales and marketing expenses to decrease as a percentage of net revenue as we realize efficiencies from our sales and marketing initiatives.

Product Development. Our product development expenses primarily consist of employee costs (including bonuses and 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 decreased in 2024 compared to 2023, primarily due to a decrease in employee costs of $5.8 million resulting from more employee costs being capitalized and lower average headcount, partially offset by higher cost of labor.

We expect product development expenses to remain relatively consistent on an absolute dollar basis in 2025 compared to 2024, but decrease as a percentage of net revenue as our distributed operations provide leverage.

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General and Administrative. Our general and administrative expenses primarily consist of employee costs (including bonuses and 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 allocated workplace and other supporting overhead costs.

General and administrative expenses decreased in 2024 compared to 2023, primarily due to:

•a decrease in impairment charges of $17.7 million related to our leased office spaces. See Note 10, “Leases,” of the Notes to Consolidated Financial Statements for further detail;

•an $11.0 million loss contingency recorded in 2023 in connection with the agreement to settle a putative class action lawsuit asserting claims under the California Invasion of Privacy Act (the “CIPA Action”). See Note 14, “Commitments and Contingencies,” of the Notes to Consolidated Financial Statements for further detail; and

•a decrease in employee costs of $5.3 million, primarily driven by lower average headcount.

These decreases were partially offset by an increase in our provision for doubtful accounts of $4.9 million due to higher customer delinquencies and higher advertising revenue.

We expect general and administrative expenses to increase slightly on an absolute dollar basis in 2025 compared to 2024 to support the continued growth of our business, but remain relatively consistent as a percentage of net revenue.

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

Depreciation expense decreased $3.2 million in 2024 compared to 2023, primarily due to a decrease in depreciation expense of leasehold improvements from asset retirements related to lease abandonments and expirations as well as certain other assets becoming fully depreciated since the prior-year period.

This decrease was partially offset by an increase in amortization expense of $1.4 million related to intangible assets acquired as part of the acquisition of RepairPal. See Note 8, “Acquisition,” 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, accretion of discounts and amortization of premiums on investments, credit facility fees, foreign exchange gains and losses, and, in the year ended December 31, 2024, the release of a reserve related to a one-time payroll tax credit.

Other income, net increased in 2024 compared to 2023 due to the release of a $3.1 million reserve related to a one-time payroll tax credit, higher tax incentives of $1.9 million related to research and development activity in the United Kingdom, and $1.8 million of higher interest income earned on our cash, cash equivalents and marketable securities primarily due to higher federal interest rates.

Provision for Income Taxes

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.

The increase in the provision for income taxes in 2024 compared to the prior year was primarily driven by an increase in profit before tax as well as a decrease in the discrete tax benefits related to the federal and state tax provision to return adjustments.

As of December 31, 2024, we had approximately $139.6 million in net deferred tax assets (“DTAs”). As of December 31, 2024, we consider it more likely than not that we will have sufficient taxable income in the future that will 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

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generate sufficient taxable income from our operations, a substantial valuation allowance may be required to reduce our DTAs, 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 continue to estimate that our effective GAAP tax rate (before discrete items) for 2025 will be in the range of 24% to 28%. However, our GAAP tax rate is impacted by a number of factors that are not in our direct control and that are subject to quarterly variability, which limits our visibility into the applicable rate for future fiscal periods.

Non-GAAP Financial Measures

Our consolidated financial statements are prepared in accordance with GAAP. However, we have also disclosed below adjusted EBITDA, adjusted EBITDA margin and free cash flow, each of which is a non-GAAP financial measure. We have included adjusted EBITDA, adjusted EBITDA margin and free cash flow because they are key measures used by our management and Board to understand and evaluate our operating performance and trends, to prepare and approve our annual budget, to develop short- and long-term operational plans, and to assess our sources of liquidity. 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, while free cash flow provides information about the quality of our earnings. Accordingly, we believe that adjusted EBITDA, adjusted EBITDA margin and free cash flow provide useful information to investors and others in understanding and evaluating our operating results in the same manner as our management and Board.

