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UNITED
STATES
SECURITIES AND
EXCHANGE COMMISSION
Washington,
D.C. 20549
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2016
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OR
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☐
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For
the transition period
from to
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Commission file number:
001-35444
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YELP
INC.
(Exact name of Registrant
as specified in its charter)
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Delaware
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20-1854266
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer Identification
No.)
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140 New Montgomery
Street, 9
th
Floor
San Francisco,
California 94105
(Address of principal
executive offices) (Zip Code)
Registrants telephone
number, including area code: (415) 908-3801
Securities
registered pursuant to Section 12(b) of the Act:
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Title of Each
Class
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Name of Each Exchange
on Which Registered
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Common Stock, par value $0.000001
per share
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New York Stock Exchange
LLC
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Securities registered
pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act.
YES ☒ NO
☐
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act.
YES ☐ NO ☒
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES ☒ NO
☐
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Website, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). YES ☒ NO ☐
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
☐
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of large accelerated filer, accelerated filer
and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer
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Accelerated filer
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Non-accelerated filer (Do not check if a smaller reporting company)
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Smaller reporting company
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Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the
Act). YES ☐ NO ☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant
was approximately $2,076,475,388 as of June 30, 2016, the last day of the registrants most recently completed
second fiscal quarter, based upon the closing sale price of the registrants common stock on the New York Stock
Exchange LLC reported for June 30, 2016. Excludes an aggregate of 564,416 shares of the registrants Class A
common stock and 8,285,277 shares of the registrants Class B common stock held by officers, directors, affiliated
stockholders and The Yelp Foundation as of June 30, 2016. For purposes of determining whether a stockholder was
an affiliate of the registrant at June 30, 2016, the registrant assumed that a stockholder was an affiliate of the
registrant if such stockholder (i) beneficially owned 10% or more of the registrants capital stock, as determined
based on public filings, and/or (ii) was an executive officer or director, or was affiliated with an executive officer or
director, of the registrant at June 30, 2016. Exclusion of such shares should not be construed to indicate that any
such person possesses the power, direct or indirect, to direct or cause the direction of the management or policies of
the registrant or that such person is controlled by or under common control with the registrant.
As of February 23, 2017, there were 79,602,606 shares of the registrants common stock, par value $0.000001 per share, issued and outstanding.
DOCUMENTS INCORPORATED BY
REFERENCE
Portions of the registrants definitive Proxy Statement for the 2017
Annual Meeting of Stockholders to be filed with the U.S. Securities and Exchange
Commission pursuant to Regulation 14A not later than 120 days after the end of
the fiscal year covered by this Annual Report on Form 10-K are incorporated by
reference in Part III, Items 10-14 of this Annual Report on Form 10-K.
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Y
ELP
I
NC
.
2016
A
NNUAL
R
EPORT ON
F
ORM
10-K
T
ABLE OF
C
ONTENTS
___________________________________
Unless the context suggests
otherwise, references in this Annual Report on Form 10-K (the Annual Report)
to Yelp, the Company, we, us and our refer to Yelp Inc. and, where
appropriate, its subsidiaries.
i
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Unless the context
otherwise indicates, where we refer in this Annual Report to our mobile
application or mobile app, we refer to all of our applications for
mobile-enabled devices; references to our mobile platform refer to both our
mobile app and the versions of our website that are optimized for mobile-based
browsers. Similarly, references to our website refer to versions of our
website dedicated to both desktop- and mobile-based browsers, as well as the
U.S. and international versions of our website.
SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS
This Annual Report contains
forward-looking statements that involve risks, uncertainties and assumptions
that, if they never materialize or prove incorrect, could cause our results to
differ materially from those expressed or implied by such forward-looking
statements. The statements contained in this Annual Report that are not purely
historical are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, or the Securities Act, and Section 21E
of the Securities Exchange Act of 1934, as amended, or the Exchange Act.
Forward-looking statements are often identified by the use of words such as, but
not limited to, anticipate, believe, can, continue, could, estimate,
expect, intend, may, might, plan, project, seek, should,
target, will, would and similar expressions or variations intended to
identify forward-looking statements. These statements are based on the beliefs
and assumptions of our management, which are in turn based on information
currently available to management. Such forward-looking statements are subject
to risks, uncertainties and other important factors that could cause actual
results and the timing of certain events to differ materially from future
results expressed or implied by such forward-looking statements. Factors that
could cause or contribute to such differences include, but are not limited to,
those discussed in the section entitled
Risk Factors
included
under Part I, Item 1A below. Furthermore, such forward-looking statements speak
only as of the date of this report. Except as required by law, we undertake no
obligation to update any forward-looking statements to reflect events or
circumstances after the date of such statements.
NOTE REGARDING
METRICS
We review a number of
performance metrics to evaluate our business, measure our performance, identify
trends in our business, prepare financial projections and make strategic
decisions. Please see the section titled
Managements Discussion and Analysis of Financial Condition and Results
of OperationsKey Metrics
for
information on how we define our key metrics. Unless otherwise stated, these
metrics do not include metrics from Yelp Eat24 or Yelp Reservations
or from our business owner products.
While
our metrics are based on what we believe to be reasonable calculations, there
are inherent challenges in measuring usage across our large user base. Certain
of our performance metrics, including the number of unique devices accessing our
mobile app, are tracked with internal company tools, which are not independently
verified by any third party and have a number of limitations. For example, our
metrics may be affected by mobile applications that automatically contact our
servers for regular updates with no discernible user action involved; this
activity can cause our system to count the device associated with the app as an
app unique device in a given period.
Our metrics that are
calculated based on data from third parties the number of desktop and mobile
website unique visitors are subject to similar limitations. Our third-party
providers periodically encounter difficulties in providing accurate data for
such metrics as a result of a variety of factors, including human and software
errors. In addition, because these traffic metrics are tracked based on unique
cookie identifiers, an individual who accesses our website from multiple devices
with different cookies may be counted as multiple unique visitors, and multiple
individuals who access our website from a shared device with a single cookie may
be counted as a single unique visitor. As a result, the calculations of our
unique visitors may not accurately reflect the number of people actually
visiting our website.
Our measures of traffic and
other key metrics may also differ from estimates published by third parties
(other than those whose data we use to calculate such metrics) or from similar
metrics of our competitors. We are continually seeking to improve our ability to
measure these key metrics, and regularly review our processes to assess
potential improvements to their accuracy. From time to time, we may discover
inaccuracies in our metrics or make adjustments to improve their accuracy,
including adjustments that may result in the recalculation of our historical
metrics. We believe that any such inaccuracies or adjustments are immaterial
unless otherwise stated.
ii
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PART I
Item 1. Business.
Company
Overview
Yelp connects people with
great local businesses by bringing word of mouth online and providing a
platform for businesses and consumers to engage and transact. As of December 31,
2016, our users had contributed approximately 121.0 million cumulative reviews
of almost every type of local business, making us the leading local business
review site in the United States.
Our platform provides value
to consumers and businesses alike by connecting consumers with great local
businesses at the critical moment when they are deciding where to spend their
money. The key strengths of our platform include:
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Discovery.
Our platform is transforming the way people
discover local businesses. Each day, millions of consumers visit our
website or use our mobile app to find great local businesses to meet their
everyday needs. Our strong brand and the quality of our content have
enabled us to attract this large audience with relatively low traffic
acquisition costs.
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Engagement.
Yelp provides a platform for consumers to
share their everyday local business experiences with other consumers by
posting reviews, tips, photos and videos, and to engage directly with
businesses, through reviews, our Request-A-Quote and Message the Business
features, and by completing transactions on the Yelp Platform. Yelp also
provides businesses of all sizes with a variety of free and paid services
that help them engage with consumers.
Businesses can register a business account for free and claim the
Yelp business listing page for each of their locations, allowing them to
provide additional information about their business and
respond to reviews, among other features.
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Advertising.
Businesses that want to reach our large
audience of purchase intent-driven consumers can also pay for premium
services to promote themselves through targeted search advertising,
discounted offers and further enhancements to their business listing
pages. We generate revenue primarily from the sale of advertising on our
website and mobile app to businesses. During the year ended December 31,
2016, we generated net revenue of $713.1 million, representing 30% growth
over 2015, a net loss of $4.7 million and adjusted EBITDA of $120.1
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
Managements
Discussion and Analysis of Financial Condition and Results of Operations
Non-GAAP Financial Measures
in this Annual Report.
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Transactions.
The Yelp Platform allows consumers to
transact with local businesses directly on Yelp through Yelp Eat24, the
food ordering and delivery business we acquired in 2015, Yelp
Reservations, our online reservations product, and integrations with
partners ranging from Shoptiques.com (boutique shopping) to GolfNow (tee
time booking) to BloomNation (flower ordering). In addition to providing
consumers with a continuous experience from discovery to completion of
transactions, the Yelp Platform creates an additional point of consumer
engagement for local
businesses.
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At the heart of our
business are the vibrant communities of contributors that
contribute the content on our platform. These contributors provide rich,
firsthand information about local businesses in the form of reviews and ratings,
tips, photos and videos. Each review, tip, photo and video expands the breadth
and depth of the content on our platform, which drives a powerful network
effect: the expanded content draws in more consumers and more prospective
contributors. Although measures of our content (including our cumulative review
metric) and traffic (including our desktop and mobile unique visitors metrics)
do not factor directly into the advertising arrangements we have with our
advertising customers, this network effect underpins our ability to deliver
clicks and ad impressions to advertisers. Increases in these metrics improve our
value proposition to local businesses as they seek easy-to-use and effective
advertising solutions. For this reason, we foster and support communities of
contributors and make the consumer experience our highest priority.
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Of the approximately 121.0
million cumulative reviews our contributors had submitted through December 31,
2016, approximately 85.7 million were recommended and available on business
listing pages; approximately 26.9 million were not recommended and available on
secondary pages; and approximately 8.4 million had been removed from our
platform. Although they do not factor into a businesss overall star rating, we
provide access to reviews that are not recommended because they provide
additional perspectives and information on reviewed businesses, as well as
transparency of the efficacy of our automated recommendation
software.
The reviews contributed to
our platform cover a wide set of local business categories, including
restaurants, shopping, beauty and fitness, arts, entertainment and events, home
and local services, health, nightlife, travel and hotel, auto and other
categories. In the charts below, we highlight the breakdown by industry of local
businesses that have received reviews on our platform and the breakdown by
industry of reviews contributed to our platform through December 31,
2016.
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*
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The charts above
include information based upon all contributed reviews and include some
businesses that have received only reviews that are not recommended or
have been removed.
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We believe that the
concentration of reviews in the restaurant and shopping categories in particular
is primarily due to the frequency with which individuals visit specific
businesses or engage in certain activities versus others. For example, an
individual may eat at a restaurant three times in one week or go shopping once a
week, but the same individual is unlikely to visit a mechanic, get a haircut or
use a home or local service with the same frequency. The top five industry
categories accounted for an aggregate of 77% of our advertising revenue (excluding advertising sold by partners) for the
quarter ended December 31, 2016, broken down as follows: Home & Local
Services, 30%; Restaurants, 15%; Beauty & Fitness, 12%; Health, 11%; and
Shopping, 9%.
Our Products
Advertising
We provide both free and
paid business listing products to businesses of all sizes. We also enable
businesses to deliver targeted search advertising to large local audiences
through our website and mobile app.
In our filings with the
SEC prior to this Annual Report we classified revenue from our
local products consisting of business listing and advertising products that
we sold directly to businesses and Yelp Reservations as local revenue. In
order to bring our revenue presentation into closer alignment with the operation
of our business, we now classify revenue from all of our business listing and
advertising products, including advertising sold by partners, as advertising
revenue. As a result, revenue generated through ad resales and monetization of
remnant advertising inventory through third-party ad networks is now classified
as advertising revenue rather than other services revenue, and revenue from Yelp
Reservations, a subscription service, is classified as other services revenue.
All disclosures relating to revenue by product have been updated to reflect this revised
classification for all periods presented.
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Free Online Business
Account
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We enable businesses
to create a free online business account and claim the listing page for
each of their business locations. With their free business accounts,
businesses can view trends (e.g. statistics and charts of the performance
of their pages on our platform), use the Revenue Estimator tool (e.g. to
quantify the revenue opportunity Yelp provides), message customers (e.g.
by replying to messages or reviews either publicly or
privately), update information (e.g. address, hours of operation) and
offer Yelp Deals and Gift Certificates (as described below).
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Enhanced
Profile
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Our enhanced profile
solution eliminates ads from a businesss listing page and allows the
business to incorporate a video clip or photo slide show on the page.
Businesses can also promote a desired transaction of their choosing such
as scheduling an appointment or printing a coupon directly on their
business listing pages with our Call to Action feature. This feature
transfers consumers from a businesss listing page to the businesss own
website to complete the action.
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Branded
Profile
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For businesses with
ten or more locations, our branded profile solution offers the ability to
incorporate a video clip or photo slide show, as well as a Call to Action
button, on each locations business listing page.
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Search and Other
Ads
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We allow businesses
to promote themselves as a sponsored search result on our platform and on
the listing pages of related businesses. We now sell ads primarily on a
per-click basis, though we also offer impression-based ads.
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Ad
Resales
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We also generate
revenue through the resale of our advertising products by certain agencies
and partners, such as YP.com, as well as monetization of remnant
advertising inventory through third-party ad networks.
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Transactions
In addition to our
advertising products, we also offer several features and consumer-interactive
tools to facilitate transactions between consumers and the local businesses they
find on Yelp. We recognize revenue from these sources on a net basis as
transactions revenue.
Yelp Eat24
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Our Yelp Eat24
business generates revenue through arrangements with restaurants in which
restaurants pay a commission percentage fee on orders placed through the
Yelp Eat24 platform.
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Yelp
Platform
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The Yelp Platform
allows consumers to transact directly on Yelp through integrations with
partners including Nowait, Whittl, and TicketNetwork.
Consumers are currently able to check wait
times and join waitlists remotely, book spa and salon appointments and
purchase event tickets, among many other transaction opportunities, all
without leaving Yelp.
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Yelp Deals
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Our Yelp Deals
product allows local business owners to create promotional discounted
deals for their products and services, which are marketed to consumers
through our platform. We typically earn
a fee based on the discounted price of each deal sold. We process all
customer payments and remit to the business the revenue share of any Yelp
Deal purchased.
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Gift
Certificates
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Our Gift Certificates
product allows local business owners to sell full-price gift certificates
directly to consumers through their business listing pages. The business
chooses the price point to offer (from $10 to $500), and consumers may
purchase Gift Certificates denominated in such amounts. We earn a fee
based on the amount of the Gift Certificate sold. We process all consumer
payments and remit to the business the revenue share of any Gift
Certificate purchased.
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Brand
Through the end of 2015, we
also offered advertising solutions for national brands in the form of display
advertisements and brand sponsorships. We phased out these products over the
second half of 2015 and redeployed the associated internal resources, including
members of our brand sales team, elsewhere within our organization. Due to
certain negative trends in the broader market for brand advertising products
in particular, the shift toward programmatic advertising and increasing
advertiser demand for products such as video ads that are disruptive to the
consumer experience we believe this decision will provide us with a long-term
strategic advantage by allowing us to focus on our core strength of advertising to local businesses and to ensure that we continue to provide a great consumer
experience. We recognized revenue from these products as brand revenue through
the end of 2015.
Other Services
We generate other revenue
through subscription services, licensing payments for access to Yelp data and
other non-advertising, non-transaction arrangements, such as certain
partnerships. We recognize revenue from these sources as other services revenue.
In our filings with the
SEC prior to this Annual Report
other services revenue consisted of revenue
generated through partner arrangements, including resale of our advertising
products by certain partners, and monetization of remnant advertising inventory
through third-party ad networks. As described above, for all reporting periods
presented, revenue generated from resale of our advertising products and
monetization of remnant advertising inventory is now classified as advertising
revenue rather than other services revenue. In addition, other services revenue
now includes revenue generated from our Yelp Reservations product.
Yelp
Reservations
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We provide
restaurants, nightlife and certain other venues with the ability to offer
online reservations directly from their Yelp business listing pages
through our Yelp Reservations product, which also includes front-of-house
management tools. We offer this product as a monthly subscription service.
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Yelp
Knowledge
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Our Yelp Knowledge
program offers local analytics and insights through access to our
historical data, and is available through integrations with companies
including Sprinklr, Reputology and Revinate.
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Other
Partnerships
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Other non-advertising partner arrangements include content licensing.
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Revenue by Product
The following table
provides a breakdown of our revenue by product for the years indicated,
reflecting the changes to our revenue categories made in the three months ended
December 31, 2016:
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Year Ended December
31,
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2016
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2015
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2014
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(dollars in thousands)
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Net
revenue by product:
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Advertising
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$
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645,241
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$
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471,416
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$
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335,450
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Transactions
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62,495
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43,854
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5,247
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Brand
advertising
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-
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31,012
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34,482
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Other
services
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5,333
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3,429
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2,357
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Total
net revenue
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$
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713,069
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$
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549,711
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$
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377,536
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For purposes of comparison,
the following table provides a breakdown of our revenue by product for the years
indicated based on our revenue categories in effect prior to the three months
ended December 31, 2016:
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Year Ended December
31,
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2016
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2015
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2014
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(dollars in thousands)
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Net
revenue by product:
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Local
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$
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624,694
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$
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448,236
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$
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319,137
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Transactions
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62,495
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43,854
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5,247
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Brand
advertising
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-
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31,012
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34,482
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Other
services
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25,880
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26,609
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18,670
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Total
net revenue
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$
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713,069
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$
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549,711
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$
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377,536
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Our Strategy
Our mission is to connect
people with great local businesses. We focus on the following key strategies to
grow our business, audience of consumers and advertiser base:
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Grow Our
Communities.
As the number
of contributors and consumers within Yelp communities continues to grow,
we expect our platform to become more widely known and relevant to broader
audiences, further driving the growth of reviews, consumers and local
business activity. While organic growth driven by our community
development efforts continues to be our primary marketing strategy, we
began supplementing these efforts with advertising campaigns aimed at
increasing consumer awareness of Yelp in 2014. In 2017, we plan to
continue investing in marketing to leverage our brand and benefit from
these network dynamics and plan to allocate a greater proportion of our
advertising budget to performance marketing with the goal of
expanding consumer usage, among others.
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Increase
Engagement.
By continuing
to develop a feature-rich experience for consumers, we believe we can
increase the number of visits and searches per user. We plan to continue
to invest in the development of our mobile platform, and our mobile app in
particular, to take advantage of the growing number of consumers accessing
Yelp through their mobile devices. Our focus will be on providing
additional in-app messaging opportunities, refined search options and
social features to better facilitate sharing. With mobile users already
generating a majority of our new content, we believe that this approach
will be an effective driver of the network effect described
above.
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Expand Our
Reach.
We will also
continue exploring ways to make our content more widely available,
including on new and evolving platforms and distribution channels, such as
automobile navigation systems, wearable devices and voice-activated home
devices. For example, Apples Siri and Amazons Alexa personal assistant
programs currently access Yelp content to respond to local search
queries.
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Provide a Great
Consumer Experience.
We
believe that providing a great consumer experience has been and will
continue to be critical to growing our business; accordingly, as we
explore opportunities to monetize our products, we remain committed to a
high standard of user experience. We will not incorporate advertising or
other products or solutions that we believe may excessively degrade the
user experience and potentially alienate users, even if they might result
in increased short-term monetization. We also plan to continue our
consumer protection efforts. In 2016, for example, we expanded the
municipal hygiene inspection data available on business listing pages and
our consumer alerts program. We also supported federal legislation banning
gag clause provisions in consumer-form contracts that seek to prevent
consumers from writing negative reviews online, which was signed into law
as The Consumer Review Fairness Act of 2016.
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Focus on
Transactions.
As of
December 31, 2016, we were recognizing advertising revenue from
approximately 137.8 thousand advertising and subscription accounts
(formerly referred to as local advertising accounts); with approximately
3.4 million businesses on our platform as of that date, we believe
there is significant opportunity to increase the number of businesses advertising on Yelp. We believe the continued expansion of our
transaction capabilities will not only drive further consumer engagement,
but also attract additional business customers. To that end, in 2016, we
expanded the number of transactions-enabled businesses and categories,
streamlined the checkout process and made our Request-A-Quote feature
available to logged-out traffic, allowing millions more consumers to
seamlessly connect with merchants and service providers. In 2017, we plan
to continue to innovate and explore ways to expand our transactions
functionalities, as well as promote our existing capabilities through
direct marketing.
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Attract More
Businesses.
In addition to
expanding our transactions capabilities, we believe that new business
owner products and comprehensive tools to measure the effectiveness of our
products will encourage businesses to advertise on our platform. For
example, in 2016, we launched new reporting, messaging and
advertising-management features for our Yelp for Business Owners app. We
will also continue our local business outreach efforts, which include
educating local businesses on how Yelp provides value to them as well as
engaging with business owners to gain insight into how we can improve our
products and services. In 2016, we held our second annual business leader
summit, which brought 100 entrepreneurs representing 80 communities in the
United States and Canada to our offices for two days of conversation and
strategizing, and joined the U.S. Small Business Administrations
Technology Coalition to help small businesses better leverage technology
by providing digital education and resources.
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Broaden Sales
Strategy.
Our core strength
is our advertising business in the United States and Canada. This business
has a significant and growing base of revenue, and we plan to continue to
pursue initiatives to enhance our opportunity in this area. We have
invested, and will continue to invest, aggressively in sales resources,
including increases in headcount and initiatives to increase sales force
productivity. In addition to growing our established direct sales force,
we are broadening our sales strategy to address the revenue opportunity
from existing customers, new advertisers and new products. This includes
developing new and evolving sales channels, such as our self-serve
advertising channel, which provides business owners with convenient
options for purchasing our products, and partnerships with select
marketing agencies and resellers to provide large and medium-sized
advertisers with greater access to our products. We believe these ongoing
investments will lead to additional businesses advertising on
Yelp.
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Expand Our
Portfolio of Revenue-Generating Products.
We plan to continue to grow and develop
products and partner arrangements that provide incremental value to our
advertisers and business partners to encourage them to increase their
advertising budgets allocated to our platform. In 2016, for example, we
began monetizing Yelp data through our Yelp Knowledge program, which
offers local analytics and insights through access to our historical
data.
