Yelp (YELP) Q2 2025: AI Search API Usage Jumps 10x, Unlocking New Monetization Pathways
Yelp’s Q2 highlighted a pivotal shift as AI-driven products and data licensing emerged as credible growth levers, even as core advertising and restaurant segments faced macro drag. Margin expansion and disciplined capital allocation offset softer ad demand, but the real story is the rapid scaling of AI search partnerships and the platform’s evolving role as a data supplier. Investors should watch for continued AI monetization and the durability of services-led momentum into the back half of the year.
Summary
- AI Monetization Accelerates: Data licensing and API usage surged, signaling a new revenue stream beyond traditional ads.
- Margin Expansion Amid Macro Drag: Profitability improved on disciplined expense control, despite headwinds in restaurants and retail.
- Capital Return and Product Focus: Share repurchases and AI product rollouts underscore a shift toward long-term value creation.
Performance Analysis
Yelp delivered record net revenue and expanded margins in Q2, with net income and adjusted EBITDA both outpacing guidance. The business continues to be driven by services, which grew 8% year over year to $241 million, now contributing nearly two-thirds of total revenue. However, restaurant and retail advertising (R&O) declined 5% year over year, reflecting persistent macro and competitive pressures that weighed on overall ad demand.
Ad clicks fell 7% year over year, offset by an 11% increase in average cost per click (CPC), a dynamic that underscores both increased competition for high-intent leads and reduced overall click volume. Importantly, the company managed to expand net income margin by one percentage point and adjusted EBITDA margin by two points, demonstrating effective cost discipline and a focus on high-return investments.
- Services Revenue Outpaces R&O: Services now drive the majority of growth, while R&O remains under macro and competitive stress.
- Ad Clicks Down, Pricing Up: Fewer ad clicks but higher CPCs reflect shifting advertiser behavior and category mix.
- Expense Management Delivers: Flat headcount and lower stock-based compensation improved profitability metrics.
Yelp’s ability to maintain top-line growth and expand margins amid a challenging environment signals a resilient business model, though the ad platform’s exposure to small business sentiment and local macro trends remains a key watchpoint.
Executive Commentary
"Underlying our top-line results, services revenue increased by 8% year over year and drove our business performance. At the same time, the operating environment for businesses in our restaurant, retail, and other categories remained challenging, and our R&O revenue declined by 5% year over year."
Jeremy Stoppleman, Chief Executive Officer
"Year over year, advertising revenue growth decelerated from the first quarter as advertisers exercised increased caution in the face of heightened macroeconomic and policy uncertainties. Our second quarter results demonstrate the margin potential of our business with a net income margin of 12% and an adjusted EBITDA margin of 27%."
David Schwarzbach, Chief Financial Officer
Strategic Positioning
1. AI-Powered Product Expansion
Yelp’s product-led strategy is increasingly centered on AI, with the rollout of Yelp Assistant, an AI chatbot for consumer requests, and the launch of new workflow tools for service professionals. Project submissions through Yelp Assistant are up more than 400% year over year, and the company is expanding entry points to drive broader adoption. Live testing of Yelp Host (AI call answering for restaurants) and the upcoming Yelp Receptionist for service categories highlight a push to embed AI across the platform’s touchpoints.
2. Data Licensing and API Monetization
AI search API calls increased by 10x in the last two months, and annualized run-rate revenue from AI search-related data licensing surpassed $10 million. This early but rapid growth signals that Yelp’s trusted content is becoming a critical input for emerging AI search engines and general AI platforms that lack proprietary local data. The company is onboarding new licensing partners and expects this channel to become a material contributor over time.
3. Services-Led Growth and Advertiser Tools
Services (local home, auto, and professional services advertising) remain the engine of growth, as Yelp deepens its focus on lead quality and advertiser experience. New business inbox filters, workflow integrations like Zapier, and API-powered lead delivery for multi-location businesses are designed to increase advertiser ROI and stickiness. The paid search initiative is being refined to prioritize high-intent projects and sustainable margins.