Adjusted EBITDA and free cash flow have limitations as analytical tools, and you should not consider them in isolation or as substitutes for analysis of our results as reported under GAAP. In particular, adjusted EBITDA and free cash flow should not be viewed as substitutes for, or superior to, net income (loss) or net cash provided by (used in) operating activities prepared in accordance with GAAP as measures 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;

•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 material litigation settlements, impairment charges, acquisition and integration costs, and fees related to shareholder activism;

•free cash flow does not represent the total residual cash flow available for discretionary purposes because it does not reflect our contractual commitments or obligations; and

•other companies, including those in our industry, may calculate adjusted EBITDA and free cash flow differently, which reduces their usefulness as comparative measures.

Because of these limitations, you should consider adjusted EBITDA, adjusted EBITDA margin and free cash flow alongside other financial performance measures, including net income (loss), net cash provided by (used in) operating activities 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, net; depreciation and amortization; stock-based compensation expense; and, in certain periods, certain other income and expense items that management determines are not indicative of ongoing operating performance, such as material litigation settlements, impairment charges, acquisition and integration costs, and fees related to shareholder activism.

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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 to adjusted EBITDA, as well as the calculation of net income margin and adjusted EBITDA margin, for the periods presented (in thousands, except percentages):

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2024","","2023"],["Reconciliation of Net Income to Adjusted EBITDA:"],["Net income","$","132,850","","","$","99,173"],["Provision for income taxes","50,110","","","5,909"],["Other income, net(1)","(31,915)","","","(26,039)"],["Depreciation and amortization","40,407","","","42,184"],["Stock-based compensation","158,193","","","173,451"],["Litigation settlement(2)(3)","\u2014","","","11,000"],["Asset impairment(2)","5,914","","","23,563"],["Acquisition and integration costs(2)","1,266","","","\u2014"],["Fees related to shareholder activism(2)","1,168","","","1,252"],["Adjusted EBITDA","$","357,993","","","$","330,493"],["Net revenue","$","1,412,064","","","$","1,337,062"],["Net income margin","9","%","","7","%"],["Adjusted EBITDA margin","25","%","","25","%"]]
[[/GREPCENT_TABLE]]

(1)    Includes the release of a $3.1 million reserve related to a one-time payroll tax credit in the year ended December 31, 2024.

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

(3)    Represents the loss contingency recorded in connection with our agreement to settle the CIPA Action. Note that this amount does not include any legal fee reimbursements that we expect to receive related to this matter; we do not adjust for legal fees and related reimbursements, which we consider to be part of our ongoing operations. See Note 14, “Commitments and Contingencies,” of the Notes to Consolidated Financial Statements in this Annual Report for additional information.

Free Cash Flow. Free cash flow is a non-GAAP financial measure that we calculate as net cash provided by (used in) operating activities, less cash used for purchases of property, equipment and software.

The following is a reconciliation of net cash provided by operating activities to free cash flow for the periods presented (in thousands):

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2024","","2023"],["Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow:"],["Net cash provided by operating activities","$","285,815","","","$","306,280"],["Purchases of property, equipment and software","(37,347)","","","(26,847)"],["Free cash flow","$","248,468","","","$","279,433"],["Net cash used in investing activities","$","(77,266)","","","$","(54,684)"],["Net cash used in financing activities","$","(303,802)","","","$","(246,778)"]]
[[/GREPCENT_TABLE]]

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Liquidity and Capital Resources

Sources of Liquidity

Our principal sources of liquidity are our cash and cash equivalents, marketable securities and cash generated from operations. As of December 31, 2024, we had cash and cash equivalents of $217.3 million and marketable securities of $100.6 million. Cash and cash equivalents consist of cash, money market funds and investments with original maturities of three month or less. Our cash held internationally as of December 31, 2024 was $54.0 million. As of December 31, 2024, we also had $10.0 million of investments in certificates of deposit with minority depository institutions.

Our investment portfolio comprises highly rated marketable securities that are classified as available-for-sale on our consolidated balance sheets, and our investment policy limits the amount of credit exposure to any one issuer. The policy generally requires securities to be investment grade (i.e., rated ‘A’ or higher by bond rating firms) with the objective of minimizing the potential risk of principal loss.

On April 28, 2023, we entered into the Credit Agreement, which provides for a five-year $125.0 million senior secured revolving credit facility (the “credit facility”). The credit facility includes a $25.0 million letter of credit sub-limit, a $25.0 million bilateral letter of credit facility and an accordion option, which, if exercised, would allow us to increase the aggregate commitments by up to $250.0 million, plus additional amounts if we are able to satisfy a leverage test, subject to certain conditions. The credit facility provides us with the ability to access backup liquidity to fund working capital and for other capital requirements, as needed.