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7
Table of Contents
Marketing
Community
Management
We establish Yelp
communities through a pre-launch content development phase, followed by a hiring
of a Community Manager, leading to review growth and consumer activity, which,
at scale, supports our sales efforts to local businesses. We have a team of
Community Managers and Community Ambassadors based across the United States,
Canada, and, prior to the fourth quarter of 2016, 30 other countries worldwide.
In the fourth quarter of 2016, we wound down our marketing activities in markets
outside the United States and Canada, where we believe the long-term return on
continued investment to be lower than opportunities for Yelp within our core
markets.
Our community management
teams primary goals are to support and grow their local communities of
contributors, raise brand awareness and engage with their surrounding
communities through:
●
|
planning and
executing fun and engaging events for the community, such as parties,
outings and activities at restaurants, museums, hotels and other local
places of interest;
|
●
|
getting to know
community members and helping them get to know one another to foster an
offline community experience that can be transferred
online;
|
●
|
promoting Yelp,
including guest appearances on local television and radio, and at local
events such as concerts and street fairs; and
|
●
|
writing weekly e-mail
newsletters to share information with the community about local
businesses, events and activities.
|
Through these activities,
we believe our community management team helps us increase awareness of our
platform and grow avid communities who are willing to contribute content to our
platform. These active contributors may be invited to attend sponsored social
events, but do not receive compensation for their contributions. This community
growth drives the network effect whereby contributed reviews expand the breadth
and depth of our content base. This expansion draws an increasing number of
consumers to access the content on our platform, thus inspiring new and existing
contributors to create additional reviews that can be shared with this growing
audience.
To further illustrate the
development of Yelp communities as they scale, we highlight below our review and
revenue metrics for three cohorts of Yelp communities in the United States: the
Yelp communities that we launched in 2005-2006; the Yelp communities that we
launched in 2007-2008; and the Yelp communities that we launched in
2009-2010.
|
|
|
|
Average
|
|
Year-Over-
|
|
|
|
|
Year-Over-
|
|
|
|
|
Cumulative
|
|
Year Growth
|
|
Average
|
|
Year Growth in
|
|
|
|
|
Reviews as of
|
|
in
Average
|
|
Advertising
|
|
Average
|
|
|
Number of Yelp
|
|
end
of
|
|
Cumulative
|
|
Revenue in
|
|
Advertising
|
U.S. Market Cohort
|
|
Communities
(1)
|
|
Q4 2016
(2)
|
|
Reviews
(3)
|
|
Q4 2016
(4)
|
|
Revenue
(5)
|
2005
2006 Cohort
|
|
6
|
|
7,543
|
|
24%
|
|
$
|
10,985
|
|
30%
|
2007 2008
Cohort
|
|
14
|
|
1,711
|
|
27%
|
|
$
|
3,328
|
|
37%
|
2009
2010 Cohort
|
|
18
|
|
635
|
|
33%
|
|
$
|
883
|
|
35%
|
(1)
|
|
A
Yelp community is defined as a city or region in which we have hired a
Community Manager.
|
8
Table of Contents
(2)
|
|
Average cumulative
reviews is defined as the total cumulative reviews of the cohort as of
December 31, 2016 (in thousands), including the reviews that were not
recommended or had been removed from our platform, divided by the number
of Yelp communities in the cohort.
|
(3)
|
|
Year-over-year growth
in average cumulative reviews compares the average cumulative reviews as
of December 31, 2016 with the average cumulative reviews as of December
31, 2015.
|
(4)
|
|
Average advertising
revenue is defined as the total advertising revenue from businesses in the
cohort for the quarter ended December 31, 2016 (in thousands), divided by
the number of Yelp communities in the cohort.
|
(5)
|
|
Year-over-year growth
in average advertising revenue compares average advertising revenue for
the quarter ended December 31, 2016 with the average advertising revenue
for the quarter ended December 31, 2015.
|
In general, the Yelp
communities in our earlier U.S. community cohorts are more populous than those
in later cohorts, and we have already entered many of the largest cities in the
United States and Canada. For these and other reasons, launching additional
communities may not yield results similar to those of our existing communities.
As a result, we continue to believe that development of our existing communities
currently provides the greatest opportunity for growth, and plan to focus our
community development efforts on existing communities in 2017.
Advertising
We have historically
focused on organic and viral growth driven by the community development efforts
of our community management team, as described above. While community
development continues to be our primary marketing strategy, we believe there is
significant opportunity to increase our brand awareness and usage through
targeted advertising programs. We began selectively testing advertising to
consumers in the second half of 2014, and launched our first television
advertising campaign in 2015, with the aim of increasing consumer awareness of
our brand. We plan to continue investing in various advertising channels in
2017, with a greater portion of our advertising budget allocated to performance
advertising with the objectives of increasing app usage, transaction volumes and
new business customers. Our marketing expenses may continue to increase if we
significantly expand these efforts to attract additional consumers and
businesses.
Sales
We sell our products
directly through our sales force, indirectly through partners and online through
our website. Our advertising sales force consisted of 2,450 employees as of December 31,
2016 and is located across our offices in San Francisco, California; Scottsdale,
Arizona; New York, New York; and Chicago, Illinois. From 2012 to 2016, we also
had sales operations in Europe, including in Dublin, Ireland and Hamburg,
Germany. In the fourth quarter of 2016, however, we wound down our sales
activities in markets outside the United States and Canada, where we believe the
long-term return on continued investment to be lower than opportunities for Yelp
within our core markets.
Direct
Sales.
A large majority of our
sales force is dedicated to selling our advertising products, with a
significantly smaller component responsible for selling Yelp Eat24 and Yelp
Reservation products. Sales representatives are primarily responsible for
generating qualified sales leads by identifying and contacting businesses
through direct engagement, direct marketing campaigns and weekly e-mails to
claimed local businesses. Our direct sales force is focused on increasing
revenue by adding new customers, and sales representatives are typically
compensated on the basis of advertising sold in a given period.
Sales Partnerships.
Since 2014, we have allowed our
partners such as YP.com to sell certain of our advertising products as part of a
package with their own advertising products to its advertiser bases. The
products covered by these arrangements include our enhanced profile and
cost-per-click advertising. We continue to explore additional partnerships for
the sale or bundling of our products, as well as with select marketing agencies.
Self-Service
Ads.
Our online, or self-service,
sales channel allows businesses to purchase advertising solutions directly from
our website. Businesses can purchase performance-based cost-per-click sponsored
search advertising directly through this channel. We are continuing to test
approaches to this sales channel, including by offering the option of speaking
with a sales representative.
9
Table of Contents
Account Management.
While the focus of our sales
force has historically been on adding new customers, we also see opportunity to
deepen our relationships with existing customers. To this end, our account
management team supports existing business advertisers through client success,
cross-selling and retention initiatives. Members of our account management team
are currently compensated primarily through fixed salaries rather than on
commissions.
Technology
Product development and
innovation are core pillars of our strategy. We aim to delight our users and
business partners with our products. We provide our web-based and mobile
services using a combination of in-house and third-party technology solutions
and products.
●
|
Search and Ranking
Technology.
We leverage the
data stored on our platform and our proprietary indexing and ranking
techniques to provide our users with contextual, relevant and up-to-date
results to their search queries. For example, a consumer desiring
environmentally friendly carpet cleaners does not have to call individual
cleaners to inquire about their use of chemical-based cleaning solutions.
Instead, the consumer can search for environmentally-friendly carpet
cleaners on Yelp and discover cleaners with the best service and green
cleaning products that serve a specific neighborhood.
|
●
|
Recommendation
Software.
We employ our
proprietary automated recommendation software to analyze and screen all
reviews submitted to our platform. We believe our recommendation
technology is one of the key contributors to the quality and integrity of
the reviews on our platform and the success of our service. See
Consumer Protection
Efforts
below for
additional details regarding our recommendation software.
|
●
|
Mobile
Solutions
. The number of
people who access information about local businesses through mobile
devices has increased dramatically over the past few years and is expected
to continue to increase. We have seen substantial growth in mobile usage,
and anticipate that growth in use of our mobile platform will be the
driver of our growth for the foreseeable future. Our most engaged users
are on our mobile app, making it particularly critical to our continued
success. For example, in the quarter ended December 31, 2016, our mobile
devices accounted for approximately 73% of all searches and approximately
66% of all ad clicks on our platform, compared to 70% and 63%,
respectively, in the quarter ended December 31, 2015.
|
|
To take advantage of
this trend, we have invested significant resources into the development of
our comprehensive mobile platform for consumers supporting the major
smartphone operating systems available today, iOS and Android. Over time,
we have enhanced the functionality of our mobile platform, such that it
provides similar and, in some areas, greater functionality than our
website. Some of the innovations we introduced through our mobile platform
include check-ins, tips, comments, Nearby and Monocle, our
augmented reality feature. More recently, we also launched a mobile app
for business owners, designed to make it easier for them to engage with
their customers and manage their Yelp profiles. The Yelp for Business
Owners app is currently available for iOS and Android.
|
●
|
Advertising
Technologies
. We use
proprietary ad targeting and delivery technologies designed to provide
relevant local advertisements. Our proprietary ad delivery system
leverages our unique repository of data to provide useful ads to users and
high value leads to advertisers.
|
●
|
Infrastructure
. Our
web and mobile platforms are currently hosted from multiple locations, primarily through Amazon Web Services. We also host parts of our infrastructure
within shared data environments in California and Virginia, as well as with third-party leased server
providers. Our web and mobile platforms are designed to have high
availability, from the Internet connectivity providers we choose, to the
servers, databases and networking hardware that we deploy. We design our
systems such that the failure of any individual component is not expected
to affect the overall availability of our platform. We also leverage other
third-party Internet-based (cloud) services such as rich-content storage,
map-related services, ad serving and bulk processing.
|
●
|
Network
Security
. Computer viruses,
malware, phishing attacks, denial-of-service and other attacks and similar
disruptions from unauthorized use of computer systems have become more
prevalent in our industry, have occurred on our systems in the past and we expect them to occur periodically
on our systems in the future. For this reason, our platform includes a
host of encryption, antivirus, firewall and patch-management technologies
designed to help protect and maintain the systems located at data centers
as well as other systems and computers across our business.
|
10
Table of Contents
Consumer Protection
Efforts
Our success depends on our
ability to maintain consumer trust in our solutions and in the quality and
integrity of the user content and other information found on our platform. We
dedicate significant resources to the goal of maintaining and enhancing the
quality, authenticity and integrity of the reviews on our platform, primarily
through the following methods:
Automated Recommendation
Software.
We use proprietary
software to analyze the relevance, reliability and utility of each review
submitted to our platform. The software applies the same objective standards to
each review based on a wide range of data associated with the review and
reviewer, regardless of whether the business being reviewed advertises on Yelp.
These objective standards include various measures of relevance, reliability and
utility, such as the reviewers type and level of activity with Yelp (which
might correspond to the reviewers reliability or suggest reviewer biases) and
whether certain reviews originate from related Internet Protocol addresses
(which might mean the reviews were submitted by the same person). The results of
this analysis can change over time as the software factors in new information,
which may result in reviews that were previously recommended becoming not
recommended, and reviews that were previously not recommended being restored to
recommended status. Reviews that the software deems to be the most useful and
reliable are published directly on business listing pages, though neither we nor
the software purport to establish whether or not any individual review is
authentic. As of December 31, 2016, our software was recommending approximately
71% of the reviews submitted to our platform. Reviews that are not recommended
are published on secondary pages and do not factor into a businesss overall
star rating. As of December 31, 2016, approximately 22% of the reviews submitted
to our platform were not recommended but still accessible on our platform.
Sting
Operations.
We routinely conduct
sting operations to identify businesses and individuals who offer or receive
cash, discounts or other benefits in exchange for reviews. For example, we may
respond to advertisements offering to pay for reviews that are posted on
Craigslist, Facebook and other platforms. We also receive and investigate tips
from our users about potential paid reviews. If we identify or confirm any such
issues through our investigations, we typically pursue one or more of the
courses of action described below (each of which we may also employ on a
stand-alone basis).
Consumer Alerts Program.
We issue consumer alert warnings
on business listing pages from time to time when we encounter suspicious
activity that we believe is indicative of attempts to deceive or mislead
consumers. For example, we may issue a consumer alert if we encounter a business
attempting to purchase favorable reviews, or if a large number of favorable
reviews are submitted from the same Internet Protocol address. Consumer alerts
generally remain in effect for 90 days, or longer if the deceptive practices
continue.
Coordination with Law
Enforcement.
We regularly
cooperate with law enforcement and consumer protection agencies to investigate
and identify businesses and individuals who may be engaged in false advertising
or deceptive business practices relating to reviews. For example, in 2013, we
assisted the New York Attorney General with Operation Clean Turf, an
undercover investigation targeting review manipulation that resulted in 19
companies agreeing to pay more than $350,000 in fines to the State of New York.
In 2016, in a continuation of this investigation, the New York Attorney General
announced settlements with six additional businesses that tried to mislead
consumers, resulting in the businesses agreeing to pay fines and to take
measures to increase the honesty and transparency of their online reviews.
Legal
Action.
Our terms of service
prohibit the buying and selling of reviews, as well as writing fake reviews. In
egregious cases, we take legal action against businesses we believe to be
engaged in deceptive practices based on these prohibitions.
Removal of
Reviews.
We regularly remove
reviews from our platform that we believe violate our terms of service,
including, without limitation: fake or defamatory reviews; content that has been
bought, sold or traded; threatening, harassing or lewd content, as well as hate
speech and other displays of bigotry; and content that violates the rights of
any third party or any applicable law. Users can access information about
reviews that we have removed for a particular business by clicking on a link on
the businesss listing page. As of December 31, 2016, approximately 7% of the
reviews submitted to our platform had been removed.
11
Table of Contents
Intellectual
Property
We rely on federal, state,
common law and international rights, as well as contractual restrictions, to
protect our intellectual property. We control access to our proprietary
technology and algorithms by entering into confidentiality and inventions
assignment agreements with our employees and contractors, as well as
confidentiality agreements with third parties.
In addition to these
contractual arrangements, we also rely on a combination of patent, trade secrets,
copyrights, trademarks, service marks and domain names to protect our
intellectual property. We pursue the registration of our copyrights, trademarks,
service marks and domain names in the United States and in certain locations
internationally. Our registration efforts have focused on gaining protection of
our trademarks for Yelp and the Yelp burst logo, among others. These marks are
material to our business and essential to our brand identity as they enable
others to easily identify us as the source of the services offered under these
marks. We currently have limited patent protection for our core business, which
may make it more difficult to assert certain of our intellectual property
rights. For example, the contractual restrictions and trade secrets that protect
our proprietary technology and algorithms provide only a limited safeguard
against infringement.
Circumstances outside our
control could pose a threat to our intellectual property rights. For example,
effective intellectual property protection may not be available in the United
States or other countries in which we operate. Also, the efforts we have taken
to protect our proprietary rights may not be sufficient or effective. Any
significant impairment of our intellectual property rights could harm our
business or our ability to compete. Protecting our intellectual property rights
is also costly and time consuming. Any unauthorized disclosure or use of our
intellectual property could make it more expensive to do business and harm our
operating results.
Companies in the Internet,
technology and media industries own large numbers of patents and other
intellectual property rights, and frequently request license agreements or
threaten to enter into litigation based on allegations of infringement or other
violations of such rights. From time to time, we receive notice letters from
patent holders alleging that certain of our products and services infringe their
patent rights. We are also currently subject to, and expect to face in the
future, allegations that we have infringed the trademarks, copyrights, patents
and other intellectual property rights of third parties, including our
competitors and non-practicing entities. As we face increasing competition and
as our business grows, we will likely face more claims of infringement.
Competition
The market for information
regarding local businesses and advertising is intensely competitive and rapidly
changing. We compete for consumer traffic with traditional, offline local
business guides and directories as well as online providers of local and web
search. We also compete for a share of businesses overall advertising
budgets with traditional, offline media companies and other Internet marketing
providers. Our competitors include the following types of businesses:
●
|
Offline.
Competitors include offline
media companies and service providers, many of which have existing
relationships with businesses. Services provided by competitors
range from yellow pages listings to direct mail campaigns to advertising
and listing services in local newspapers, magazines, television and radio.
|
●
|
Online.
Competitors
also include Internet search engines, such as Google and Bing, review and
social media websites as well as various other online service providers.
These include regional websites that may have strong positions in
particular markets.
|
Our competitors may enjoy
competitive advantages, such as greater name recognition, longer operating
histories, substantially greater market share, established marketing
relationships with, and access to, large existing user bases and substantially
greater financial, technical and other resources. These companies may use these
advantages to offer products similar to ours at a lower price, develop different
products to compete with our current solutions and respond more quickly and
effectively than we do to new or changing opportunities, technologies, standards
or client requirements. Certain competitors could also use strong or dominant
positions in one or more markets to gain competitive advantage against us in
markets in which we operate.
We compete on the basis of
a number of factors. We compete for consumer traffic on the basis of factors
including: the reliability of our content; the breadth, depth and timeliness of
information; and the strength and recognition of our brand. We compete for businesses advertising budgets
on the basis of factors including: the size of our consumer audience; the
effectiveness of our advertising solutions; our pricing structure; and
recognition of our brand.
12
Table of Contents
Government
Regulation
As a company conducting
business on the Internet, we are subject to a variety of laws in the United
States and abroad that involve matters central to our business, including laws
regarding privacy, data retention, distribution of user-generated content,
consumer protection and data protection, among others. For example:
●
|
Privacy.
Because we receive, store
and process personal information and other user data, including credit
card information in certain cases, we are subject to numerous federal,
state and local laws around the world regarding privacy and the storing,
sharing, use, processing, disclosure and protection of personal
information and other user data.
|
●
|
Liability for
Third-Party Action.
We rely
on laws limiting the liability of providers of online services for
activities of their users and other third parties.
|
●
|
Advertising.
We are
subject to a variety of laws, regulations and guidelines that regulate the
way we distinguish paid search results and other types of advertising from
unpaid search results.
|
●
|
Information
Security and Data Protection.
The laws in many jurisdictions require companies to implement
specific information security controls to protect certain types of
information. Likewise, many jurisdictions have laws in place requiring
companies to notify users if there is a security breach that compromises
certain categories of their information.
|
Many of these laws and
regulations are still evolving and could be interpreted in ways that harm our
business. The application and interpretation of these laws and regulations are
often uncertain, particularly in the new and rapidly evolving industry in which
we operate. They may be interpreted and applied inconsistently from country to
country and inconsistently with our current policies and practices. For example,
regulatory frameworks for privacy issues are currently in flux worldwide, and
are likely to remain so for the foreseeable future. Similarly, laws providing
immunity to websites that publish user-generated content are currently being
tested by a number of claims, including actions based on invasion of privacy and
other torts, unfair competition, copyright and trademark infringement and other
theories based on the nature and content of the materials searched, the ads
posted or the content provided by users. Changes in existing laws or regulations
or their interpretations, as well as new legislation or regulations, could
increase our administrative costs and make it more difficult for consumers to
use our platform, resulting in less traffic and revenue. Such changes could also
make it more difficult for us to provide effective advertising tools to
businesses on our platform, resulting in fewer advertisers and less revenue.
As our business grows and
evolves, we will also become subject to additional laws and regulations,
including in jurisdictions outside of the United States. Foreign data
protection, privacy and other laws and regulations can be more restrictive than
those in the United States. Any failure on our part to comply with these laws
may subject us to significant liabilities.
Our Culture and
Employees
We take great pride in our
company culture and consider it to be one of our competitive strengths. Our
culture is at the foundation of our success, and it continues to help drive our
business forward as a pivotal part of our everyday operations. It allows us to
attract and retain a talented group of employees, create an energetic work
environment and continue to innovate in a highly competitive market. As of
December 31, 2016, we had 4,256 full-time employees globally.
Our culture extends beyond
our offices and into the local communities in which people use Yelp. Our
community management teams responsibilities include supporting the sharing of
experiences by consumers in the local markets that they serve and increasing
brand awareness. We organize events several times a year to recognize our most
important contributors, facilitating face-to-face interactions, building the
Yelp brand and fostering the sense of true community in which we believe so
strongly. We also engage with small businesses. For example, we established the
Yelp Small Business Advisory Council as a way to interact with and get feedback
from our core community of local business owners. We also work with the U.S.
Small Business Administration and other partners to educate small business
owners across the United States on best practices for online marketing.
13
Table of Contents
In addition, The Yelp
Foundation, a non-profit organization established by our board of directors in
November 2011, or the Foundation, directly supports consumers and local
businesses in the communities in which we operate. In 2011, our board of
directors approved the contribution and issuance to the Foundation of 520,000
shares of our common stock, of which the Foundation had sold 160,000 shares as
of December 31, 2016. The Foundation uses the proceeds from the sale of its
shares of our common stock to make grants to local non-profit organizations that
are actively engaged in supporting community and small business growth. As of
December 31, 2016, the Foundation held 360,000 shares of common stock,
representing less than 1% of our outstanding capital stock.
Information About
Segment and Geographic Revenue
Information about segment
and geographic revenue is set forth in Note 18 of the Notes to Consolidated
Financial Statements included elsewhere in this Annual Report.
Seasonality
Our business is affected
both by cyclicality in business activity and by seasonal fluctuations in
Internet usage and advertising spending. We believe our rapid growth has masked
most of the cyclicality and seasonality of our business. As our revenue growth
rate slows, we expect that the cyclicality and seasonality in our business may
become more pronounced, causing our operating results to fluctuate. In
particular, based on historical trends, we expect traffic numbers
to be weakest in the fourth quarter of the year in connection with end of the
year holidays.
Corporate and Available
Information
We were incorporated in
Delaware on September 3, 2004 under the name Yelp, Inc. We changed our name to
Yelp! Inc. in late September 2004 and to Yelp Inc. in February 2012. Our
principal executive offices are located at 140 New Montgomery Street,
9
th
Floor, San Francisco, California 94105, and our telephone number
is (415) 908-3801. Our website is located at www.yelp.com, and our investor
relations website is located at www.yelp-ir.com.