4. Capital Allocation and Cost Discipline
Yelp is actively returning capital to shareholders, with $65.9 million in share repurchases in Q2 and $202 million remaining under its authorization. Headcount is set to remain flat through year-end, and stock-based compensation (SBC) as a percentage of revenue is targeted to fall below 8% by year-end and under 6% by 2027. This disciplined approach supports margin durability and future buyback capacity.
Key Considerations
Yelp’s Q2 reveals a business in transition, balancing legacy ad platform headwinds with new AI-driven opportunities:
Key Considerations:
- AI Licensing Inflection: The 10x surge in API calls and $10 million run rate in licensing revenue suggest Yelp’s data is gaining strategic value in the AI search ecosystem.
- Macro Sensitivity Persists: R&O revenue and overall ad clicks remain vulnerable to local economic and policy shifts, which could cap near-term upside.
- Margin Expansion Sustainability: Cost discipline and lower SBC are driving margin gains, but future investment in AI and product may pressure this trend if growth slows.
- Advertiser Mix and Pricing: The rise in average CPC amid falling clicks points to a shift in advertiser mix and possible limits to further price increases if volume continues to decline.
Risks
Yelp faces material risks from continued macroeconomic uncertainty, especially in restaurant and retail categories where advertiser demand is soft and competition from food delivery platforms persists. Execution risk is elevated as the business pivots toward AI monetization, which is still nascent and may not scale rapidly enough to offset core ad platform headwinds. Additionally, increased reliance on data licensing exposes Yelp to platform partner concentration and evolving AI search standards.
Forward Outlook
For Q3 2025, Yelp guided to:
- Net revenue of $365 million to $370 million (flat QoQ, reflecting ongoing macro caution)
- Adjusted EBITDA of $80 million to $85 million (seasonal cost pressures expected)
For full-year 2025, management narrowed guidance:
- Net revenue of $1.465 billion to $1.475 billion
- Adjusted EBITDA of $350 million to $360 million
Management noted that seasonal sales and marketing expenses and higher cost of revenue will weigh on margins in the second half, while efforts to reduce SBC will benefit long-term profitability but act as a short-term headwind to adjusted EBITDA.
- Macro headwinds are expected to persist into Q3, muting typical seasonal uplift.
- AI product expansion and licensing are positioned as key growth drivers for H2 and beyond.
Takeaways
Yelp’s Q2 demonstrates a resilient but evolving business, with AI data licensing and product innovation emerging as credible new growth vectors to offset legacy ad platform softness.
- AI and Data Licensing Traction: Early evidence of scaling API usage and licensing revenue could reshape Yelp’s revenue mix and strategic relevance in the AI era.
- Margin Gains from Cost Discipline: Flat headcount and lower SBC are supporting profitability, but the sustainability of these gains will depend on revenue mix and investment pace.
- Watch for AI Monetization Scaling: Investors should monitor the pace of AI licensing adoption and the impact of new product rollouts on both consumer engagement and advertiser value in coming quarters.
Conclusion
Yelp’s Q2 marks a meaningful pivot toward AI-driven monetization, with data licensing and API partnerships gaining momentum. While core ad revenue faces ongoing macro headwinds, margin expansion and capital returns provide a buffer. The next phase will hinge on the company’s ability to scale new AI products and convert early traction into durable growth.
Industry Read-Through
Yelp’s rapid growth in AI search API usage and licensing revenue signals a broader industry shift, as local content providers become key suppliers to AI search engines and general AI platforms. Other digital platforms with proprietary, trusted data may find similar monetization opportunities as the AI ecosystem matures and demands high-quality vertical content. For local advertising and review platforms, the pivot to AI-driven lead generation and workflow automation is becoming table stakes to maintain relevance and defend margins against macro and competitive pressures.