As of December 31, 2024, we were in compliance with all covenants and there were no loans outstanding under the credit facility. We had $14.0 million of letters of credit under the sub-limit primarily related to lease agreements for certain office locations, which are required to be maintained and issued to the landlords of each facility, and $111.0 million remained available under the credit facility as of December 31, 2024.

For additional details regarding the credit facility, see Note 14, “Commitments and Contingencies” of the Notes to Consolidated Financial Statements.

Material Cash Requirements

Our future capital requirements and the adequacy of available funds will depend on many factors, including those set forth under “Risk Factors” in this Annual Report. We believe that our existing cash, cash equivalents and marketable securities, 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 in 2025 and beyond due to, among other things, the requirement to capitalize and amortize certain research and development expenses under the Tax Act and the other factors discussed in “—Results of Operations— Provision for Income Taxes” above; 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 fully utilize our available cash, cash equivalents and marketable securities earlier than presently anticipated. We are not able to reasonably estimate the timing of future cash flows related to $44.0 million of uncertain tax positions. We may be required to draw down funds from our credit facility or seek additional funds through equity or debt financings to respond to business challenges associated with the uncertain macroeconomic environment 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 2025 to 2031. Our cash requirements related to these lease agreements are $46.6 million, of which $22.2 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 $18.3 million. See Note 10, “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 $181.2 million, of which approximately $91.3 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

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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 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, cash equivalents and marketable securities will not be impacted by adverse conditions in the financial markets.

Cash Flows

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

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2024","","2023"],["Net cash provided by operating activities","$","285,815","","","$","306,280"],["Net cash used in investing activities","$","(77,266)","","","$","(54,684)"],["Net cash used in financing activities","$","(303,802)","","","$","(246,778)"]]
[[/GREPCENT_TABLE]]

Operating Activities. Net cash provided by operating activities during the year ended December 31, 2024 decreased by $20.5 million compared to 2023, primarily due to an increase of $27.6 million in income taxes paid, an increase of $25.7 million in payments to vendors, and higher employee-related payments of $18.2 million for salaries, commissions, bonuses and benefits, mainly due to higher cost of labor as well as a shift towards a compensation mix that emphasizes cash over equity. The higher cash outflow was also driven by the payment of $15.0 million to settle the CIPA Action in 2024, as well as other cash payments that were not individually significant. These cash outflows were partially offset by an increase of $79.9 million in cash collected from customers primarily due to the increase in revenue.

Investing Activities. Net cash used in investing activities during the year ended December 31, 2024 increased compared to 2023 primarily due to our acquisition of RepairPal as well as an increase in capitalized website and internal-use software development costs. These increases were partially offset by net sales and maturities of marketable securities during the year ended December 31, 2024 compared to net purchases of marketable securities in 2023.

Financing Activities. Net cash used in financing activities during the year ended December 31, 2024 increased compared to 2023 primarily due to an increase in repurchases of our common stock and a decrease in proceeds from stock option exercises, partially offset by a decrease in taxes paid related to the net share settlement of equity awards during the year ended December 31, 2024 compared to 2023.

Stock Repurchase Program

Since the initial authorization of our stock repurchase program in July 2017, our Board has authorized us to repurchase up to an aggregate of $1.95 billion of our outstanding common stock, including the $500.0 million authorized in February 2024, of which $304.7 million remained available for future repurchases on February 18, 2025.

We may repurchase 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.

During the year ended December 31, 2024, we repurchased 6,686,518 shares on the open market for an aggregate purchase price of $250.9 million.

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

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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. Due to macroeconomic conditions and other factors, certain estimates and assumptions have required and may continue to require increased judgment and carry a higher degree of variability and volatility. As events continue to evolve and additional information becomes available, these estimates may change materially in future periods.

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 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 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.

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Business Combinations—We account for acquisitions of entities that consist of inputs and processes that have the ability to contribute to the creation of outputs as business combinations. We allocate the purchase price of the acquisition to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, forecasted revenue and expenses, customer attrition rate, royalty rates and discount rates. The excess of the purchase price over the fair values of assets acquired and liabilities assumed is recorded as goodwill. Acquisition and integration costs are expensed as incurred. During the measurement period, which is not to exceed one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. After the measurement period, subsequent adjustments are reflected on our consolidated statements of operations.

Income Taxes—Significant judgment is required to determine our provision for (benefit from) 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 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.