We file or furnish
electronically with the U.S. Securities and Exchange Commission, or SEC, annual
reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K and amendments to those reports filed or furnished pursuant to Section 13(a)
or 15(d) of the Exchange Act. We make copies of these reports available free of
charge through our investor relations website as soon as reasonably practicable
after we file or furnish them with the SEC. All materials we file with the SEC are available at the SECs Public Reference Room at 100 F Street, NE, Washington, DC 20549. Information on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330.
We webcast our earnings
calls and certain events we participate in or host with members of the
investment community on our investor relations website. Additionally, we provide
notifications of news or announcements regarding our financial performance,
including filings with the SEC, investor events, press and earnings releases,
and blogs as part of our investor relations website. Investors and others can
receive notifications of new information posted on our investor relations
website in real time by signing up for e-mail alerts and RSS feeds.
Information contained on or
accessible through our websites is not incorporated into, and does not form a
part of, this Annual Report or any other report or document we file with the
SEC, and any references to our websites are intended to be inactive textual
references only.
Item 1A. Risk
Factors.
Risks Related to Our
Business and Industry
If we are unable to
increase traffic to our mobile app and website, or user engagement on our
platform declines, our revenue, business and operating results may be harmed.
14
Table of Contents
We derive substantially all
of our revenue from the sale of impression- and click-based advertising. Because
traffic to our platform determines the number of ads we are able to show,
affects the value of those ads to businesses and influences the content creation
that drives further traffic, slower traffic growth rates may harm our business
and financial results. As a result, our ability to grow our business depends on
our ability to increase traffic to and user engagement on our platform. Our
traffic could be adversely affected by factors including:
●
|
Reliance on
Internet Search Engines
. As
discussed in greater detail below, we rely on Internet search engines to
drive traffic to our platform, including our mobile app. However, the
display, including rankings, of unpaid search results can be affected by a
number of factors, many of which are not in our direct control, and may
change frequently. For example, a search engine may change its ranking
algorithms, methodologies or design layouts. As a result, links to our
platform may not be prominent enough to drive traffic to our platform, and
we may not be in a position to influence the results. Although Internet
search engine results have allowed us to attract a large audience with low
organic traffic acquisition costs to date, if they fail to drive
sufficient traffic to our platform in the future, we may need to increase
our marketing expenses, which could harm our operating results.
|
●
|
Increasing
Competition
. The market for
information regarding local businesses is intensely competitive and
rapidly changing. If the popularity, usefulness, ease of use, performance
and reliability of our products and services do not compare favorably to
those of our competitors, traffic may decline.
|
●
|
Review
Concentration
. Our
restaurant and shopping categories together accounted for approximately
40% of the businesses that had been reviewed on our platform and
approximately 56% of the cumulative reviews as of December 31, 2016. If
the high concentration of reviews in these categories generates a
perception that our platform is primarily limited to these categories,
traffic may not increase or may decline.
|
●
|
Our Recommendation
Software
. If our automated
software does not recommend helpful content or recommends unhelpful
content, consumers may reduce or stop their use of our platform. While we
have designed our technology to avoid recommending content that we believe
to be unreliable or otherwise unhelpful, we cannot guarantee that our
efforts will be successful.
|
●
|
Content
Scraping
. From time to
time, other companies copy information from our platform without our
permission, through website scraping, robots or other means, and publish
or aggregate it with other information for their own benefit. This may
make them more competitive and may decrease the likelihood that consumers
will visit our platform to find the local businesses and information they
seek. Though we strive to detect and prevent this third-party conduct, we
may not be able to detect it in a timely manner and, even if we could, may
not be able to prevent it. In some cases, particularly in the case of
third parties operating outside of the United States, our available
remedies may be inadequate to protect us against such conduct.
|
●
|
Macroeconomic
Conditions
. Consumer
purchases of discretionary items generally decline during recessions and
other periods in which disposable income is adversely affected. As a
result, adverse economic conditions may impact consumer spending,
particularly with respect to local businesses, which in turn could
adversely impact the number of consumers visiting our platform.
|
●
|
Internet
Access
. The adoption of any
laws or regulations that adversely affect the growth, popularity or use of
the Internet, including laws impacting Internet neutrality, could decrease
the demand for our services. Similarly, any actions by companies that
provide Internet access that degrade, disrupt or increase the cost of user
access to our platform could undermine our operations and result in the
loss of traffic.
|
We also anticipate that our
traffic growth rate will continue to slow over time, and potentially decrease in
certain periods, as our business matures and we achieve higher penetration
rates. In particular, we have already entered most major geographic markets
within the United States and Canada, and we do not expect to pursue expansion in
other international markets in the foreseeable future; further expansion in
smaller markets may not yield similar results or sustain our growth. That our
traffic growth has slowed in recent quarters even as we have expanded our
operations is a reflection of this trend. As our traffic growth rate slows, our
success will become increasingly dependent on our ability to increase levels of
user engagement on our platform. This dependence may increase as the portion of
our revenue derived from performance-based advertising increases. A number of
factors may negatively affect our user engagement, including if:
●
|
users engage with
other products, services or activities as an alternative to our
platform;
|
●
|
there is a decrease
in the perceived quality of the content contributed by our
users;
|
●
|
we fail to introduce
new and improved products or features, or we introduce new products or
features that do not effectively address consumer needs or otherwise
alienate consumers;
|
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●
|
technical or other
problems negatively impact the availability and reliability of our
platform or otherwise affect the user experience;
|
●
|
users have difficulty
installing, updating or otherwise accessing our platform as a result of
actions by us or third parties that we rely on to distribute our
products;
|
●
|
users believe that
their experience is diminished as a result of the decisions we make with
respect to the frequency, relevance and prominence of the advertising we
display; and
|
●
|
we do not maintain
our brand image or our reputation is damaged.
|
Consumers are
increasingly using mobile devices to access online services. If our mobile
platform and mobile advertising products are not compelling, or if we are unable
to operate effectively on mobile devices, our business could be adversely
affected.
The number of people who
access information about local businesses through mobile devices, including
smartphones, tablets and handheld computers, has increased dramatically over the
past few years and is expected to continue to increase. Although many consumers
access our platform both on their mobile devices and through personal computers,
we have seen substantial growth in mobile usage. We anticipate that growth in
use of our mobile platform will be the driver of our growth for the foreseeable
future and that usage through personal computers may continue to decline. As a
result, we must continue to drive adoption of and user engagement on our mobile
platform, and our mobile app in particular. If we are unable to drive continued
adoption of and engagement on our mobile app, our business may be harmed and we
may be unable to decrease our reliance on traffic from Google and other search
engines.
In order to attract and
retain engaged users of our mobile platform, the mobile products and services we
introduce must be compelling. However, the ways in which users engage with our
platform and consume content has changed over time, and we expect it will
continue to do so as users increasingly engage via mobile. This may make it more
difficult to develop mobile products that consumers find useful or provide them
with the information they seek, and may also negatively affect our content if
users do not continue to contribute high quality content on their mobile
devices. In addition, building an engaged base of mobile users may also be
complicated by the frequency with which users change or upgrade their mobile
services. In the event users choose mobile devices that do not already include
or support our mobile app or do not install our mobile app when they change or
upgrade their devices, our traffic and user engagement may be harmed.
Our success is also
dependent on the interoperability of our mobile products with a range of mobile
technologies, systems, networks and standards that we do not control, such as
mobile operating systems like Android and iOS. We may not be successful in
developing products that operate effectively with these technologies, systems,
networks and standards or in creating, maintaining and developing relationships
with key participants in the mobile industry, some of which may be our
competitors. Any changes that degrade the functionality of our mobile products,
give preferential treatment to competitive products or prevent us from
delivering advertising could adversely affect mobile usage and monetization. As
new mobile devices and platforms are released, it is difficult to predict the
problems we may encounter in developing products for these alternative devices
and platforms, and we may need to devote significant resources to the creation,
support and maintenance of such products. If we experience difficulties in the
future integrating our mobile app into mobile devices, or we face increased
costs to distribute our mobile app, our user growth and operating results could
be harmed.
In addition, the mobile
market remains a rapidly evolving market with which we have limited experience.
As new devices and platforms are released, users may begin consuming content in
a manner that is more difficult to monetize. Similarly, as mobile advertising
products develop, demand may increase for products that we do not offer or that
may alienate our user base. Although we currently deliver ads on both our mobile
app and mobile website, with 66% of ad clicks delivered on mobile in the three
months ended December 31, 2016, our continued success depends on our efforts to
innovate and introduce enhanced mobile solutions. If our efforts to develop
compelling mobile advertising products are not successful as a result of, for
example, the difficulties detailed above advertisers may stop or reduce their
advertising with us. At the same time, we must balance advertiser demands
against our commitment to prioritizing the quality of user experience over
short-term monetization. For example, we phased out our brand advertising
products in part because demand in the brand advertising market has shifted
toward products disruptive to the consumer experience, such as video ads. If we
are not able to balance these competing considerations successfully, we may not
be able to generate meaningful revenue from our mobile products despite the
expected growth in mobile usage.
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We rely on Internet
search engines and application marketplaces to drive traffic to our platform,
certain providers of which offer products and services that compete directly
with our products. If links to our applications and website are not displayed
prominently, traffic to our platform could decline and our business would be
adversely affected.
Our success depends in part
on our ability to attract users through unpaid Internet search results on search
engines like Google and Bing. The number of users we attract from search engines
to our website (including our mobile website) is due in large part to how and
where information from and links to our website are displayed on search engine
result pages. The display, including rankings, of unpaid search results can be
affected by a number of factors, many of which are not in our direct control,
and may change frequently. For example, a search engine may change its ranking
algorithms, methodologies or design layouts. As a result, links to our platform
may not be prominent enough to drive traffic to our platform, and we may not
know how or otherwise be in a position to influence the results.
For example, Google has
previously made changes to its algorithms and methodologies that may be
contributing to the slowing of our traffic growth rate, particularly in our
international markets where we have less content and more competitors. We
believe this headwind on our ability to achieve prominent display of our content
in international unpaid search results disrupted the network effect we expected
in our international markets based on what we experienced domestically, whereby
increases in content led to increases in traffic. This was a contributing factor
to our decision to reallocate our international sales and marketing resources.
Google also announced that, beginning in the fourth quarter of 2015, the
rankings of sites showing certain types of app install interstitials could be
penalized on its mobile search results pages. While we believe the type of
interstitial we currently use will not be penalized, the parameters of Googles
policy may change from time to time, be poorly defined and be inconsistently
interpreted. For example, in January 2017, Google broadened the categories of
interstitials that may be penalized. As a result, Google may unexpectedly
penalize our app install interstitials, which may cause links to our mobile
website to be featured less prominently in Googles mobile search results page,
and traffic to both our mobile website and mobile app may be harmed as a result.
We cannot predict the long-term impact of these changes.
Although traffic to our
mobile app is less reliant on search results than traffic to our website, growth
in mobile device usage may not decrease our overall reliance on search results
if mobile users use our mobile website rather than our mobile app. In fact,
consumers increasing use of mobile devices may exacerbate the risks associated
with how and where our website is displayed in search results because mobile
device screens are smaller than personal computer screens and therefore display
fewer search results.
We also rely on application
marketplaces, such as Apples App Store and Googles Play, to drive downloads of
our applications. In the future, Apple, Google or other marketplace operators
may make changes to their marketplaces that make access to our products more
difficult. For example, our applications may receive unfavorable treatment
compared to the promotion and placement of competing applications, such as the
order in which they appear within marketplaces. Similarly, if problems arise in
our relationships with providers of application marketplaces, our user growth
could be harmed.
In some instances, search
engine companies and application marketplaces may change their displays or
rankings in order to promote their own competing products or services or the
products or services of one or more of our competitors. For example, Google has
integrated its local product offering, Google + Local, with certain of its
products, including search. The resulting promotion of Googles own competing
products in its web search results has negatively impacted the search ranking of
our website. Because Google in particular is the most significant source of
traffic to our website, accounting for more than half of the visits to our
website during the three months ended December 31, 2016, our success depends on
our ability to maintain a prominent presence in search results for queries
regarding local businesses on Google. As a result, Googles promotion of its own
competing products, or similar actions by Google in the future that have the
effect of reducing our prominence or ranking on its search results, could have a
substantial negative effect on our business and results of operations.
If our users fail to
contribute high quality content or their contributions are not valuable to other
users, our traffic and revenue could be negatively affected.
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Table of Contents
Our success in attracting
users depends on our ability to provide consumers with the information they
seek, which in turn depends on the quantity and quality of the content
contributed by our users. We believe that as the depth and breadth of the
content on our platform grow, our platform will become more widely known and
relevant to broader audiences, thereby attracting new consumers to our service.
However, if we are unable to provide consumers with the information they seek,
they may stop or reduce their use of our platform, and traffic to our website
and on our mobile app will decline. If our user traffic declines, our
advertisers may stop or reduce the amount of advertising on our platform and our
business could be harmed. Our ability to provide consumers with valuable content
may be harmed:
●
|
if our users do not
contribute content that is helpful or reliable;
|
●
|
if our users remove
content they previously submitted;
|
●
|
as a result of user
concerns that they may be harassed or sued by the businesses they review,
instances of which have occurred in the past and may occur again in the
future; and
|
●
|
as users increasingly
contribute content through our mobile platform, because content
contributed through mobile devices tends to be shorter than desktop
contributions.
|
Similarly, if robots,
shills or other spam accounts are able to contribute a significant amount of
recommended content, or consumers perceive a significant amount of our
recommended content to be from such accounts, our traffic and revenue could be
negatively affected. Although we do not believe content from these sources has
had a material impact to date, if our automated software recommends a
substantial amount of such content in the future, our ability to provide high
quality content would be harmed and the consumer trust essential to our success
could be undermined.
In addition, if our
platform does not provide current information about local businesses or users do
not perceive reviews on our platform as relevant, our brand and business could
be harmed. For example, we do not phase out or remove dated reviews, and
consumers may view older reviews as less relevant, helpful or reliable than more
recent reviews.
If we fail to
maintain and expand our base of advertisers, our revenue and our business will
be harmed.
Our ability to grow our
business depends on our ability to maintain and expand our advertiser base. To
do so, we must convince existing and prospective advertisers alike that our
advertising products offer a material benefit and can generate a competitive
return relative to other alternatives. Our ability to do so depends on factors
including:
●
|
Acceptance of
Online Advertising
. We
believe that the continued growth and acceptance of our online advertising
products will depend on the perceived effectiveness and acceptance of
online advertising models generally, which is outside of our control. For
example, if ad-blocking programs that affect the delivery of online
advertising gain further visibility or traction, the perceived value of
online advertising, and that of our advertising products in turn, may be
harmed. Many advertisers still have limited experience with online
advertising and, as a result, may continue to devote significant portions
of their advertising budgets to traditional, offline advertising media,
such as newspapers or print yellow pages directories.
|
●
|
Competitiveness of
Our Products
. We must
deliver ads in an effective manner. We may be unable to attract new
advertisers if our products are not compelling or we fail to innovate and
introduce enhanced products meeting advertiser expectations. For example, in their current form, our ad products may be most attractive to businesses with higher than average ratings
and numbers of reviews. As a result, businesses with lower ratings and fewer reviews may not purchase our ad products, or
may abandon them if they do not believe our ad products are effective. At the same time, we
must balance advertiser demands against our commitment to providing a good
user experience. For example, we phased out our brand advertising products
in part because demand in the brand advertising market has shifted toward
products disruptive to the consumer experience. In addition, we must
provide accurate analytics and measurement solutions that demonstrate the
value of our advertising products compared to those of our competitors.
Similarly, if the pricing of our advertising products does not compare
favorably to those of our competitors, advertisers may reduce their
advertising with us or choose not to advertise with us at all. The
widespread adoption of any technologies that make it more difficult for us
to deliver ads, such as ad-blocking programs, could also decrease our
value proposition to businesses and reduce demand for our products.
|
●
|
Traffic
Quality
. The success of our
advertising program depends on delivering positive results to our
advertising customers. Low-quality or invalid traffic, such as robots,
spiders and the mechanical automation of clicking, may be detrimental to
our relationships with advertisers and could adversely affect our
advertising pricing and revenue. If we fail to detect and prevent click
fraud or other invalid clicks on ads, the affected advertisers may
experience or perceive a reduced return on their investments, which could
lead to dissatisfaction with our products, refusals to pay, refund demands
or withdrawal of future business.
|
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Table of Contents
●
|
Perception of Our
Platform
. Our ability to
compete effectively for advertiser budgets depends on our reputation and
perceptions regarding our platform. For example, we may face challenges
expanding our advertiser base in businesses outside the restaurant and
shopping categories if businesses believe that consumers perceive the
utility of our platform to be limited to finding businesses in these
categories. The ratings and reviews that businesses receive from our users
may also affect their advertising decisions. Favorable ratings and
reviews, on the one hand, could be perceived as obviating the need to
advertise. Unfavorable ratings and reviews, on the other, could discourage
businesses from advertising to an audience that they perceive as hostile
or cause them to form a negative opinion of our products and user base.
|
●
|
Macroeconomic
Conditions
. Adverse
macroeconomic conditions can have a negative impact on the demand for
advertising, particularly with respect to online advertising products. We
rely heavily on small and medium-sized businesses, which often have
limited advertising budgets and may be disproportionately affected by
economic downturns. In addition, such business may view online advertising
as lower priority than offline advertising.
|
As is typical in our
industry, our advertisers generally do not have long-term obligations to
purchase our products. 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. Small and medium-sized local businesses in particular have
historically experienced high failure rates. As a result, we may experience
attrition in our advertisers in the ordinary course of business resulting from
several factors, including losses to competitors, declining advertising budgets,
closures and bankruptcies. The negative impact of attrition on our financial results may be greater with respect to advertisers who are billed in
arrears, as the vast majority of our advertisers now are, if they fail to make payment on ads that have already been
delivered. In addition, our recent phase out of our brand
advertising products, which had been an additional source of revenue for us, may
make us more susceptible to fluctuations and attrition from small and
medium-sized businesses. To grow our business, we must continually add new
advertisers to replace advertisers who choose not to renew their advertising, or
who go out of business or otherwise fail to fulfill their advertising contracts
with us, which we may not be able to do.
If we fail to further
develop our domestic markets effectively, our revenue and business will be
harmed.
In the fourth quarter of
2016, we wound down our international sales and marketing operations and
reallocated the associated resources primarily to our U.S. and Canadian markets.
As a result, our continued growth depends on our ability to further develop our
U.S. and Canadian communities and operations. However, our communities in many
of the largest markets in the United States and Canada are in a relatively late
stage of development, and further development of smaller markets may not yield
similar results. If we are not able to develop these markets as we expect, or if
we fail to address the needs of those markets, our business will be harmed.
We may acquire other
companies or technologies, which could divert our managements attention, result
in additional dilution to our stockholders and otherwise disrupt our operations
and harm our operating results. We may also be unable to realize the expected
benefits and synergies of any acquisitions.
Our success will depend, in
part, on our ability to expand our product offerings and grow our business in
response to changing technologies, user and advertiser demands and competitive
pressures. In some circumstances, we may determine to do so through the
acquisition of complementary businesses or technologies rather than through
internal development. For example, in February 2015, we acquired Eat24 to obtain
an online food ordering solution. We have limited experience as a company in the
complex process of acquiring other businesses and technologies. The pursuit of
potential future acquisitions may divert the attention of management and cause
us to incur expenses in identifying, investigating and pursuing acquisitions,
whether or not they are consummated.
Acquisitions that are
consummated could result in dilutive issuances of equity securities or the
incurrence of debt, which could adversely affect our results of operations. The
incurrence of debt in particular could result in increased fixed obligations or
include covenants or other restrictions that would impede our ability to manage
our operations. In addition, any acquisitions we announce could be viewed
negatively by users, businesses or investors. We may also discover liabilities
or deficiencies associated with the companies or assets we acquire that we did
not identify in advance, which may result in significant unanticipated costs.
For example, in 2015, two lawsuits were filed against us by former Eat24
employees alleging that Eat24 failed to comply with certain labor laws prior to
the acquisition. The effectiveness of our due diligence review and our ability
to evaluate the results of such due diligence are dependent upon the accuracy
and completeness of statements and disclosures made by the companies we acquire
or their representatives, as well as the limited amount of time in which acquisitions are executed.
We may also fail to accurately forecast the financial impact of an acquisition
transaction, including tax and accounting charges.
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Table of Contents
In order to realize the
expected benefits and synergies of any acquisition that is consummated, we must
meet a number of significant challenges that may create unforeseen operating
difficulties and expenditures, including:
●
|
integrating
operations, strategies, services, sites and technologies of the acquired
company;
|
●
|
managing the combined
business effectively;
|
●
|
retaining and
assimilating the employees of the acquired
company;
|
●
|
retaining existing
customers and strategic partners and minimizing disruption to existing
relationships as a result of any integration of new
personnel;
|
●
|
difficulties in the
assimilation of corporate cultures;
|
●
|
implementing and
retaining uniform standards, controls, procedures, policies and
information systems; and
|
●
|
addressing risks
related to the business of the acquired company that may continue to
impact the business following the acquisition.
|
Any inability to integrate
services, sites and technologies, operations or personnel in an efficient and
timely manner could harm our results of operations. Transition activities are
complex and require significant time and resources, and we may not manage the
process successfully, particularly if we are managing multiple integrations
concurrently. Our ability to integrate complex acquisitions is unproven,
particularly with respect to companies that have significant operations or that
develop products with which we do not have prior experience. For example, Eat24
was larger and more complex than companies we had previously acquired. In
addition, Eat24 operates a business that is new to us, and we did not have
significant experience or structure in place to support this business prior to
the acquisition. We plan to invest resources to support this and any future
acquisitions, which will result in ongoing operating expenses and may divert
resources and management attention from other areas of our business. We cannot
assure you that these investments will be successful. Even if we are able to
integrate the operations of any acquired company successfully, these
integrations may not result in the realization of the full benefits of
synergies, cost savings, innovation and operational efficiencies that may be
possible from the combination of the businesses, or we may not achieve these
benefits within a reasonable period of time.
We rely on
third-party service providers and strategic partners for many aspects of our
business, and any failure to maintain these relationships could harm our
business.
We rely on relationships
with various third parties to grow our business, including strategic partners
and technology and content providers. For example, we rely on third parties for
data about local businesses, mapping functionality, payment processing and
administrative software solutions. We also rely on partners for various
transactions available through the Yelp Platform, including Booker for spa and
salon appointments, Locu for menu data and BloomNation for flower deliveries,
among others. Identifying, negotiating and maintaining relationships with third
parties require significant time and resources, as does integrating their data,
services and technologies onto our platform. It is possible that these third
parties may not be able to devote the resources we expect to the relationships.
We may also have competing interests and obligations with respect to our
partners in particular, which may make it difficult to maintain, grow or
maximize the benefit for each partnership. For example, our entry into the
online reservations space with our acquisition of SeatMe, Inc. in 2013 put us in
competition with OpenTable, which led to the end of our partnership in 2015. Our
focus on integrating additional partners to expand the Yelp Platform may
exacerbate this risk.
If our relationships with
our partners and providers deteriorate, we could suffer increased costs and
delays in our ability to provide consumers and advertisers with content or
similar services. We have had, and may in the future have, disagreements or
disputes with our partners about our respective contractual obligations, which
could result in legal proceedings or negatively affect our brand and reputation.
In addition, we exercise limited control over our third-party partners and
vendors, which makes us vulnerable to any errors, interruptions or delays in
their operations. If these third parties experience any service disruptions,
financial distress or other business disruption, or difficulties meeting our
requirements or standards, it could make it difficult for us to operate some
aspects of our business. For example, we rely on a single supplier to process
payments of all transactions made on the Yelp Platform and for purchases of Yelp
Deals and Gift Certificates. Any
disruption or problems with this supplier or its services could have an adverse
effect on our reputation, results of operations and financial results.
Similarly, upon expiration or termination of any of our agreements with
third-party providers, we may not be able to replace the services provided to us
in a timely manner or on terms that are favorable to us, if at all, and a
transition from one partner or provider to another could subject us to
operational delays and inefficiencies.
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Table of Contents
We face competition
for both local business directory traffic and advertiser spending, and expect
competition to increase in the future.
The market for information
regarding local businesses and advertising is intensely competitive and rapidly
changing. With the emergence of new technologies and market entrants,
competition is likely to intensify in the future. We compete for consumer
traffic with traditional, offline local business guides and directories,
Internet search engines, such as Google and Bing, review and social media
websites and various other online service providers. These competitors may
include regional review websites that may have strong positions in particular
countries. We also compete with these companies for the content of contributors,
and may experience decreases in both traffic and user engagement if our
competitors offer more compelling environments.
Although advertisers are
allocating an increasing amount of their overall marketing budgets to online
advertising, such spending lags behind growth in Internet and mobile usage
generally, making the market for online advertising intensely competitive. We
compete for a share of local businesses overall advertising budgets with
traditional, offline media companies and service providers, as well as Internet
marketing providers. Many of these companies have established marketing
relationships with local businesses, and certain of our online competitors have
substantial proprietary advertising inventory and web traffic that may provide a
significant competitive advantage.
Certain competitors could
use strong or dominant positions in one or more markets to gain competitive
advantage against us in areas in which we operate, including by: integrating
review platforms or features into products they control, such as search engines,
web browsers or mobile device operating systems; making acquisitions; changing
their unpaid search result rankings to promote their own products; refusing to
enter into or renew licenses on which we depend; limiting or denying our access
to advertising measurement or delivery systems; limiting our ability to target
or measure the effectiveness of ads; or making access to our platform more
difficult. This risk may be exacerbated by the trend in recent years toward
consolidation among online media companies, potentially allowing our larger
competitors to offer bundled or integrated products that feature alternatives to
our platform.
Our competitors may also
enjoy competitive advantages, such as greater name recognition, longer operating
histories, substantially greater market share, large existing user bases and
substantially greater financial, technical and other resources. Traditional
television and print media companies, for example, have large established
audiences and more traditional and widely accepted advertising products. These
companies may use these advantages to offer products similar to ours at a lower
price, develop different products to compete with our current solutions and
respond more quickly and effectively than we do to new or changing
opportunities, technologies, standards or client requirements. In particular,
major Internet companies, such as Google, Facebook, Amazon and Microsoft, may be
more successful than us in developing and marketing online advertising offerings
directly to local businesses, and may leverage their relationships based on
other products or services to gain additional share of advertising budgets.
To compete effectively, we
must continue to invest significant resources in product development to enhance
user experience and engagement, as well as sales and marketing to expand our
base of advertisers. However, there can be no assurance that we will be able to
compete successfully for users and advertisers against existing or new
competitors, and failure to do so could result in loss of existing users,
reduced revenue, increased marketing expenses or diminished brand strength, any
of which could harm our business.
Our business depends
on a strong brand, and any failure to maintain, protect and enhance our brand
would hurt our ability to retain and expand our base of users and advertisers,
as well as our ability to increase the frequency with which they use our
products.
We have developed a strong
brand that we believe has contributed significantly to the success of our
business. Maintaining, protecting and enhancing the Yelp brand are critical to
expanding our base of users and advertisers and increasing the frequency with
which they use our solutions. Our ability to do so will depend largely on our
ability to maintain consumer trust in our products and in the quality and
integrity of the user content and other information found on our platform, which we may not
do successfully. We dedicate significant resources to these goals, primarily
through our automated recommendation software, sting operations targeting the
buying and selling of reviews, our consumer alerts program, coordination with
consumer protection agencies and law enforcement, and, in certain egregious
cases, taking legal action against business we believe to be engaged in
deceptive activities. We also endeavor to remove content from our platform that
violates our terms of service.
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Despite these efforts, we
cannot guarantee that each of the 85.7 million reviews on our platform that had
been recommended and that had not been removed as of December 31, 2016 is useful
or reliable, or that consumers will trust the integrity of our content. For
example, if our recommendation software does not recommend helpful content or
recommends unhelpful content, consumers and businesses alike may stop or reduce
their use of our platform and products. Some consumers and businesses have
alternately expressed concern that our technology either recommends too many
reviews, thereby recommending some reviews that may not be legitimate, or too
few reviews, thereby not recommending some reviews that may be legitimate. If
consumers do not believe our recommended reviews to be useful and reliable, they
may seek other services to obtain the information for which they are looking,
and may not return to our platform as often in the future, or at all. This would
negatively impact our ability to retain and attract users and advertisers and
the frequency with which they use our platform.
Consumers may also believe
that the reviews, photos and other user content contributed by our Community
Managers or other employees are influenced by our advertising relationships or
are otherwise biased. Although we take steps to prevent this from occurring by,
for example, identifying Community Managers as Yelp employees on their account
profile pages and explaining their role on our platform, the designation does
not appear on the page for each review contributed by the Community Manager and
we may not be successful in our efforts to maintain consumer trust. Similarly,
the actions of our partners may affect our brand if users do not have a positive
experience on the Yelp Platform. If others misuse our brand or pass themselves
off as being endorsed or affiliated with us, it could harm our reputation and
our business could suffer. For example, we have encountered instances of
reputation management companies falsely representing themselves as being
affiliated with us when soliciting customers; this practice could be
contributing to rumors that business owners can pay to manipulate reviews,
rankings and ratings. Our website and mobile app also serve as a platform for
expression by our users, and third parties or the public at large may also
attribute the political or other sentiments expressed by users on our platform
to us, which could harm our reputation.
In addition, negative
publicity about our company, including our technology, sales practices,
personnel, customer service, litigation, strategic plans or political activities
could diminish confidence in our brand and the use of our products. Certain
media outlets have previously reported allegations that we manipulate our
reviews, rankings and ratings in favor of our advertisers and against
non-advertisers. In order to demonstrate that our automated recommendation
software applies in a nondiscriminatory manner to both advertisers and
non-advertisers, we allow users to access reviews that are both recommended and
not recommended by our software. We have also allowed businesses to comment
publicly on reviews so that they can provide a response. Nevertheless, our
reputation and brand, the traffic to our website and mobile app and our business
may suffer if negative publicity about our company persists or if users
otherwise perceive that our content is manipulated or biased. Allegations and
complaints regarding our business practices, and any resulting negative
publicity, may also result in increased regulatory scrutiny of our company. In
addition to requiring management time and attention, any regulatory inquiry or
investigation could itself result in further negative publicity regardless of
its merit or outcome.
Maintaining and enhancing
our brand may also require us to make substantial investments, and these
investments may not be successful. For example, our trademarks are an important
element of our brand. We have faced in the past, and may face in the future,
oppositions from third parties to our applications to register key trademarks.
If we are unsuccessful in defending against these oppositions, our trademark
applications may be denied. Whether or not our trademark applications are
denied, third parties may claim that our trademarks infringe their rights. As a
result, we could be forced to pay significant settlement costs or cease the use
of these trademarks and associated elements of our brand. Doing so could harm
our brand recognition and adversely affect our business. If we fail to maintain
and enhance our brand successfully, or if we incur excessive expenses in this
effort, our business and financial results may be adversely affected.
If we fail to manage
our growth effectively, our brand, results of operations and business could be
harmed.
We have experienced rapid
growth in our headcount and operations, including through our acquisitions of
other businesses, such as Eat24 in February 2015, which places substantial
demands on management and our operational infrastructure. Most of our employees
have been with us for fewer than two years; to manage the expected growth of our operations, we will need to
continue to increase the productivity of our current employees and hire, train
and manage new employees. In particular, we intend to continue to make
substantial investments in our engineering organization as well as our U.S. and
Canadian sales, marketing and community management organizations. As a result,
we must effectively integrate, develop and motivate a large number of new
employees, including employees from any acquired businesses, while maintaining
the beneficial aspects of our company culture.
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As our business matures, we
make periodic changes and adjustments to our organization in response to various
internal and external considerations, including market opportunities, the
competitive landscape, new and enhanced products, acquisitions, sales
performance, increases in headcount and cost levels. In some instances, these
changes have resulted in a temporary lack of focus and reduced productivity,
which may occur again in connection with any future changes to our organization
and may negatively affect our results of operations. Similarly, any significant
changes to the way we structure compensation of our sales organization may be
disruptive and may affect our ability to generate revenue.
To manage our growth, we
may need to improve our operational, financial and management systems and
processes, which may require significant capital expenditures and allocation of
valuable management and employee resources, as well as subject us to the risk of
over-expanding our operating infrastructure. For example, it can be difficult to train thousands of sales employees across multiple offices according to the same business
standards, practices and laws, and we have been the subject of lawsuits alleging that we have failed to do so. For example,
we are the subject of a putative class action lawsuit alleging that our sales force does not properly disclose that calls
may be monitored or recorded for quality assurance. However, if we fail to scale our
operations successfully and increase productivity, the quality of our platform
and efficiency of our operations could suffer, which could harm our brand,
results of operations and business.
We make the consumer
experience our highest priority. Our dedication to making decisions based
primarily on the best interests of consumers may cause us to forgo short-term
gains and advertising revenue.
We base many of our
decisions on the best interests of the consumers who use our platform. In the
past, we have forgone, and we may in the future forgo, certain expansion or
revenue opportunities that we do not believe are in the best interests of
consumers, even if such decisions negatively impact our results of operations in
the short term. For example, we phased out our brand advertising products in
part because demand in the brand advertising market has shifted toward products
disruptive to the consumer experience, such as video ads. Our approach of
putting consumers first may negatively impact our relationship with existing or
prospective advertisers. For example, unless we believe that a review violates
our terms of service, such as reviews that contain hate speech or bigotry, we
will allow the review to remain on our platform, even if the business disputes
its accuracy. Certain advertisers may therefore perceive us as an impediment to
their success as a result of negative reviews and ratings. This practice could
result in a loss of advertisers, which in turn could harm our results of
operations. However, we believe that this approach has been essential to our
success in attracting users and increasing the frequency with which they use our
platform. As a result, we believe this approach has served the long-term
interests of our company and our stockholders and will continue to do so in the
future.
We rely on the
performance of highly skilled personnel, and if we are unable to attract, retain
and motivate well-qualified employees, our business could be harmed.
We believe our success has
depended, and continues to depend, on the efforts and talents of our employees,
including our senior management team, software engineers, marketing
professionals and advertising sales staff. All of our officers and other U.S.
employees are at-will employees, which means they may terminate their employment
relationship with us at any time, and their knowledge of our business and
industry would be extremely difficult to replace. Any changes in our senior
management team in particular may be disruptive to our business. For example, in
2016 we appointed a new Chief Financial Officer, and our long-time Chief
Operating Officer stepped down from his position. If our senior management team,
including our Chief Financial Officer or any other new hires that we may make,
fails to work together effectively or execute our plans and strategies on a
timely basis, our business could be harmed.
Our future also depends on
our continuing ability to attract, develop, motivate and retain highly qualified
and skilled employees. Identifying, recruiting, training and integrating new
hires will require significant time, expense and attention, and qualified
individuals are in high demand; as a result, we may incur significant costs to
attract them before we can validate their productivity. Volatility in the price
of our common stock may make it more difficult or costly in the future to use
equity compensation to motivate, incentivize and retain our employees. If we
fail to manage our hiring needs effectively, our efficiency and ability to meet
our forecasts, as well as employee morale, productivity and retention, could
suffer, and our business and operating results could be adversely affected.
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Risks Related to Our
Technology
Our business is
dependent on the uninterrupted and proper operation of our technology and
network infrastructure. Any significant disruption in our service could damage
our reputation, result in a potential loss of users and engagement and adversely
affect our results of operations.
It is important to our
success that users in all geographies be able to access our platform at all
times. We have previously experienced, and may experience in the future, service
disruptions, outages and other performance problems. Such performance problems
may be due to a variety of factors, including infrastructure changes, human or
software errors and capacity constraints due to an overwhelming number of users
accessing our platform simultaneously. Our products and services are highly
technical and complex, and may contain errors or vulnerabilities that could
result in unanticipated downtime for our platform and harm to our reputation and
business. Users may also use our products in unanticipated ways that may cause a
disruption in service for other users attempting to access our platform. We may
encounter such difficulties more frequently as we acquire companies and
incorporate their technologies into our service. It may also become increasingly
difficult to maintain and improve the availability of our platform, especially
during peak usage times, as our products become more complex and our user
traffic increases.
In some instances, we may
not be able to identify the cause or causes of these performance problems within
an acceptable period of time. If our platform is unavailable when users attempt
to access it or it does not load as quickly as they expect, users may seek other
services to obtain the information for which they are looking, and may not
return to our platform as often in the future, or at all. This would negatively
impact our ability to attract users and advertisers and increase the frequency
with which they use our platform. We expect to continue to make significant
investments to maintain and improve the availability of our platform and to
enable rapid releases of new features and products. To the extent that we do not
effectively address capacity constraints, upgrade our systems as needed and
continually develop our technology and network architecture to accommodate
actual and anticipated changes in technology, our business and operating results
may be harmed.
Our systems are also
vulnerable to damage or interruption from catastrophic occurrences such as
earthquakes, fires, floods, power losses, telecommunications failures, terrorist
attacks and similar events. Our U.S. corporate offices and one of the facilities
we lease to house our computer and telecommunications equipment are located in
the San Francisco Bay Area, a region known for seismic activity. In addition,
acts of terrorism, which may be targeted at metropolitan areas that have higher
population densities than rural areas, could cause disruptions in our or our
advertisers businesses or the economy as a whole. We may not have sufficient
protection or recovery plans in certain circumstances, such as natural disasters
affecting the San Francisco Bay Area, and our business interruption insurance
may be insufficient to compensate us for losses that may occur. Our disaster
recovery program contemplates transitioning our platform and data to a backup
center in the event of a catastrophe. Although this program is functional, if
our primary data center shuts down, there will be a period of time that our
services will remain shut down while the transition to the back-up data center
takes place. During this time, our platform may be unavailable in whole or in
part to our users.
If our security
measures are compromised, or if our platform is subject to attacks that degrade
or deny the ability of users to access our content, users may curtail or stop
use of our platform.
Our platform involves the
storage and transmission of user and business information, some of which may be
private, and security breaches could expose us to a risk of loss of this
information, which could result in potential liability and litigation. Computer
viruses, break-ins, malware, phishing attacks, attempts to overload servers with
denial-of-service or other attacks and similar disruptions from unauthorized use
of computer systems have become more prevalent in our industry, have occurred on
our systems in the past and are expected to occur periodically on our systems in
the future. We may be a particularly compelling target for such attacks as a
result of our brand recognition. User and business owner accounts and listing
pages could be hacked, hijacked, altered or otherwise claimed or controlled by
unauthorized persons. For example, we enable businesses to create free online
accounts and claim the business listing pages for each of their business
locations. Although we take steps to confirm that the person setting up the
account is affiliated with the business, our verification systems could fail to
confirm that such person is an authorized representative of the business, or
mistakenly allow an unauthorized person to claim the businesss listing page. In
addition, we face risks associated with security breaches affecting our
third-party partners and service providers. A security breach at any such third
party could be perceived by consumers as a security breach of our systems and
result in negative publicity, damage to our reputation and expose us to other
losses.
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Although none of the
disruptions we have experienced to date have had a material effect on our
business, any future disruptions could lead to interruptions, delays or website
shutdowns, causing loss of critical data or the unauthorized disclosure or use
of personally identifiable or other confidential information. Even if we
experience no significant shutdown or no critical data is lost, obtained or
misused in connection with an attack, the occurrence of such attack or the
perception that we are vulnerable to such attacks may harm our reputation, our
ability to retain existing users and our ability to attract new users. Although
we have developed systems and processes that are designed to protect our data
and prevent data loss and other security breaches, the techniques used to obtain
unauthorized access, disable or degrade service or sabotage systems change
frequently, often are not recognized until launched against a target or long
after, and may originate from less regulated and more remote areas around the
world. As a result, these preventative measures may not be adequate and we
cannot assure you that they will provide absolute security.
Any or all of these issues
could negatively impact our ability to attract new users, deter current users
from returning to our platform, cause existing or potential advertisers to
cancel their contracts or subject us to third-party lawsuits or other
liabilities. For example, we work with a third-party vendor to process credit
card payments by users and businesses, and are subject to payment card
association operating rules. Compliance with applicable operating rules will not
necessarily prevent illegal or improper use of our payment systems, or the
theft, loss or misuse of payment information, however. If our security measures
fail to prevent fraudulent credit card transactions and protect payment
information adequately as a result of employee error, malfeasance or otherwise,
or we fail to comply with the applicable operating rules, we could be liable to
the users and businesses for their losses, as well as the vendor under our
agreement with it, and be subject to fines and higher transaction fees. In
addition, government authorities could also initiate legal or regulatory actions
against us in connection with such incidents, which could cause us to incur
significant expense and liability or result in orders or consent decrees forcing
us to modify our business practices.
Some of our products
contain open source software, which may pose particular risks to our proprietary
software and solutions.
We use open source software
in our products and will use open source software in the future. From time to
time, we may face claims from third parties claiming ownership of, or demanding
release of, the open source software or derivative works that we developed using
such software (which could include our proprietary source code), or otherwise
seeking to enforce the terms of the applicable open source license. These claims
could result in litigation and could require us to purchase a costly license or
cease offering the implicated solutions unless and until we can re-engineer them
to avoid infringement. This re-engineering process could require significant
additional research and development resources. In addition to risks related to
license requirements, use of certain open source software can lead to greater
risks than use of third-party commercial software because open source licensors
generally do not provide warranties or controls on the origin of the software.
Any of these risks could be difficult to eliminate or manage, and, if not
addressed, could have a negative effect on our business and operating results.
Failure to protect or
enforce our intellectual property rights could harm our business and results of
operations.
We regard the protection of
our trade secrets, copyrights, trademarks, patent rights and domain names as
critical to our success. In particular, we must maintain, protect and enhance
the Yelp brand. We pursue the registration of our domain names, trademarks and
service marks in the United States and in certain jurisdictions abroad. While we
are pursuing a number of patent applications, we currently have only limited
patent protection for our core business, which may make it more difficult to
assert certain of our intellectual property rights. We strive to protect our
intellectual property rights by relying on federal, state and common law rights,
as well as contractual restrictions. We typically enter into confidentiality and
invention assignment agreements with our employees and contractors, as well as
confidentiality agreements with parties with whom we conduct business in order
to limit access to, and disclosure and use of, our proprietary information.
However, these contractual arrangements and the other steps we have taken to
protect our intellectual property may not prevent the misappropriation or
disclosure of our proprietary information or deter independent development of
similar technologies by others.
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Effective trade secret,
copyright, trademark, patent and domain name protection is expensive to develop
and maintain, both in terms of initial and ongoing registration requirements and
expenses and the costs of defending our rights. Seeking protection for our
intellectual property, including trademarks and domain names, is an expensive
process and may not be successful, and we may not do so in every location in
which we operate. Similarly, the process of obtaining patent protection is
expensive and time consuming, and we may not be able to prosecute all necessary
or desirable patent applications at a reasonable cost or in a
timely manner. Even if issued, there can be no assurance that these patents will
adequately protect our intellectual property, as the legal standards relating to
the validity, enforceability and scope of protection of patent and other
intellectual property rights are uncertain. Litigation may become necessary to
enforce our patent or other intellectual property rights, protect our trade
secrets or determine the validity and scope of proprietary rights claimed by
others. For example, we may incur significant costs in enforcing our trademarks
against those who attempt to imitate our Yelp brand. Any litigation of this
nature, regardless of outcome or merit, could result in substantial costs and
diversion of management and technical resources, any of which could adversely
affect our business and operating results.
We may be unable to
continue to use the domain names that we use in our business, or prevent third
parties from acquiring and using domain names that infringe on, are similar to,
or otherwise decrease the value of our brand or our trademarks or service
marks.
We have registered domain
names for the websites that we use in our business, such as Yelp.com. If we lose
the ability to use a domain name, whether due to trademark claims, failure to
renew the applicable registration or any other cause, we may be forced to market
our products under a new domain name, which could cause us substantial harm or
cause us to incur significant expense in order to purchase rights to the domain
name in question. In addition, our competitors and others could attempt to
capitalize on our brand recognition by using domain names similar to ours.
Domain names similar to ours have been registered by others in the United States
and elsewhere. We may be unable to prevent third parties from acquiring and
using domain names that infringe on, are similar to or otherwise decrease the
value of our brand or our trademarks or service marks. Protecting and enforcing
our rights in our domain names may require litigation, which could result in
substantial costs and diversion of managements attention.
Risks Related to Our
Financial Statements and Tax Matters
We have incurred
significant operating losses in the past, and we may not be able to generate
sufficient revenue to maintain profitability. Our recent growth rate will likely
not be sustainable, and a failure to maintain an adequate growth rate will
adversely affect our business and results of operations.
Since our inception, we
have incurred significant operating losses and, as of December 31, 2016, we had
an accumulated deficit of approximately $70.2 million. Although our revenues
have grown rapidly in the last several years, increasing from $12.1 million in
2008 to $713.1 million in 2016, our revenue growth rate has declined in recent
periods as a result of a variety of factors, including the maturation of our
business and the gradual decline in the number of major geographic markets
within the United States and Canada to which we have not already expanded. While
our recently announced plans to focus our sales and marketing resources
primarily on the United States and Canada may result in some cost savings, they
also limit the markets from which we generate revenue and our ability to expand
internationally in the future. We expect that the more immediate loss of revenue
will be immaterial, but we cannot predict the impact of these plans on our
long-term international prospects or the impact that a smaller international
footprint may have on our brand and reputation.
We incurred net losses in
the year ended December 31, 2015 and in the first quarter of 2016. As a result,
you should not rely on the revenue growth of any prior quarterly or annual
period, or the net income we realized in 2014, as an indication of our future
performance. Historically, our costs have increased each year and we expect our
costs to increase in future periods as we continue to expend substantial
financial resources on:
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|
sales and marketing;
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our technology infrastructure;
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product and feature development;
|
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market development efforts;
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strategic opportunities, including commercial
relationships and acquisitions; and
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general administration, including legal and
accounting expenses related to being a public company.
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These investments may not
result in increased revenue or growth in our business. Our costs may also
increase as we hire additional employees, particularly as a result of the
significant competition that we face to attract and retain technical talent. Our
expenses may grow faster than our revenue and may be greater than we anticipate
in a particular period or over time. If we are unable to maintain adequate
revenue growth and to manage our expenses, we may continue to incur significant
losses in the future and may not be able to maintain profitability.
We have a limited
operating history in an evolving industry, which makes it difficult to evaluate
our future prospects and may increase the risk that we will not be successful.
We have a limited operating
history in an evolving industry that may not develop as expected, if at all. As
a result, our historical operating results may not be indicative of our future
operating results, making it difficult to assess our future prospects. You
should consider our business and prospects in light of the risks and
difficulties we may encounter in this rapidly evolving industry, which we may
not be able to address successfully. These risks and difficulties include our
ability to, among other things:
●
|
increase the number of users of our website and
mobile app and the number of reviews and other content on our
platform;
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attract and retain new advertising clients,
many of which may have limited or no online advertising experience;
|
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forecast revenue and adjusted EBITDA
accurately, which is made more difficult by the large percentage of our revenue derived from performance-based
advertising, as well as appropriately estimate and plan our
expenses;
|
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continue to earn and preserve a reputation for
providing meaningful and reliable reviews of local businesses;
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effectively monetize our mobile products as
usage continues to migrate toward mobile devices;
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successfully compete with existing and future
providers of other forms of offline and online advertising;
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successfully compete with other companies that
are currently in, or may in the future enter, the business of providing
information regarding local businesses;
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successfully manage our growth;
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successfully develop and deploy new features
and products;
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manage and integrate successfully any
acquisitions of businesses, solutions or technologies, such as
Nowait;
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avoid interruptions or disruptions in our
service or slower than expected load times;
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develop a scalable, high-performance technology
infrastructure that can efficiently and reliably handle increased usage,
as well as the deployment of new features and products;
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hire, integrate and retain talented sales and
other personnel;
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effectively manage rapid growth in our sales
force, other personnel and operations; and
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effectively identify, engage and
manage third-party partners and service providers.
|
If the demand for
information regarding local businesses does not develop as we expect, or if we
fail to address the needs of this demand, our business will be harmed. We may
not be able to address successfully these risks and difficulties or others,
including those described elsewhere in these risk factors. Failure to address
these risks and difficulties adequately could harm our business and cause our
operating results to suffer.
We expect a number of
factors to cause our operating results to fluctuate on a quarterly and annual
basis, which may make it difficult to predict our future performance.
Our operating results could
vary significantly from period to period as a result of a variety of factors,
many of which may be outside of our control. This volatility increases the
difficulty in predicting our future performance and means comparing our
operating results on a period-to-period basis may not be meaningful. In addition
to the other risk factors discussed in this section, factors that may contribute
to the volatility of our operating results include:
●
|
changes in the products we offer, such as our
phase out of brand advertising products;
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●
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changes in our pricing
policies and terms of contracts, whether initiated by us or as a result of
competition;
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changes in the markets in which we operate,
such as the wind down of our international sales and marketing
operations to focus on our core markets of the United States and
Canada;
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cyclicality and seasonality, which may become
more pronounced as our growth rate slows;
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the effects of changes in search engine
placement and prominence;
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the adoption of any laws or regulations that
adversely affect the growth, popularity or use of the Internet, such as
laws impacting Internet neutrality;
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the success of our sales and marketing
efforts;
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costs associated with defending intellectual
property infringement and other claims and related judgments or
settlements;
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interruptions in service and any related impact
on our reputation;
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changes in advertiser budgets or the market
acceptance of online advertising solutions;
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changes in consumer behavior with respect to
local businesses;
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changes in our tax rates or exposure to
additional tax liabilities;
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the impact of macroeconomic conditions,
including the resulting effect on consumer spending at local businesses
and the level of advertising spending by local businesses; and
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the effects of natural or man-made catastrophic
events.
|
Our reported
financial results may be adversely affected by new accounting pronouncements or
changes in existing accounting standards and practices.
We prepare our financial
statements in conformity with accounting principles generally accepted in the
U.S., or GAAP. These accounting principles are subject to interpretation or
changes by the Financial Accounting Standards Board, or FASB, and the SEC. New
accounting pronouncements and varying interpretations of accounting standards
and practices have occurred in the past and are expected to occur in the future.
New accounting pronouncements or a change in the interpretation of existing
accounting standards or practices may have a significant effect on our reported
financial results. In May 2014, FASB issued Accounting
Standards Update 2014-09, Revenue from Contracts with Customers, which will
supersede existing revenue guidance under GAAP and will be effective
for us for annual reporting periods beginning after December 15, 2017, including interim periods within that period. The new guidance requires
companies to recognize revenue when they transfer promised goods or services to
customers, in an amount that reflects the consideration that the company expects
to be entitled to in exchange for such goods or services. We are still in
the process of evaluating the impact of the new revenue standard. Refer to Note 2 of our
consolidated financial statements for additional information on the new guidance
and its potential impact on us.
Because we recognize
most of the revenue from our advertising products over the term of an agreement,
a significant downturn in our business may not be immediately reflected in our
results of operations.
We recognize revenue from
sales of our advertising products over the terms of the applicable agreements,
which are generally three, six or 12 months. As a result, a significant portion
of the revenue we report in each quarter is generated from agreements entered
into during previous quarters. Consequently, a decline in new or renewed
agreements in any one quarter may not significantly impact our revenue in that
quarter but will negatively affect our revenue in future quarters. In addition,
we may be unable to adjust our fixed costs in response to reduced revenue.
Accordingly, the effect of significant declines in advertising sales may not be
reflected in our short-term results of operations.
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If our goodwill or
intangible assets become impaired, we may be required to record a significant
charge to our income statement.
We have recorded a
significant amount of goodwill related to our acquisitions to date, and a
significant portion of the purchase price of any companies we acquire in the
future may be allocated to acquired goodwill and other intangible assets.
Under GAAP, we review our
intangible assets for impairment when events or changes in circumstances
indicate the carrying value of our goodwill and other intangible assets may not
be recoverable. Goodwill is required to be tested for impairment at least
annually. Factors that may be considered include declines in our stock price,
market capitalization and future cash flow projections. If our acquisitions do
not yield expected returns, our stock price declines or any other adverse change
in market conditions occurs, a change to the estimation of fair value could
result. Any such change could result in an impairment charge to our goodwill and
intangible assets, particularly if such change impacts any of our critical
assumptions or estimates, and may have a negative impact on our financial
position and operating results.
We may require
additional capital to support business growth, and such capital might not be
available on acceptable terms, if at all.
We intend to continue to
invest in our business and may require or otherwise seek additional funds to
respond to business challenges, including the need to develop new features and
products, enhance our existing services, improve our operating infrastructure
and acquire complementary businesses and technologies. As a result, we may need
to engage in equity or debt financings to secure additional funds. If we raise
additional funds through future issuances of equity or convertible debt
securities, our existing stockholders could suffer significant dilution, and any
new equity securities we issue could have rights, preferences and privileges
superior to those of our common stock. Any future debt financing we secure could
involve restrictive covenants relating to our capital raising activities and
other financial and operational matters, which may make it more difficult for us
to obtain additional capital and to pursue business opportunities, including
potential acquisitions. We may not be able to obtain additional financing on
terms favorable to us, if at all. If we are unable to obtain adequate financing
or financing on terms satisfactory to us when we require it, our ability to
continue to support our business growth and respond to business challenges could
be significantly impaired, and our business may be harmed.
We may have exposure
to greater than anticipated tax liabilities.
Our income tax obligations
are based in part on our corporate operating structure and intercompany
arrangements, including the manner in which we develop, value and use our
intellectual property and the valuations of our intercompany transactions. For
example, our corporate structure includes legal entities located in
jurisdictions with income tax rates lower than the U.S. statutory tax rate. Our
intercompany arrangements allocate income to such entities in accordance with
arms length principles and commensurate with functions performed, risks assumed
and ownership of valuable corporate assets. We believe that income taxed in
certain foreign jurisdictions at a lower rate relative to the U.S. statutory
rate will have a beneficial impact on our worldwide effective tax rate.
However, significant
judgment is required in evaluating our tax positions and determining our
provision for income taxes. During the ordinary course of business, there are
many transactions and calculations for which the ultimate tax determination is
uncertain. For example, our effective tax rates could be adversely affected by
earnings being lower than anticipated in countries where we have lower statutory
rates and higher than anticipated in countries where we have higher statutory
rates, by changes in foreign currency exchange rates or by changes in the
relevant tax, accounting and other laws, regulations, principles and
interpretations.
In addition, the
application of the tax laws of various jurisdictions, including the United
States, to our international business activities is subject to interpretation
and depends on our ability to operate our business in a manner consistent with
our corporate structure and intercompany arrangements. The taxing authorities of
jurisdictions in which we operate may challenge our methodologies for valuing
developed technology or intercompany arrangements, including our transfer
pricing, or determine that the manner in which we operate our business does not
achieve the intended tax consequences, which could increase our worldwide
effective tax rate and harm our financial position and results of operations. As
we operate in numerous taxing jurisdictions, the application of tax laws can
also be subject to diverging and sometimes conflicting interpretations by tax
authorities of these jurisdictions. It is not uncommon for taxing authorities in
different countries to have conflicting views, for instance, with respect to,
among other things, the manner in which the arms-length standard is applied for
transfer pricing purposes, or with respect to the valuation of intellectual
property.
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Changes in tax laws
or tax rulings, or the examination of our tax positions, could materially affect
our financial position and results of operations.
Tax laws are dynamic and
subject to change as new laws are passed and new interpretations of the law are
issued or applied. Our existing corporate structure and intercompany
arrangements have been implemented in a manner we believe is in compliance with current prevailing
tax laws. However, the tax benefits that we intend to eventually derive could be
undermined due to changing tax laws. In particular, the current U.S.
administration and key members of Congress have made public statements
indicating that tax reform is a priority, resulting in uncertainty not only with
respect to the future corporate tax rate, but also the U.S. tax consequences of
income derived from income related to intellectual property earned overseas in
low tax jurisdictions. Certain changes to U.S. tax laws, including limitations
on the ability to defer U.S. taxation on earnings outside of the United States
until those earnings are repatriated to the United States, as well as changes to
U.S. tax laws that may be enacted in the future, could affect the tax treatment
of our foreign earnings.
In addition, the taxing authorities in
the United States and other jurisdictions where we do business regularly examine
our income and other tax returns. The ultimate outcome of these examinations
cannot be predicted with certainty. Should the IRS or other taxing authorities
assess additional taxes as a result of examinations, we may be required to
record charges to our operations, which could harm our business, operating
results and financial condition.
Our business and results of
operations may be harmed if we are deemed responsible for the collection and
remittance of state sales taxes for Eat24s restaurants.
If we are deemed an agent for the
restaurants in our Eat24 network under state tax law, we may be deemed
responsible for collecting and remitting sales taxes directly to certain states.
It is possible that one or more states could seek to impose sales, use or other
tax collection obligations on us with regard to such food sales. These taxes may
be applicable to past sales. A successful assertion that we should be collecting
additional sales, use or other taxes or remitting such taxes directly to states
could result in substantial tax liabilities for past sales and additional
administrative expenses, which would harm our business and results of
operations. In addition, we rely on the restaurants in our Eat24 network to
provide us with the correct sales tax rates for each individual order. If such
information proves incorrect, we may be liable for the under or over collection
of sales tax from Eat24 customers.
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.
We track certain performance metrics
including the number of unique devices accessing our mobile app in a given
period, page views and calls and clicks for directions and map views with
internal tools, which are not independently verified by any third party. Our
internal tools have a number of limitations and our methodologies for tracking
these metrics may change over time, which could result in unexpected changes to
our metrics, including key metrics that we report. For example, our metrics may
be affected by mobile applications that automatically contact our servers for
regular updates with no discernible user action involved; this activity can
cause our system to count the device associated with the app as an app unique
device in a given period. If the internal tools we use to track these metrics
over- or under-count performance or contain algorithm or other technical errors,
the data we report may not be accurate. In addition, limitations or errors with
respect to how we measure data may affect our understanding of certain details
of our business, which could affect our longer-term strategies.
In addition, certain of our key metrics
the number of our desktop unique visitors and mobile website unique visitors
are calculated relying on data from third parties. While these numbers are based
on what we believe to be reasonable calculations for the applicable periods of
measurement, our third-party providers periodically encounter difficulties in
providing accurate data for such metrics as a result of a variety of factors,
including human and software errors. We expect these challenges to continue to
occur, and potentially to increase as our traffic grows.
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There are also inherent challenges in
measuring usage across our large user base. For example, because these metrics
are based on users with unique cookies, an individual who accesses our website
from multiple devices with different cookies may be counted as multiple unique
visitors, and multiple individuals who access our website from a shared device
with a single cookie may be counted as a single unique visitor. In addition,
although we use technology designed to block low-quality traffic, such as
robots, spiders and other software, we may not be able to prevent all such
traffic, and such technology may have the effect of blocking some valid traffic.
For these and other reasons, the calculations of our desktop unique visitors and
mobile website unique visitors may not accurately reflect the number of people
actually using our platform.
Our measures of traffic and other key
metrics may differ from estimates published by third parties (other than those
whose data we use to calculate our key metrics) or from similar metrics of our
competitors. We are continually seeking to improve our ability to measure these
key metrics, and regularly review our processes to assess potential improvements
to their
accuracy. However, if our users, advertisers, partners and stockholders do not
perceive our metrics to be accurate representations, or if we discover material
inaccuracies in our metrics, our reputation may be harmed.
Risks Related to
Regulatory Compliance and Legal Matters
We are, and may be in
the future, subject to disputes and assertions by third parties that we violate
their rights. These disputes may be costly to defend and could harm our business
and operating results.
We currently face, and we
expect to face from time to time in the future, allegations that we have
violated the rights of third parties, including patent, trademark, copyright and
other intellectual property rights, and the rights of current and former
employees, users and business owners. For example, various businesses have sued
us alleging that we manipulate Yelp reviews in order to coerce them and other
businesses to pay for Yelp advertising. The nature of our business also exposes
us to claims relating to the information posted on our platform, including
claims for defamation, libel, negligence and copyright or trademark
infringement, among others. Businesses have in the past claimed, and may in the
future claim, that we are responsible for the defamatory reviews posted by our
users. We expect claims like these to continue, and potentially increase in
proportion to the amount of content on our platform. In some instances, we may
elect or be compelled to remove the content that is the subject of such claims,
or may be forced to pay substantial damages if we are unsuccessful in our
efforts to defend against these claims. If we elect or are compelled to remove
content from our platform, our products and services may become less useful to
consumers and our traffic may decline, which would have a negative impact on our
business.
We are also regularly
exposed to claims based on allegations of infringement or other violations of
intellectual property rights. Companies in the Internet, technology and media
industries own large numbers of patent and other intellectual property rights,
and frequently enter into litigation. Various non-practicing entities that own
patents and other intellectual property rights also often aggressively attempt
to assert their rights in order to extract value from technology companies. From
time to time, we receive notice letters from patent holders alleging that
certain of our products and services infringe their patent rights, and we are
presently involved in numerous patent lawsuits, including lawsuits involving
plaintiffs targeting multiple defendants in the same or similar suits. While we
are pursuing a number of patent applications, we currently have only one issued
patent, and the contractual restrictions and trade secrets that protect our
proprietary technology provide only limited safeguards against infringement.
This may make it more difficult to defend certain of our intellectual property
rights, particularly related to our core business.
We expect other claims to
be made against us in the future, and as we face increasing competition and gain
an increasingly high profile, we expect the number of claims against us to
accelerate. The results of litigation and claims to which we may be subject
cannot be predicted with any certainty. Even if the claims are without merit,
the costs associated with defending against them may be substantial in terms of
time, money and management distraction. In particular, patent and other
intellectual property litigation may be protracted and expensive, and the
results may require us to stop offering certain features, purchase licenses or
modify our products and features while we develop non-infringing substitutes, or
otherwise involve significant settlement costs. The development of alternative
non-infringing technology or practices could require significant effort and
expense or may not be feasible. Even if claims do not result in litigation or
are resolved in our favor without significant cash settlements, such matters,
and the time and resources necessary to resolve them, could harm our business,
results of operations and reputation.
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Our business is
subject to complex and evolving U.S. and foreign regulations and other legal
obligations related to privacy, data protection and other matters. Our actual or
perceived failure to comply with such regulations and obligations could harm our
business.
We are subject to a variety
of laws in the United States and abroad that involve matters central to our
business, including laws regarding privacy, data retention, distribution of
user-generated content and consumer protection, among others. For example,
because we receive, store and process personal information and other user data,
including credit card information, we are subject to numerous federal, state and
local laws around the world regarding privacy and the storing, sharing, use,
processing, disclosure and protection of personal information and other user
data. We are also subject to a variety of laws, regulations and guidelines that
regulate the way we distinguish paid search results and other types of
advertising from unpaid search results.
The application and interpretation of these laws and regulations are often uncertain, particularly in the new and rapidly
evolving industry in which we operate. For example, we rely on laws limiting the liability of providers of online services for activities of their users and other
third parties. These laws are currently being tested by a number of claims,
including actions based on invasion of privacy and other torts, unfair
competition, copyright and trademark infringement and other theories based on
the nature and content of the materials searched, the ads posted or the content
provided by users. It is difficult to predict how existing laws will be applied
to our business, and if our business grows and evolves and our solutions are
used in a greater number of countries, we will also become subject to laws and
regulations in additional jurisdictions, which may be inconsistent with the laws
of the jurisdictions to which we are currently subject. For example, the risk
related to liability for third-party actions may be greater in certain
jurisdictions outside the United States where our protection from such liability
may be unclear.
It is also possible that the
interpretation and application of various laws and regulations may conflict with
other rules or our practices, such as industry standards to which we adhere, our
privacy policies and our privacy-related obligations to third parties
(including, in certain instances, voluntary third-party certification bodies).
Similarly, our business could be adversely affected if new legislation or
regulations are adopted that require us to change our current practices or the
design of our platform, products or features. For example, regulatory frameworks
for privacy issues are currently in flux worldwide, and are likely to remain so
for the foreseeable future due to increased public scrutiny of the practices of
companies offering online services with respect to personal information of their
users. The U.S. government, including the White House, the Federal Trade
Commission, the Department of Commerce and many state governments are reviewing
the need for greater regulation of the collection, processing, storage and use
of information about consumer behavior on the Internet, including regulation
aimed at restricting certain targeted advertising practices. The European
Commission recently approved a new safe harbor program, the E.U.-U.S. Privacy
Shield, covering the transfer of personal data from the European Union to the
United States, and a new general data protection regulation is expected to take
effect in the European Union by 2018, each of which may be subject to varying
interpretations and evolving practices, which would create uncertainty for us
and possibly result in significantly greater compliance burdens for companies
such as us with users and operations in Europe. Changes like these could
increase our administrative costs and make it more difficult for consumers to
use our platform, resulting in less traffic and revenue. Such changes could also
make it more difficult for us to provide effective advertising tools to
businesses on our platform, resulting in fewer advertisers and less revenue.
We believe that our policies and
practices comply with applicable laws and regulations. However, if our belief
proves incorrect, if these guidelines, laws or regulations or their
interpretations change or new legislation or regulations are enacted, or if the
third parties with whom we share user information fail to comply with such
guidelines, laws, regulations or their contractual obligations to us, we may be
forced to implement new measures to reduce our legal exposure. This may require
us to expend substantial resources, delay development of new products or
discontinue certain products or features, which would negatively impact our
business. For example, if we fail to comply with our privacy-related obligations
to users or third parties, or any compromise of security that results in the
unauthorized release or transfer of personally identifiable information or other
user data, we may be compelled to provide additional disclosures to our users,
obtain additional consents from our users before collecting or using their
information or implement new safeguards to help our users manage our use of
their information, among other changes. We may also face litigation,
governmental enforcement actions or negative publicity, which could cause our
users and advertisers to lose trust in us and have an adverse effect on our
business. For example, from time to time we receive inquiries from government
agencies regarding our business practices. Although the internal resources
expended and expenses incurred in connection with such inquiries and their
resolutions have not been material to date, any resulting negative publicity
could adversely affect our reputation and brand. Responding to and resolving any
future litigation, investigations, settlements or other regulatory actions may
require significant time and resources, and could diminish confidence in and the
use of our products.
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Domestic and certain foreign laws
may be interpreted and enforced in ways that impose new obligations on us with
respect to Yelp Deals, which may harm our business and results of operations.
Our Yelp Deals products may be deemed
gift certificates, store gift cards, general-use prepaid cards or other
vouchers, or gift cards, subject to, among other laws, the federal Credit Card
Accountability Responsibility and Disclosure Act of 2009 (the Credit CARD Act)
and similar state and foreign laws. Many of these laws include specific
disclosure requirements and prohibitions or limitations on the use of expiration
dates and the imposition of certain fees. Various companies that provide deal
products similar to ours have been subject to allegations that their deal
products are subject to and violate the Credit CARD Act and various state laws
governing gift cards. Lawsuits have also been filed in other locations in which
we sell or plan to sell our Yelp Deals, such as the Canadian province of
Ontario, alleging similar violations of provincial legislation governing gift
cards.
The application of various
other laws and regulations to our products, and particularly our Yelp Deals and
Gift Certificates, is uncertain. These include laws and regulations pertaining
to unclaimed and abandoned property, partial redemption, refunds,
revenue-sharing restrictions on certain trade groups and professions, sales and
other local taxes and the sale of alcoholic beverages. In addition, we may
become, or be determined to be, subject to federal, state or foreign laws
regulating money transmitters or aimed at preventing money laundering or
terrorist financing, including the Bank Secrecy Act, the USA PATRIOT Act and
other similar future laws or regulations.
If we become subject to
claims or are required to alter our business practices as a result of current or
future laws and regulations, our revenue could decrease, our costs could
increase and our business could otherwise be harmed. In addition, the costs and
expenses associated with defending any actions related to such additional laws
and regulations and any payments of related penalties, fines, judgments or
settlements could harm our business.
The requirements of
being a public company may strain our resources, divert managements attention
and affect our ability to attract and retain qualified board members.
As a public company, we are
subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley
Act, the Dodd-Frank Act, the listing requirements of the New York Stock Exchange
and other applicable securities rules and regulations. Compliance with these
rules and regulations has increased, and will likely continue to increase, our
legal and financial compliance costs, make some activities more difficult,
time-consuming or costly, and place significant strain on our personnel, systems
and resources. In addition, changing laws, regulations and standards relating to
corporate governance and public disclosure are creating uncertainty for public
companies, increasing legal and financial compliance costs and making some
activities more time consuming. These laws, regulations and standards are
subject to varying interpretations, in many cases due to their lack of
specificity, and, as a result, their application in practice may evolve over
time. This could result in continuing uncertainty regarding compliance matters,
higher administrative expenses and a diversion of managements time and
attention. Further, if our compliance efforts differ from the activities
intended by regulatory or governing bodies due to ambiguities related to
practice, regulatory authorities may initiate legal proceedings against us and
our business may be harmed. Being a public company that is subject to these
rules and regulations also makes it more expensive for us to obtain and retain
director and officer liability insurance, and we may in the future be required
to accept reduced coverage or incur substantially higher costs to obtain or
retain adequate coverage. These factors could also make it more difficult for us
to attract and retain qualified members of our board of directors and qualified
executive officers.
Risks Related to
Ownership of Our Common Stock
Our share price has
been and will likely continue to be volatile.
The trading price of our
common stock has been, and is likely to continue to be, highly volatile and
could be subject to wide fluctuations in response to various factors, some of
which are beyond our control. During 2016, our common stocks daily closing
price ranged from $15.23 to $42.16, and was $33.47 on February 23, 2017. In
addition to the factors discussed in this Risk Factors section and elsewhere
in this Annual Report, factors that may cause volatility in our share price
include:
●
|
actual or anticipated fluctuations in our
financial condition and operating results;
|
●
|
changes in projected operating and financial
results;
|
●
|
actual or anticipated changes in our growth
rate relative to our competitors;
|
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●
|
announcements of changes in strategy, such as
the announcement of our plan to wind down our international sales and
marketing operations to focus on our core U.S. and Canadian markets;
|
●
|
announcements of technological innovations or
new offerings by us or our competitors;
|
●
|
announcements by us or our competitors of
significant acquisitions, strategic partnerships, joint ventures or
capital-raising activities or commitments;
|
●
|
additions or departures of key
personnel;
|
●
|
actions of securities analysts who cover our company,
such as publishing research or forecasts about our business (and our
performance against such forecasts), changing the rating of our common
stock or ceasing coverage of our company;
|
●
|
investor sentiment with respect to our competitors,
business partners and industry in general;
|
●
|
reporting on our business by the financial media,
including television, radio and press reports and blogs;
|
●
|
fluctuations in the value of companies perceived by
investors to be comparable to us;
|
●
|
changes in the way we measure our key metrics;
|
●
|
sales of our common stock;
|
●
|
changes in laws or regulations applicable to our
solutions;
|
●
|
share price and volume fluctuations attributable to
inconsistent trading volume levels of our shares; and
|
●
|
general economic and market conditions such as recessions
or interest rate changes.
|
Furthermore, the stock
markets have recently experienced extreme price and volume fluctuations that
have affected and continue to affect the market prices of equity securities of
many companies. These fluctuations often have been unrelated or disproportionate
to the operating performance of those companies. In the past, companies that
have experienced volatility in the market price of their stock have been subject
to securities class action litigation. For example, in August 2014, we and
certain of our officers were sued in two similar putative class action lawsuits
alleging violations of the federal securities laws for allegedly making
materially false and misleading statements. We may be the target of additional
litigation of this type in the future as well. Securities litigation against us
could result in substantial costs and divert our managements time and attention
from other business concerns, which could harm our business.
We do not intend to
pay dividends for the foreseeable future, and as a result, our stockholders
ability to achieve a return on their investment will depend on appreciation in
the price of our common stock.
We have never declared or
paid any cash dividends on our common stock and do not intend to pay any cash
dividends in the foreseeable future. We anticipate that we will retain all of
our future earnings for use in the development of our business and for general
corporate purposes. Any determination to pay dividends in the future will be at
the discretion of our board of directors. Accordingly, investors must rely on
sales of their common stock after price appreciation, which may never occur, as
the only way to realize future gains on their investments.
Anti-takeover
provisions in our charter documents and under Delaware law could make an
acquisition of our Company more difficult, limit attempts by our stockholders to
replace or remove our current management and limit the market price of our
common stock.
Provisions in our
certificate of incorporation and bylaws may have the effect of delaying or
preventing a change in control or changes in our management. Our amended and
restated certificate of incorporation and amended and restated bylaws include
provisions that:
●
|
authorize our board of directors to issue,
without further action by the stockholders, up to 10,000,000 shares of
undesignated preferred stock;
|
●
|
require that any action to be taken by our
stockholders be effected at a duly called annual or special meeting and
not by written consent;
|
●
|
specify that special meetings of our
stockholders can be called only by our board of directors, the Chair of
our board of directors or our Chief Executive Officer;
|
●
|
establish an advance notice procedure for
stockholder proposals to be brought before an annual meeting, including
proposed nominations of persons for election to our board of
directors;
|
●
|
establish that our board of directors is
divided into three classes, with directors in each class serving
three-year staggered terms;
|
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●
|
prohibit cumulative voting in the election of
directors;
|
●
|
provide that vacancies on our board of directors may be
filled only by a majority of directors then in office, even though less
than a quorum; and
|
●
|
require the approval of our board of directors or the
holders of a supermajority of our outstanding shares of capital stock to
amend our bylaws and certain provisions of our certificate of
incorporation.
|
These provisions may
frustrate or prevent any attempts by our stockholders to replace or remove our
current management by making it more difficult for stockholders to replace
members of our board of directors, which is responsible for appointing the
members of our management. In addition, because we are incorporated in Delaware,
we are governed by the provisions of Section 203 of the Delaware General
Corporation Law, which generally prohibits a Delaware corporation from engaging
in any of a broad range of business combinations with any interested
stockholder for a period of three years following the date on which the
stockholder became an interested stockholder.
Future sales of our
common stock in the public market could cause our share price to decline.
Sales of a substantial
number of shares of our common stock in the public market, particularly sales by
our directors, officers, employees and significant stockholders, or the
perception that these sales might occur, could depress the market price of our
common stock and could impair our ability to raise capital through the sale of
additional equity securities. As of December 31, 2016, we had 79,429,833 shares
of common stock outstanding.
Item 1B. Unresolved
Staff Comments.
None.
Item 2. Properties.
Our principal executive
offices in North America are currently located at 140 New Montgomery Street, San
Francisco, California, where we lease office space pursuant to a lease agreement
that expires in 2021. We lease additional office space in Palo Alto, California;
San Francisco, California; Scottsdale, Arizona; Chicago, Illinois; New York, New
York; and internationally in Dublin, Ireland; London, England; and Hamburg,
Germany. We believe that our properties are generally suitable to meet our needs
for the foreseeable future. In addition, to the extent we require additional
space in the future, we believe that it would be available on commercially
reasonable terms.
Item 3. Legal
Proceedings.
In August 2014, two
putative class action lawsuits alleging violations of federal securities laws
were filed in the U.S. District Court for the Northern District of California,
naming as defendants us and certain of our officers. The lawsuits allege
violations of the Exchange Act by us and our officers for allegedly making
materially false and misleading statements regarding our business and operations
between October 29, 2013 and April 3, 2014. These cases were subsequently
consolidated and, in January 2015, the plaintiffs filed a consolidated complaint
seeking unspecified monetary damages and other relief. Following the courts
dismissal of the consolidated complaint on April 21, 2015, the plaintiffs filed
a first amended complaint on May 21, 2015. On November 24, 2015, the court
dismissed the first amended complaint with prejudice, and entered judgment in
our favor on December 28, 2015. The plaintiffs have appealed this judgment to
the U.S. Court of Appeals for the Ninth Circuit.
On April 23, 2015, a
putative class action lawsuit was filed by former Eat24 employees in the
Superior Court of California for San Francisco County, naming as defendants us
and Eat24. The lawsuit asserts that we failed to permit meal and rest periods
for certain current and former employees working as Eat24 customer support
specialists, and alleges violations of the California Labor Code, applicable
Industrial Welfare Commission Wage Orders and the California Business and
Professions Code. The plaintiffs seek monetary damages in an unspecified amount
and injunctive relief. On May 29, 2015, plaintiffs filed a first amended
complaint asserting an additional cause of action for penalties under the
Private Attorneys General Act. In January 2016, we reached a preliminary
agreement to settle this matter, which the court preliminarily approved on June 27,
2016. The settlement received final court approval on December 5, 2016 and the $550 thousand settlement amount was
paid on February 10, 2017.
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On June 24, 2015, a former Eat24 sales employee filed a lawsuit, on
behalf of herself and a putative class of current and former Eat24 sales
employees, against Eat24 in the Superior Court of California for San Francisco
County. The lawsuit alleges that Eat24 failed to pay required wages, including
overtime wages, allow meal and rest periods and maintain proper records, and
asserts causes of action under the California Labor Code, applicable Industrial
Welfare Commission Wage Orders and the California Business and Professions Code.
The plaintiff seeks monetary damages and penalties in unspecified amounts, as
well as injunctive relief. On August 3, 2015, the plaintiff filed a first
amended complaint asserting an additional cause of action for penalties under
the Private Attorneys General Act. In January 2016, we reached a preliminary
agreement to settle this matter for payments in the aggregate amount of up to
approximately $0.2 million, which the court preliminarily approved on August 29,
2016. The settlement received final court approval on February 1,
2017.
In addition, we are subject to legal proceedings arising in the ordinary
course of business. Although the results of litigation and claims cannot be
predicted with certainty, we currently do not believe that the final outcome of
any of these matters will have a material adverse effect on our business,
financial position, results of operations or cash flows.
Item 4. Mine Safety
Disclosures.
Not applicable.
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PART II
Item 5.
|
Market for Registrants Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities.
|
Market
Information
Our common stock, par value $0.000001 per share, is listed on the New
York Stock Exchange LLC, or NYSE, under the symbol YELP. We previously had two
classes of common stock outstanding Class A common stock and Class B common
stock which converted into a single class of common stock on September 22,
2016. Prior to such date, our Class A common stock, par value $0.000001 per
share, was listed on the NYSE under the same symbol as our common stock. There
was no public trading market for our Class B common stock, par value $0.000001
per share.
The following table sets forth on a per-share basis the high and low
intraday sales prices of (i) our Class A common stock through September 22, 2016
and (ii) our common stock thereafter, in each case as reported by the NYSE for
the periods presented:
|
|
2016
|
|
2015
|
|
|
High
|
|
Low
|
|
High
|
|
Low
|
First Quarter
|
|
$
|
28.55
|
|
$
|
14.53
|
|
$
|
57.70
|
|
$
|
42.10
|
Second Quarter
|
|
$
|
30.54
|
|
$
|
19.21
|
|
$
|
52.51
|
|
$
|
37.91
|
Third Quarter
|
|
$
|
41.94
|
|
$
|
28.68
|
|
$
|
43.49
|
|
$
|
20.50
|
Fourth Quarter
|
|
$
|
43.36
|
|
$
|
32.00
|
|
$
|
32.47
|
|
$
|
20.60
|
On February 23, 2017, the last
reported sale price of our common stock was $33.47.
Stockholders
As of the close of business on February 23, 2017, there were
51 stockholders of record of our common stock. The actual number of holders of
our common stock is greater than this number of record holders, and includes
stockholders who are beneficial owners, but whose shares are held in street name
by brokers or other nominees. This number of holders of record also does not
include stockholders whose shares may be held in trust by other
entities.
Dividend
Policy
We have never declared or paid, and do not anticipate declaring or
paying, any cash dividends on our capital stock. Any future determination as to
the declaration and payment of dividends, if any, will be at the discretion of
our board of directors and will depend on then-existing conditions, including
our financial condition, operating results, contractual restrictions, capital
requirements, business prospects and other factors that our board of directors
may deem relevant.
Performance
Graph
We have presented below the cumulative total return to our stockholders
during the period from March 2, 2012 (the date our common stock commenced
trading on the NYSE) through December 31, 2016 in comparison to the NYSE
Composite Index and NYSE Arca Tech 100 Index. All values assume a $100 initial
investment and data for the NYSE Composite Index and NYSE Arca Tech 100 Index
assume reinvestment of dividends. The comparisons are based on historical data
and are not indicative of, nor intended to forecast, the future performance of
our common stock.
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|
|
Period
|
Index
|
|
3/2/2012
|
|
12/31/2012
|
|
12/31/2013
|
|
12/31/2014
|
|
12/31/2015
|
|
12/31/2016
|
Yelp
Inc.
|
|
100
|
|
126
|
|
460
|
|
365
|
|
192
|
|
254
|
NYSE
Composite Index
|
|
100
|
|
106
|
|
128
|
|
134
|
|
125
|
|
136
|
NYSE
Arca Tech 100 Index
|
|
100
|
|
104
|
|
139
|
|
159
|
|
156
|
|
173
|
The information under
Performance Graph is not deemed to be soliciting material or filed with
the SEC or subject to Regulation 14A or 14C, or to the liabilities of Section 18
of the Exchange Act, and is not to be incorporated by reference in any filing of
Yelp under the Securities Act or the Exchange Act, whether made before or after
the date of this Annual Report and irrespective of any general incorporation
language in those filings.
Issuer Purchases of
Equity Securities
No shares of our common stock were repurchased during the three months
ended December 31, 2016.
Item 6. Selected
Consolidated Financial and Other Data.
The following selected consolidated financial and other data should be
read in conjunction with, and are qualified by reference to,
Managements Discussion and Analysis of Financial
Condition and Results of Operations
, and our audited consolidated financial statements and the accompanying
notes included elsewhere in this Annual Report. The consolidated statements of
operations data for the years ended December 31, 2016, 2015 and 2014 and the
consolidated balance sheet data as of December 31, 2016 and 2015 are derived
from the audited consolidated financial statements that are included elsewhere
in this Annual Report. The consolidated statements of operations data for the
years ended December 31, 2013 and 2012, as well as the consolidated balance
sheet data as of December 31, 2014, 2013 and 2012, are derived from audited
consolidated financial statements that are not included in this Annual Report.
We have included, in our opinion, all adjustments, consisting only of normal
recurring adjustments, that we consider necessary for a fair presentation of the
financial information set forth in those statements. Our historical results are
not necessarily indicative of the results to be expected in any period in the
future.
38
Table of Contents
Consolidated Statements
of Operations Data:
|
|
Year Ended December
31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
|
2012
|
|
|
(in thousands, except per share
amounts)
|
Net revenue
|
|
$
|
713,069
|
|
|
$
|
549,711
|
|
|
$
|
377,536
|
|
$
|
232,988
|
|
|
$
|
137,567
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
revenue (exclusive of depreciation and amortization shown
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
separately below)
(1)
|
|
|
60,363
|
|
|
|
51,015
|
|
|
|
24,382
|
|
|
16,561
|
|
|
|
9,928
|
|
Sales and
marketing
(1)
|
|
|
382,854
|
|
|
|
301,764
|
|
|
|
201,050
|
|
|
131,970
|
|
|
|
85,915
|
|
Product
development
(1)
|
|
|
138,549
|
|
|
|
107,786
|
|
|
|
65,181
|
|
|
38,243
|
|
|
|
20,473
|
|
General and
administrative
(1)
|
|
|
97,481
|
|
|
|
80,866
|
|
|
|
58,274
|
|
|
42,907
|
|
|
|
31,531
|
|
Depreciation and amortization
(1)
|
|
|
35,346
|
|
|
|
29,604
|
|
|
|
17,590
|
|
|
11,455
|
|
|
|
7,223
|
|
Restructuring and
integration
(1)
|
|
|
3,455
|
|
|
|
-
|
|
|
|
|
|
|
675
|
|
|
|
1,262
|
|
Total costs and expenses
|
|
|
718,048
|
|
|
|
571,035
|
|
|
|
366,477
|
|
|
241,811
|
|
|
|
156,332
|
|
Income (Loss) from operations
|
|
|
(4,979
|
)
|
|
|
(21,324
|
)
|
|
|
11,059
|
|
|
(8,823
|
)
|
|
|
(18,765
|
)
|
Other income (expense), net
|
|
|
1,694
|
|
|
|
386
|
|
|
|
221
|
|
|
(407
|
)
|
|
|
(226
|
)
|
Income (Loss) before income taxes
|
|
|
(3,285
|
)
|
|
|
(20,938
|
)
|
|
|
11,280
|
|
|
(9,230
|
)
|
|
|
(18,991
|
)
|
Benefit from (Provision for) income
taxes
|
|
|
(1,385
|
)
|
|
|
(11,962
|
)
|
|
|
25,193
|
|
|
(838
|
)
|
|
|
(122
|
)
|
Net income (loss)
|
|
|
(4,670
|
)
|
|
|
(32,900
|
)
|
|
|
36,473
|
|
|
(10,068
|
)
|
|
|
(19,113
|
)
|
Accretion of redeemable convertible
preferred stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
|
(32
|
)
|
Net
income (loss) attributable to common stockholders (Class A and
B)
|
|
$
|
(4,670
|
)
|
|
$
|
(32,900
|
)
|
|
$
|
36,473
|
|
$
|
(10,068
|
)
|
|
$
|
(19,145
|
)
|
|
|
|
|
|
Net income (loss) per share attributable to
common stockholders (Class A and B):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.06
|
)
|
|
$
|
(0.44
|
)
|
|
$
|
0.51
|
|
$
|
(0.15
|
)
|
|
$
|
(0.35
|
)
|
Diluted
|
|
$
|
(0.06
|
)
|
|
$
|
(0.44
|
)
|
|
$
|
0.48
|
|
$
|
(0.15
|
)
|
|
$
|
(0.35
|
)
|
Weighted-average shares used to compute net income (loss) per share
attributable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
common stockholders (Class A and B):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
77,186
|
|
|
|
74,683
|
|
|
|
71,936
|
|
|
65,665
|
|
|
|
54,149
|
|
Diluted
|
|
|
77,186
|
|
|
|
74,683
|
|
|
|
76,712
|
|
|
65,665
|
|
|
|
54,149
|
|
(1)
|
Stock-based
compensation expense included in the statements of operations data above
was as follows:
|
|
|
Year Ended December
31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
|
2012
|
|
|
(in thousands)
|
Cost
of revenue
|
|
$
|
2,446
|
|
$
|
1,117
|
|
$
|
729
|
|
$
|
421
|
|
$
|
122
|
Sales and marketing
|
|
|
27,098
|
|
|
21,962
|
|
|
15,083
|
|
|
10,131
|
|
|
4,917
|
Product development
|
|
|
36,323
|
|
|
23,431
|
|
|
14,804
|
|
|
6,270
|
|
|
1,705
|
General and administrative
|
|
|
20,394
|
|
|
14,332
|
|
|
11,657
|
|
|
9,300
|
|
|
8,134
|
Restructuring and integration
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
555
|
|
|
-
|
Total stock-based compensation
|
|
$
|
86,261
|
|
$
|
60,842
|
|
$
|
42,273
|
|
$
|
26,677
|
|
$
|
14,878
|
39
Table of Contents
Consolidated Balance
Sheet Data:
|
|
As of
December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
|
2012
|
|
|
|
(dollars in thousands)
|
Cash and cash equivalents
|
|
$
|
272,201
|
|
$
|
171,613
|
|
$
|
247,312
|
|
$
|
389,764
|
|
$
|
95,124
|
Property, equipment and software, net
|
|
|
92,440
|
|
|
80,467
|
|
|
62,761
|
|
|
30,666
|
|
|
14,799
|
Working capital
(1)
|
|
|
500,780
|
|
|
393,505
|
|
|
386,785
|
|
|
391,844
|
|
|
91,218
|
Total assets
|
|
|
885,206
|
|
|
755,427
|
|
|
629,650
|
|
|
515,977
|
|
|
187,696
|
Total stockholders equity
|
|
|
807,186
|
|
|
693,620
|
|
|
588,150
|
|
|
486,483
|
|
|
165,662
|
(1)
|
Working capital comprises of total current assets less total current liabilities
|
Other Financial and
Operational Data:
|
|
Year Ended December
31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
|
2012
|
|
|
(in thousands)
|
Reviews
(1)
|
|
|
121,022
|
|
|
95,210
|
|
|
71,232
|
|
|
52,757
|
|
|
35,959
|
Desktop
Unique Visitors
(2)
|
|
|
73,466
|
|
|
74,607
|
|
|
77,628
|
|
|
77,713
|
|
|
62,336
|
Mobile Web
Unique Visitors
(3)
|
|
|
65,351
|
|
|
65,860
|
|
|
57,770
|
|
|
42,292
|
|
|
23,972
|
App Unique
Devices
(4)
|
|
|
24,073
|
|
|
20,006
|
|
|
14,541
|
|
|
10,613
|
|
|
9,178
|
Claimed
Local Business Locations
(5)
|
|
|
3,363
|
|
|
2,648
|
|
|
2,029
|
|
|
1,488
|
|
|
994
|
Advertising
and Subscription Accounts
(6)
|
|
|
138
|
|
|
111
|
|
|
84
|
|
|
54
|
|
|
31
|
Adjusted
EBITDA
(7)
|
|
$
|
120,083
|
|
$
|
69,122
|
|
$
|
70,922
|
|
$
|
29,429
|
|
$
|
4,598
|
(1)
|
Represents
the cumulative number of reviews submitted to Yelp since inception, as of
the period end, including reviews that were not recommended or that had
been removed from our platform. We define a review as each individually
written assessment submitted by a user who has registered by creating a
public profile on our platform. For more information, including
information regarding reviews that are not recommended and removed
reviews, see
Managements
Discussion and Analysis of Financial Condition and Results of
OperationsKey MetricsReviews
.
|
(2)
|
Represents
the average number of desktop unique visitors for the last three months of
the period, calculated as the number of users, as measured by Google
Analytics, who visited our non-mobile optimized website at least once in a
given month, averaged over the three-month period. For more information,
see
Managements Discussion
and Analysis of Financial Condition and Results of OperationsKey
MetricsTraffic
.
|
(3)
|
Represents
the average number of mobile website unique visitors for the last three
months of the period, calculated as the number of users, as measured by
Google Analytics, who visited our mobile-optimized website at least once
in a given month, averaged over the three-month period. For more
information, see
Managements Discussion and Analysis of Financial Condition and
Results of OperationsKey MetricsTraffic
.
|
(4)
|
Represents
the average number of unique mobile devices using our mobile app for the
last three months of the period, calculated as the number of unique mobile
devices that used our mobile app in a given month, averaged over the
three month period. For more information, see
Managements Discussion and Analysis of
Financial Condition and Results of OperationsKey
MetricsTraffic.
|
(5)
|
Represents
the cumulative number of business locations that had been claimed on Yelp
worldwide since 2008, as of the period end. We define a claimed local
business location as each business address for which a business
representative has visited our website and claimed the free business
listing page for the business located at that address. For more
information, see
Managements Discussion and Analysis of Financial Condition and
Results of OperationsKey MetricsClaimed Local Business
Locations
.
|
(6)
|
Represents
the number of business accounts from which we recognized advertising
and subscription revenue during the last three months of the period. For more information,
see
Managements Discussion
and Analysis of Financial Condition and Results of OperationsKey
MetricsAdvertising and Subscription Accounts
.
|
40
Table of Contents
(7)
|
Adjusted
EBITDA is a non-GAAP financial measure that we calculate as net income
(loss), adjusted to exclude: provision (benefit) for income taxes, other
income (expense), net, depreciation and amortization,
stock-based compensation expense, and restructuring and integration costs. We believe that adjusted EBITDA provides
useful information to investors for understanding and evaluating our
operating results in the same manner as our management and our board of
directors. This non-GAAP information is not necessarily comparable to
non-GAAP information of other companies, and should not be viewed as a
substitute for, or superior to, net income (loss) prepared in accordance
with GAAP as a measure of our profitability. Users of this financial
information should consider the types of events and transactions for which
adjustments have been made. For more information about adjusted EBITDA, as
well as a reconciliation of this non-GAAP financial measure to net income
(loss), see
Managements Discussion and Analysis of
Financial Condition and Results of OperationNon-GAAP Financial
MeasuresAdjusted EBITDA.
|
Item 7. Managements
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
Yelp connects people with great local businesses by bringing word of
mouth online and providing a platform for businesses and consumers to engage
and transact. Our platform provides value to consumers and businesses alike by
connecting consumers with great local businesses at the critical moment when
they are deciding where to spend their money. Each day, millions of consumers
use our platform to find and interact with local businesses, which in turn use
our free and paid services to help them engage with consumers. The Yelp
Platform, which allows consumers and businesses to transact directly on Yelp,
provides consumers with a continuous experience from discovery to completion of
transactions and local businesses with an additional point of consumer
engagement.
We derive substantially all of our revenue from the sale of advertising
products. In the year ended December 31, 2016, our net revenue was $713.1
million, which represented an increase of 30% from the year ended December 31,
2015, and we recorded a net loss of $4.7 million and adjusted EBITDA of $120.1
million. In the year ended December 31, 2015, our net revenue was $549.7
million, which represented an increase of 46% from the year ended December 31,
2014, and we recorded a net loss of $32.9 million and adjusted EBITDA of $69.1
million.
Our success is primarily the result of significant investment in our
communities, employees, content, brand and technology. We believe that continued
investment in our business provides our largest opportunity for future growth
and plan to continue to invest for long-term growth in our key strategies:
●
|
Network Effect.
We plan to invest in marketing and product
development aimed at both attracting more, and increasing the engagement
of, consumers as we look to leverage our brand and benefit from network
dynamics in Yelp communities. In addition to continuing our efforts to
raise brand awareness, we plan to allocate a greater proportion of our
advertising budget to performance advertising, with the objective of
growing our communities, among other goals. We also plan to continue to
invest in our mobile platform, where we find our most engaged users, and
in our transaction capabilities, which we believe will driver further
consumer engagement. Together with our continued focus on making our
content widely available and developing innovative features, while
maintaining a great user experience, we believe these investments will
attract new consumers as well as increase the number of visits and
searches per user.
|
41
Table of Contents
●
|
Enhance Monetization.
Our core strength is our advertising
business in the United States and Canada. In the fourth quarter of 2016,
we carried out a significant reduction in our sales and marketing
activities outside the United States and Canada, where we believe the
long-term return on continued investment to be lower than alternative
opportunities for the business within our core markets. We plan to
continue to invest in initiatives to enhance our opportunities in the
United States and Canada, including aggressively growing our sales force
in order to reach more businesses; however, we will also broaden our sales
strategy by developing new and evolving sales channels, such as self-serve
advertising and partnerships with marketing agencies and resellers, and
deepening our relationships with existing customers. In addition, we will
continue the expansion of the Yelp Platform to drive transaction volume, new business owner products
and comprehensive tools to measure the effectiveness of our products, as
well as our local business outreach.
|
We expect to continue to invest in capital expenditures in 2017 to
support the growth of our business, primarily to increase our office space,
upgrade our technology and infrastructure to improve the ability of our platform
to handle the projected increase in usage, and enable the release of new
features and solutions. As a result of this investment philosophy, we expect
that our operating expenses will continue to increase for the foreseeable
future.
Factors Affecting Our Performance
Traffic and User Engagement.
Changes in consumer traffic, as well as the quality and quantity of
contributed content, has affected and will continue to affect our revenue and
financial performance. Traffic to our platform determines the number of ads we
are able to show, affects the value of those ads to businesses and influences
the content creation that drives further traffic; as a result, our ability to
grow our business depends on our ability to increase traffic on our platform.
Because we rely on Internet search engines to drive traffic to our platform, a
significant portion of our traffic can be affected by a number of factors, many
of which are not in our direct control. Changes in a search engines ranking
algorithms, methodologies or design layouts may result in links to our website
not being prominent enough to drive traffic to our website and mobile
app.
For example, Google has previously made changes to its algorithms and
methodologies that may be contributing to the slowing of our traffic growth
rate, particularly in our international markets where we have less content and
more competitors. We believe this headwind on our ability to achieve prominent
display of our content in international unpaid search results disrupted the
network effect we expected in our international markets based on what we
experienced domestically, whereby increases in content led to increases in
traffic. This was a contributing factor to our decision to wind down our
international sales and marketing operations. Google also announced that,
beginning in the fourth quarter of 2015, the rankings of sites showing certain
types of app install interstitials could be penalized on its mobile search
results pages. While we believe the type of interstitial we currently use will
not be penalized, the parameters of Googles policy may change from time to
time, be poorly defined and be inconsistently interpreted. For example, in
January 2017, Google broadened the categories of interstitials that may be
penalized. As a result, Google may unexpectedly penalize our app install
interstitials, which may cause links to our mobile website to be featured less
prominently in Googles mobile search results page, and traffic to both our
mobile website and mobile app may be harmed as a result. We cannot predict the
long-term impact of these changes.
We also anticipate that our traffic growth will continue to slow over
time, and potentially decrease in certain periods, as our business matures and
we achieve higher penetration rates. As our traffic growth rate slows, our
success will become increasingly dependent on our ability to increase levels of
user engagement on our platform. This dependence may increase as the portion of
our revenue derived from performance-based advertising increases. If user
engagement decreases, our advertisers may stop or reduce the amount of
advertising on our platform and our results of operations would be harmed. In
addition, we also expect the cyclicality and seasonality in our business to
become more pronounced as our growth rate slows, including weaker traffic in the
fourth quarter of the year.
42
Table of Contents
Increasing Mobile Usage.
The number of people who access
information about local businesses through mobile devices has increased
dramatically over the past few years and is expected to continue to increase.
Although many consumers access our platform both on their mobile devices and
through personal computers, we have seen substantial growth in mobile usage. We
anticipate that growth in use of our mobile platform will be the driver of our
growth for the foreseeable future and that usage through personal computers will
continue to decline worldwide. While we currently deliver advertising on our
mobile platform, the mobile market remains a new and evolving market with which
we have limited experience. Our continued success depends on, among other
things, our efforts to innovate and introduce enhanced mobile products and
features. If our efforts to develop compelling mobile advertising products are
not successful, advertisers may stop or reduce their advertising with us. At the
same time, we must balance advertiser demands against our commitment to
prioritizing the quality of user experience over short-term monetization. If we
are not able to balance these competing considerations successfully, we may not
be able to generate meaningful revenue from our mobile products despite the
expected growth in mobile usage, which would adversely impact our financial
performance.
Ability to Attract and
Retain Advertisers.
Our
revenue growth is driven by our ability to attract and retain local business
that purchase our advertising products. Our largest sales and
marketing expenses consist of the costs associated with acquiring
advertisers. We spent a majority of our sales and marketing expense for 2016 on
initiatives related to advertiser acquisition and expect to
continue to expend significant amounts to attract additional
advertisers. At the same time, our advertising agreements increasingly provide
for performance-based cost-per-click payment terms, which may make it more
difficult to forecast advertising revenue accurately. In addition, our
advertisers typically do not have long-term obligations to purchase our
products, and 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. The
small and medium-sized businesses on which we heavily rely often have limited
advertising budgets and may be disproportionately affected by economic
downturns. As a result, a worsening economic outlook would likely cause
businesses to decrease investments in advertising, which could adversely affect
our revenue.
Investment in Growth.
We
have invested aggressively in the growth of our platform and intend to continue
to invest to support this growth as we expand the Yelp Platform, grow our
communities and local business base, hire additional employees and further
develop our technology. We also plan to invest in product development as we
continue to innovate and introduce new advertising and e-commerce products,
explore new platforms and distribution channels and develop partner arrangements
that provide incremental value to our advertisers and business partners to
encourage them to increase their advertising budgets allocated to our platform.
We expect that these investments will increase our operating expenses, and that
any increase in revenue resulting from product innovations will likely trail the
increase in expenses. For example, in 2015, we launched our first television and
digital advertising campaign to increase consumer awareness of our brand; while
we believe these marketing efforts will increase traffic in the longer term, we
do not expect the effect to be immediate. We plan to continue investing in
various advertising channels in 2017.
Community Development.
Our
long-term growth depends on our ability to successfully develop Yelp
communities. It can take years for our platform to achieve a critical mass of
consumers and reviews to drive meaningful traction of our advertising products
and to begin generating revenue in a particular community. As a result, we may
continue to generate losses in new communities for an extended period, and
different communities can be expected to grow at different rates and generate
varying levels of revenue. As with most businesses, we expect our revenue growth
to slow as our business matures over time. Advertising revenue for the oldest
cohort of Yelp communities in the United States, which launched in 2005-2006,
grew at 30% in 2016 compared to 2015. This is lower than the growth rate of
advertising revenue for the 2007-2008 cohort, which grew 37% over the same
period. We believe this is indicative of continued revenue growth, but slowing
revenue growth for older communities.
In the fourth quarter of 2016, we wound down our international sales and
marketing operations, including our international community management team, and
reallocated the associated resources primarily to our U.S. and Canadian markets.
As a result, our continued growth depends on our ability to further develop our
U.S. and Canadian communities and operations. However, we have already entered
many of the largest cities in the United States and Canada, and launching
additional communities may not yield results similar to those of our existing
communities. As a result, we continue to believe that development of our
existing communities currently provides the greatest opportunity for growth, and
plan to focus our community development efforts on existing communities in 2017.
43
Table of Contents
Acquisitions.
As part of
our business strategy, we may determine to expand our product offerings and grow
our business through the acquisition of complementary businesses or
technologies. For example, in February 2017, we acquired Nowait, a restaurant technology company with the industrys leading waitlist system and seating tool. This will help drive Yelps daily engagement in the key restaurant vertical. Our acquisitions will affect our future
financial results due to factors such as the amortization of acquired intangible
assets.
Key
Metrics
We regularly review a number of metrics, including the following key
metrics, to evaluate our business, measure our performance, identify trends in
our business, prepare financial projections and make strategic decisions. Unless
otherwise stated, these metrics do not include metrics for Yelp Eat24 or
Yelp Reservations, or from our business owner products.
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 businesss overall star rating. By
clicking on a link on a reviewed businesss 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.
As of December 31, 2016, approximately 112.6 million reviews were
available on business listing pages, including approximately 26.9 million
reviews that were not recommended, after 8.4 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:
|
|
As of December
31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
(in thousands)
|
Reviews
|
|
121,022
|
|
95,210
|
|
71,232
|
Traffic
Traffic to our website and mobile app has three components: visitors to
our non-mobile optimized website (our desktop website), visitors to our
mobile-optimized website (our mobile website) and mobile devices accessing our
mobile app. We use the following metrics to measure each of these traffic
streams:
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 three-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 three-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.
44
Table of Contents
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 three-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 our traffic for the periods
indicated:
|
|
Three
Months Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
(in thousands)
|
Desktop Unique Visitors
|
|
73,466
|
|
74,607
|
|
77,628
|
Mobile Web Unique Visitors
|
|
65,351
|
|
65,860
|
|
57,770
|
App Unique Devices
|
|
24,073
|
|
20,006
|
|
14,541
|
We anticipate that our mobile traffic will be the driver of our growth
for the foreseeable future and that usage of our desktop website will continue
to decline worldwide.
Claimed Local
Business Locations
The number of claimed local business locations represents the cumulative
number of business locations that have been claimed on Yelp worldwide since
2008, as of a given date. We define a claimed local business location as each
business address for which a business representative has visited our website and
claimed the free business listing page for the business located at that address.
The following table presents the number of cumulative claimed local business
locations as of the dates presented:
|
|
As of December
31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
(in thousands)
|
Claimed
Local Business Locations
|
|
3,363
|
|
2,648
|
|
2,029
|
Advertising and
Subscription Accounts
Advertising and subscription accounts, which we previously referred to as
local advertising accounts, consist of business accounts from which we
recognized (a) advertising revenue (excluding business accounts that purchased
advertising solely through our partners) and (b) revenue from Yelp Reservations
subscriptions in a given three-month period. The following table presents the
number of advertising and subscription accounts during the periods presented:
|
|
Three Months Ended
December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
(in thousands)
|
Advertising and Subscription
Accounts
|
|
138
|
|
111
|
|
84
|
45
Table of Contents
Non-GAAP Financial
Measures
Our consolidated financial statements are prepared in accordance with
GAAP. However, we have also disclosed below adjusted EBITDA and non-GAAP net
income, which are non-GAAP financial measures. We have included adjusted EBITDA
and non-GAAP net income 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 and non-GAAP net income can provide a useful measure
for period-to-period comparisons of our primary business operations.
Accordingly, we believe that adjusted EBITDA and non-GAAP net income 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 and non-GAAP net income 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 non-GAAP net income should not be viewed as substitutes 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 and non-GAAP net income do
not reflect 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 and
non-GAAP net income do not consider the potentially dilutive impact of
equity-based compensation;
|
●
|
adjusted EBITDA does
not reflect tax payments that may represent a reduction in cash available
to us; and
|
●
|
other companies,
including companies in our industry, may calculate adjusted EBITDA and
non-GAAP net income differently, which reduces their usefulness as
comparative measures.
|
Because of these limitations, you should consider adjusted EBITDA and
non-GAAP net income alongside other financial performance measures, including
various cash flow metrics, net income (loss) and our other GAAP results. The
tables below present reconciliations of adjusted EBITDA and non-GAAP net income
to net income (loss), the most directly comparable GAAP financial measure in
each case, for each of the periods indicated.
46
Table of Contents
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
restructuring and integration costs. Adjusted EBITDA for the year ended December
31, 2016 was $120.1 million. The following is a reconciliation of adjusted
EBITDA to net income (loss):
|
|
Year Ended December
31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
|
2012
|
|
|
(in thousands)
|
Reconciliation of Adjusted EBITDA to GAAP
Net Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(4,670
|
)
|
|
$
|
(32,900
|
)
|
|
$
|
36,473
|
|
|
$
|
(10,068
|
)
|
|
$
|
(19,113
|
)
|
(Benefit from) Provision for income
taxes
|
|
|
1,385
|
|
|
|
11,962
|
|
|
|
(25,193
|
)
|
|
|
838
|
|
|
|
122
|
|
Other (income) expense, net
|
|
|
(1,694
|
)
|
|
|
(386
|
)
|
|
|
(221
|
)
|
|
|
407
|
|
|
|
226
|
|
Depreciation and amortization
|
|
|
35,346
|
|
|
|
29,604
|
|
|
|
17,590
|
|
|
|
11,455
|
|
|
|
7,223
|
|
Stock-based compensation
|
|
|
86,261
|
|
|
|
60,842
|
|
|
|
42,273
|
|
|
|
26,122
|
|
|
|
14,878
|
|
Restructuring and integration
costs
(1)
|
|
|
3,455
|
|
|
|
-
|
|
|
|
-
|
|
|
|
675
|
|
|
|
1,262
|
|
Adjusted EBITDA
|
|
$
|
120,083
|
|
|
$
|
69,122
|
|
|
$
|
70,922
|
|
|
$
|
29,429
|
|
|
$
|
4,598
|
|
(1)
|
Restructuring and integration includes $0.6 million in stock-based
compensation expense for the year ended December 31,
2013.
|
Non-GAAP Net
Income
Non-GAAP net income is a
non-GAAP financial measure that we calculate as net income (loss), adjusted to
exclude: stock-based compensation expense; amortization of intangibles; restructuring and integration costs; and the tax
effect of stock-based compensation, amortization of intangibles, restructuring and integration costs and valuation allowance.
Non-GAAP net income for the year ended December 31, 2016
was $59.4 million. The following is a reconciliation of non-GAAP net income to
net income (loss):
|
|
Year Ended December
31,
|
|
|
2016
|
|
|
(in thousands)
|
Reconciliation of Non-GAAP Net Income
to GAAP Net Income (Loss):
|
|
|
|
|
Net income (loss)
|
|
$
|
(4,670
|
)
|
Stock-based compensation
|
|
|
86,261
|
|
Amortization of intangible assets
|
|
|
6,805
|
|
Restructuring and integration
costs
|
|
|
3,455
|
|
Tax adjustments
(1)
|
|
|
(32,411
|
)
|
Non-GAAP net
income
|
|
$
|
59,440
|
|
(1)
|
Includes tax effects
of stock-based compensation, amortization of intangibles, restructuring
and integration, and valuation allowance.
|
47
Table of Contents
Critical Accounting
Policies and 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 believe that the
assumptions and estimates associated with revenue recognition, website and
internal-use software development costs, business combinations, income taxes and
stock-based compensation expense have the greatest potential impact on our
consolidated financial statements. Therefore, we consider these to be our
critical accounting policies and estimates. For further information on these and
our other significant accounting policies, see Note 2 of the Notes to
Consolidated Financial Statements included elsewhere in this Annual Report.
Results of
Operations
The following tables set
forth our results of operations for the periods indicated as a percentage of net
revenue for those periods. The period-to-period comparison of financial results
is not necessarily indicative of future results.
|
|
Year Ended December
31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
(as a percentage of net
revenue)
|
Consolidated Statements of Operations
Data:
|
|
|
|
|
|
|
|
|
|
Net revenue by product:
|
|
|
|
|
|
|
|
|
|
Advertising
|
|
90
|
%
|
|
86
|
%
|
|
89
|
%
|
Transactions
|
|
9
|
|
|
8
|
|
|
1
|
|
Brand
advertising
|
|
-
|
|
|
6
|
|
|
9
|
|
Other
services
|
|
1
|
|
|
-
|
|
|
1
|
|
Total net revenue
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
Cost of revenue (exclusive
of depreciation and amortization shown separately below)
|
|
8
|
%
|
|
9
|
%
|
|
6
|
%
|
Sales and
marketing
|
|
55
|
|
|
55
|
|
|
54
|
|
Product
development
|
|
19
|
|
|
20
|
|
|
17
|
|
General and
administrative
|
|
14
|
|
|
15
|
|
|
15
|
|
Depreciation and
amortization
|
|
5
|
|
|
5
|
|
|
5
|
|
Restructuring and
integration cost
|
|
-
|
|
|
-
|
|
|
-
|
|
Total costs and expenses
|
|
101
|
|
|
104
|
|
|
97
|
|
Income (Loss) from operations
|
|
(1
|
)
|
|
(4
|
)
|
|
3
|
|
Other income (expense), net
|
|
-
|
|
|
-
|
|
|
-
|
|
Income (Loss) before income taxes
|
|
(1
|
)
|
|
(4
|
)
|
|
3
|
|
Benefit from (Provision for) income
taxes
|
|
-
|
|
|
(2
|
)
|
|
7
|
|
Net income (loss)
|
|
(1
|
%)
|
|
(6
|
%)
|
|
10
|
%
|
48
Table of Contents
Years Ended December 31,
2016, 2015 and 2014
Net
Revenue
We generate revenue from
our advertising products, transactions, other services and, through the end of
2015, brand advertising.
Advertising.
We generate
advertising revenue from our advertising programs, which consist of enhanced
listing pages and performance and impression-based advertising in search
results and elsewhere on our website and mobile app. Advertising revenue also
includes revenue generated from resale of our advertising products by certain
partners and monetization of remnant advertising inventory through third-party
ad networks.
Transactions.
We generate
revenue from various transactions with consumers, including through Yelp Eat24,
Platform transactions and the sale of Yelp Deals and Gift Certificates. Yelp
Eat24 generates revenue through arrangements with restaurants, in which
restaurants pay a commission percentage fee on orders placed through the Yelp
Eat24 platform. We record revenue associated with Yelp Eat24s transactions on a
net basis. Our Platform partnerships are revenue-sharing arrangements that
provide consumers with the ability to complete food delivery transactions, order
flowers and book spa and salon appointments, among others, through third parties
directly on Yelp. We earn a fee on our Platform partnerships for acting as an
agent for these transactions, which we record on a net basis and include in
revenue upon completion of a transaction. Yelp Deals allow merchants to promote
themselves and offer discounted goods and services on a real-time basis to
consumers directly on our website and mobile app. We earn a fee on Yelp Deals
for acting as an agent in these transactions, which we record on a net basis and
include in revenue upon a consumers purchase of a deal. Gift Certificates allow
merchants to sell full-priced gift certificates directly to consumers through
their business listing pages. We earn a fee based on the amount of the Gift
Certificate sold, which we record on a net basis and include in revenue upon a
consumers purchase of the Gift Certificate.
Brand Advertising.
Through the end of 2015, we
generated revenue from brand advertising through the sale of display
advertisements and brand sponsorships to national brands. We phased out these
products to focus on our core strength of local advertising.
Other Services.
We generate revenue through our Yelp Reservations product, licensing payments for access to Yelp data through our Yelp Knowledge program and other non-advertising related partnerships.
49
Table of Contents
The following table
provides a breakdown of our net revenue for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
to
|
|
2014 to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
%
|
|
2015 %
|
|
|
Year Ended December
31,
|
|
Change
|
|
Change
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
Net revenue by product:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising
|
|
$
|
645,241
|
|
|
$
|
471,416
|
|
|
$
|
335,450
|
|
|
37
|
%
|
|
41
|
%
|
Transactions
|
|
|
62,495
|
|
|
|
43,854
|
|
|
|
5,247
|
|
|
43
|
|
|
736
|
|
Brand advertising
|
|
|
-
|
|
|
|
31,012
|
|
|
|
34,482
|
|
|
(100
|
)
|
|
(10
|
)
|
Other services
|
|
|
5,333
|
|
|
|
3,429
|
|
|
|
2,357
|
|
|
56
|
|
|
45
|
|
Total
net revenue
|
|
$
|
713,069
|
|
|
$
|
549,711
|
|
|
$
|
377,536
|
|
|
30
|
%
|
|
46
|
%
|
Percentage of total net revenue by
product:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising
|
|
|
90
|
%
|
|
|
86
|
%
|
|
|
89
|
%
|
|
|
|
|
|
|
Transactions
|
|
|
9
|
|
|
|
8
|
|
|
|
1
|
|
|
|
|
|
|
|
Brand advertising
|
|
|
-
|
|
|
|
6
|
|
|
|
9
|
|
|
|
|
|
|
|
Other services
|
|
|
1
|
|
|
|
-
|
|
|
|
1
|
|
|
|
|
|
|
|
Total
net revenue
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
During 2016, 2015 and 2014,
we focused on revenue growth related to our local advertiser customer base.
Total net revenue increased $163.4 million, or 30%, in 2016 compared to 2015,
and $172.2 million, or 46%, in 2015 compared to 2014.
Advertising revenue
increased $173.8 million, or 37%, in 2016 compared to 2015, and $136.0 million,
or 41% in 2015 compared to 2014. The increase in both periods was primarily due
to a significant increase in the number of customers purchasing advertising
plans as we expanded our sales force to reach more businesses. The growth in
both periods was driven primarily by purchases of cost-per-click advertising. In
both 2016 and 2015, a majority of ad clicks were delivered on mobile.
Our transactions revenue
increased $18.6 million, or 43%, in 2016 compared to 2015, and $38.6 million, or
736%, in 2015 compared to 2014. The increase in both periods was primarily the
result of increased transactions from Yelp Eat24, which we acquired in February
2015.
As of the beginning of
2016, we no longer offer brand advertising products. As a result, we generated
no brand advertising revenue in 2016, a decrease of $31.0 million from 2015. Our
brand revenue decreased $3.5 million, or 10%, in 2015 compared to 2014,
primarily due to a decrease in the number of brand advertisers and our phase out
of our brand advertising products.
Our other services revenue
increased $1.9 million, or 56%, in 2016 compared to 2015, and $1.1 million, or
45%, in 2015 compared to 2014. The increases in both years were primarily due to
increases in revenue from Yelp Reservations.
50
Table of Contents
Cost of
Revenue
Our cost of revenue
consists primarily of web hosting costs and credit card processing fees, as well
as salaries, benefits and stock-based compensation expense for our
infrastructure teams related to the operation of our website and mobile app. It
also includes costs associated with video production for our local advertisers
as well as confirmation and delivery services associated with Yelp Eat24. We
expect cost of revenue to increase in 2017 at a similar rate to 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 to
|
|
2014 to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 %
|
|
2015 %
|
|
|
Year Ended December
31,
|
|
Change
|
|
Change
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
Cost of revenue
|
|
$
|
60,363
|
|
|
$
|
51,015
|
|
|
$
|
24,382
|
|
|
18%
|
|
109%
|
Percentage of net revenue
|
|
|
8
|
%
|
|
|
9
|
%
|
|
|
6
|
%
|
|
|
|
|
Cost of revenue increased
$9.3 million, or 18%, in 2016 compared to 2015, and $26.6 million, or 109%, in
2015 compared to 2014. The increases in 2016 and 2015 were primarily
attributable to increases of $6.9 million and $9.1 million, respectively, in
merchant fees related to credit card transactions due to growth in advertising
and transactions revenue, particularly as a result of our acquisition of Eat24
in the three months ended March 31, 2015. Set up and creative design costs,
consisting primarily of video production costs, increased by $1.2 million and
$2.4 million in 2016 and 2015, respectively, due to greater demand by businesses
for video on their business listing pages. External website hosting, and the salaries and related expenses of the internal personnel
that support the website infrastructure increased $1.0 million and $12.2 million
in 2016 and 2015, respectively, resulting from an increase in the number of
visitors to our website and transactions completed in our website compared to the prior years, as well as increased
headcount for personnel supporting the website infrastructure. In 2016, those increases were partially offset by improved pricing from key
website hosting vendors achieved during 2016. Cost of revenue also increased by
$0.2 million and $2.9 million in 2016 and 2015, respectively, as a result of
third-party food delivery related costs associated with Yelp Eat24.
Sales and
Marketing
Our sales and marketing
expenses primarily consist of salaries (including employer payroll taxes),
benefits, travel expense and incentive compensation expense, including
stock-based compensation expense, for our sales and marketing employees. In
addition, sales and marketing expenses include business and consumer acquisition
marketing, community management, branding and advertising costs, as well as
allocated facilities, insurance, business taxes and other supporting overhead
costs. Historically, we have focused on organic and viral growth driven by the
community development efforts of our community management team, which is
responsible for growing and fostering local communities, as well as coordinating
events to raise awareness of our brand. As a result, we historically have
incurred relatively low sales and marketing expenses to increase consumer
awareness of Yelp. While community development continues to be our primary
marketing strategy, we launched our first advertising campaign in 2014 and
launched additional campaigns in each year since then. We plan to continue
investing in various advertising channels in 2017.
51
Table of Contents
In the fourth quarter of
2016, we significantly reduced our sales and marketing activities in markets
outside of the United States and Canada.
Nevertheless, we expect our
sales and marketing expenses to increase as we expand our communities, increase
the number of advertising and subscription accounts and continue to build our
brand in the United States and Canada. The majority of these expenses will be
related to hiring sales employees and Community Managers, as well as costs
incurred with various third-party media outlets and other advertising channels.
We expect sales and marketing expenses to increase in 2017 at or slightly above
the rate at which revenue increases in 2017, and to be our largest expense for
the foreseeable future.
|
|
|
|
|
|
|
|
|
|
2015
to
|
|
2014
to
|
|
|
|
|
|
|
|
|
2016
%
|
|
2015
%
|
|
|
Year Ended December
31,
|
|
Change
|
|
Change
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
Sales and marketing
|
|
$
|
382,854
|
|
|
$
|
301,764
|
|
|
$
|
201,050
|
|
|
27%
|
|
50%
|
Percentage of net revenue
|
|
|
55
|
%
|
|
|
55
|
%
|
|
|
54
|
%
|
|
|
|
|
Sales and marketing
expenses increased $81.1 million, or 27%, in 2016 compared to 2015, and $100.7
million, or 50%, in 2015 compared 2014. The increases in 2016 and 2015 were
primarily attributable to $48.5 million and $57.1 million, respectively, in
additional salaries, benefits, travel and other related expenses resulting from
increased headcount, including increases in stock-based compensation expense of
$5.1 million and $6.9 million, respectively, as we expanded our sales
organization to take advantage of the market opportunity created by increased
recognition of the value of our advertising products and increased use of our
free online business accounts. As a result of ongoing marketing campaigns,
marketing and advertising costs increased by $14.8 million and $23.8 million in
2016 and 2015, respectively. As a result of our increases in net revenue, our
commission expenses increased by $7.8 million and $2.7 million in 2016 and 2015,
respectively. In addition, we experienced increases in facilities, insurance,
business taxes and other related allocations of $10.0 million and $17.1 million
in 2016 and 2015, respectively.
Product
Development
Our product development
expenses primarily consist of salaries (including employer payroll taxes),
various benefits, travel expense and stock-based compensation expense for our
engineers, product management and information technology personnel. Product
development expenses also include outside services and consulting, allocated
facilities, insurance, business taxes and other supporting overhead costs. We
believe that continued investment in features, software development tools and
code modification is important to attaining our strategic objectives and, as a
result, we expect product development expenses to increase for the foreseeable
future, though at a slower rate in 2017 than in 2016.
|
|
|
|
|
|
|
|
|
|
2015
to
|
|
2014
to
|
|
|
|
|
|
|
|
|
2016
%
|
|
2015
%
|
|
|
Year Ended December
31,
|
|
Change
|
|
Change
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
Product development
|
|
$
|
138,549
|
|
|
$
|
107,786
|
|
|
$
|
65,181
|
|
|
29%
|
|
65%
|
Percentage of net revenue
|
|
|
19
|
%
|
|
|
20
|
%
|
|
|
17
|
%
|
|
|
|
|
Product development
expenses increased $30.8 million, or 29%, in 2016 compared to 2015, and $42.6
million, or 65%, in 2015 compared to 2014. The increases in 2016 and 2015 were
primarily attributable to $27.9 million and $35.2 million, respectively, in
additional salaries, benefits, travel and related expenses associated with an
increase in headcount, including increases in stock-based compensation expense
(net of capitalized stock-based compensation expense) of $12.9 million and $8.6
million, respectively. In addition, we experienced increases in facilities,
insurance, business taxes and other related allocations of $5.0 million and $5.8
million in 2016 and 2015, respectively, as a result of the increases in
headcount. In 2016, these increases were partially offset by a decrease in
consulting costs of $2.1 million due to decreased reliance on outside
consultants. In 2015, the use of outside consultants increased by $1.6 million.
52
Table of Contents
General and
Administrative
Our general and
administrative expenses primarily consist of salaries (including employer
payroll taxes), various benefits, travel expense and stock-based compensation
expense for our executive, finance, user operations, legal, human resources and
other administrative employees. Our general and administrative expenses also
include outside consulting, legal and accounting services, as well as
facilities, insurance, business taxes and other supporting overhead costs not
allocated to other departments. We expect our general and administrative
expenses to increase for the foreseeable future as we continue to expand our
business, but at a slower rate than revenue growth in 2017.
|
|
|
|
|
|
|
|
|
|
2015
to
|
|
2014
to
|
|
|
|
|
|
|
|
|
2016
%
|
|
2015
%
|
|
|
Year Ended December
31,
|
|
Change
|
|
Change
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
General and administrative
|
|
$
|
97,481
|
|
|
$
|
80,866
|
|
|
$
|
58,274
|
|
|
21%
|
|
39%
|
Percentage of net revenue
|
|
|
14
|
%
|
|
|
15
|
%
|
|
|
15
|
%
|
|
|
|
|
General and administrative
expenses increased $16.6 million, or 21%, in 2016 compared to 2015, and $22.6
million, or 39%, in 2015 compared to 2014. The increases in 2016 and 2015 were
primarily attributable to $12.1 million and $11.7 million, respectively, in
additional salaries, benefits, travel and related expenses associated with an
increase in headcount, including increases in stock-based compensation expense
of $6.1 million and $2.6 million, respectively. We also experienced increases in
facilities, insurance, business taxes and other related allocations of $1.5
million and $2.3 million in 2016 and 2015, respectively, as a result of the
increases in headcount. Bad debt expense increased by $5.6 million
and $3.9 million, respectively, primarily as a result of continued growth in advertising revenue. In 2016, these increases were partially offset
by a decrease in consulting costs of $2.6 million due to decreased reliance on
outside consultants. In 2015, use of outside consultants increased by $4.7
million as we invested in our systems and support for the growth of the
business.
Depreciation and
Amortization
Depreciation and
amortization expenses primarily consist of depreciation on computer equipment,
software, leasehold improvements, capitalized website and software development
costs and amortization of purchased intangible assets. We expect depreciation
and amortization expenses to increase for the foreseeable future as we continue
to expand our technology infrastructure, and at or slightly below the rate
revenue increases in 2017.
|
|
|
|
|
|
|
|
|
|
2015
to
|
|
2014
to
|
|
|
|
|
|
|
|
|
2016
%
|
|
2015
%
|
|
|
Year Ended December
31,
|
|
Change
|
|
Change
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
Depreciation and amortization
|
|
$
|
35,346
|
|
|
$
|
29,604
|
|
|
$
|
17,590
|
|
|
19%
|
|
68%
|
Percentage of net revenue
|
|
|
5
|
%
|
|
|
5
|
%
|
|
|
5
|
%
|
|
|
|
|
Depreciation and
amortization expenses increased $5.7 million, or 19%, in 2016 compared to 2015,
and $12.0 million, or 68%, in 2015 compared to 2014. These increases were
primarily the result of our investments in expanding our technology
infrastructure and capital assets to support our increase in headcount across
the organization. Depreciation and amortization expenses related to our fixed
assets and capitalized website and software development costs increased $5.5
million and $8.0 million in 2016 and 2015, respectively. In addition,
amortization related to our intangibles increased by $0.2 million and $4.0
million in 2016 and 2015, respectively. The 2015 increase was primarily due to
the intangibles acquired in the Eat24 acquisition.
53
Table of Contents
Restructuring and
Integration
|
|
Year Ended December
31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
(in thousands)
|
Restructuring and
integration
|
|
$
|
3,455
|
|
$
|
|
|
$
|
|
On November 2, 2016, we announced plans to significantly reduce sales and marketing activities
in markets outside of the United States and Canada. We incurred $3.5 million in restructuring costs
associated with this plan for the year ended
December 31, 2016, of which $2.0 million had been paid by December 31, 2016. We expect to pay the
remaining $1.5 million during the year ending
December 31, 2017.
The restructuring costs
primarily related to severance costs for affected employees. No goodwill,
intangible assets or other long lived assets have been determined to be
impaired. The restructuring plan was substantially completed by the year ending
December 31, 2016, with approximately $0.2 million expected to be incurred
during the year ended December 31, 2017.
Other Income,
Net
Other income, net consists
primarily of the interest income earned on our cash, cash equivalents and
marketable securities, and foreign exchange gains and losses.
|
|
Year Ended December
31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
(in thousands)
|
Interest income, net
|
|
$
|
1,724
|
|
|
$
|
622
|
|
|
$
|
375
|
|
Transaction loss on foreign exchange
|
|
|
(175
|
)
|
|
|
(687
|
)
|
|
|
(121
|
)
|
Other non-operating income (loss),
net
|
|
|
145
|
|
|
|
451
|
|
|
|
(33
|
)
|
Other income, net
|
|
$
|
1,694
|
|
|
$
|
386
|
|
|
$
|
221
|
|
In 2016, other income, net
increased by $1.3 million, primarily driven by an increase in interest income
earned on marketable investments.
In 2015, other income, net
increased by $0.2 million, driven by an increase in interest income related to
marketable securities. This was offset by increased foreign exchange losses, due
to unfavorable foreign exchange rate movements during 2015. The increase in
other non-operating income is primarily due to the release of cash in escrow
relating to our acquisition of Qype GmBH, a German review site, in 2012.
54
Table of Contents
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, generation of income tax credits, and the
realization of net operating loss carryforwards.
|
|
Year Ended December
31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
(in thousands)
|
Benefit from (Provision for)
taxes
|
|
$
|
(1,385
|
)
|
|
$
|
(11,962
|
)
|
|
$
|
25,193
|
In 2016, we recognized tax
expense of $1.4 million that primarily consisted of the recording of a valuation
allowance on certain foreign deferred tax assets as a result of winding down
of sales and marketing activities outside of the United States and Canada.
Income tax expense decreased $10.6 million in 2016 compared to 2015 primarily
due to the valuation allowance recorded in 2015 against certain deferred tax
assets. Income tax expense increased $37.2 million in 2015 compared to 2014
primarily due to the valuation allowance recorded in 2015 against certain
deferred tax assets and release of valuation allowance in 2014.
55
Table of Contents
Quarterly Results of
Operations and Other Data
The following tables set
forth our unaudited quarterly consolidated statements of operations data and our
consolidated statements of operations data as a percentage of net revenue for
each of the eight quarters in the period ended December 31, 2016. We also
present other financial and operational data and a reconciliation of net income
(loss) to adjusted EBITDA. We have prepared this quarterly data on a consistent
basis with the audited consolidated financial statements included in this Annual
Report. In the opinion of management, the quarterly financial information
reflects all necessary adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of this data. This information
should be read in conjunction with the audited financial statements and related
notes included elsewhere in this Annual Report. The results of historical
periods are not necessarily indicative of the results of operations for any
future period.
|
|
Quarter Ended
|
|
|
Dec
31,
|
|
Sep
30,
|
|
Jun
30,
|
|
Mar
31,
|
|
Dec
31,
|
|
Sep
30,
|
|
Jun
30,
|
|
March 31,
|
|
|
|
2016
|
|
2016
|
|
2016
|
|
2016
|
|
2015
|
|
2015
|
|
2015
|
|
2015
|
|
|
|
(dollars in thousands, except per share
data)
|
Consolidated Statements of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue by product
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising
|
|
$
|
176,547
|
|
|
$
|
168,950
|
|
|
$
|
156,697
|
|
|
$
|
143,047
|
|
|
$
|
131,698
|
|
|
$
|
121,864
|
|
|
$
|
113,525
|
|
|
$
|
104,329
|
|
Transactions
|
|
|
16,568
|
|
|
|
15,910
|
|
|
|
15,518
|
|
|
|
14,499
|
|
|
|
13,971
|
|
|
|
11,973
|
|
|
|
11,304
|
|
|
|
6,606
|
|
Brand
advertising
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,104
|
|
|
|
8,978
|
|
|
|
8,303
|
|
|
|
6,627
|
|
Other services
|
|
|
1,681
|
|
|
|
1,372
|
|
|
|
1,213
|
|
|
|
1,067
|
|
|
|
958
|
|
|
|
744
|
|
|
|
781
|
|
|
|
946
|
|
Total
net revenue
|
|
$
|
194,796
|
|
|
$
|
186,232
|
|
|
$
|
173,428
|
|
|
$
|
158,613
|
|
|
$
|
153,731
|
|
|
$
|
143,559
|
|
|
$
|
133,913
|
|
|
$
|
118,508
|
|
Costs and
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
revenue (exclusive of depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
shown
separately below)
(2)
|
|
$
|
15,604
|
|
|
$
|
14,594
|
|
|
$
|
15,087
|
|
|
$
|
15,078
|
|
|
$
|
15,000
|
|
|
$
|
14,259
|
|
|
$
|
13,057
|
|
|
$
|
8,699
|
|
Sales and
marketing
(2)
|
|
|
93,550
|
|
|
|
99,274
|
|
|
|
94,402
|
|
|
|
95,628
|
|
|
|
87,535
|
|
|
|
82,949
|
|
|
|
68,014
|
|
|
|
63,266
|
|
Product
development
(2)
|
|
|
36,860
|
|
|
|
36,369
|
|
|
|
33,098
|
|
|
|
32,222
|
|
|
|
28,970
|
|
|
|
28,511
|
|
|
|
26,345
|
|
|
|
23,960
|
|
General and
administrative
(2)
|
|
|
27,372
|
|
|
|
24,876
|
|
|
|
23,464
|
|
|
|
21,769
|
|
|
|
20,659
|
|
|
|
20,990
|
|
|
|
19,280
|
|
|
|
19,937
|
|
Depreciation and amortization
|
|
|
9,434
|
|
|
|
9,159
|
|
|
|
8,564
|
|
|
|
8,189
|
|
|
|
7,980
|
|
|
|
7,562
|
|
|
|
7,167
|
|
|
|
6,895
|
|
Restructuring and
integration
|
|
|
3,455
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
costs and expenses
|
|
$
|
186,275
|
|
|
$
|
184,272
|
|
|
$
|
174,615
|
|
|
$
|
172,886
|
|
|
$
|
160,144
|
|
|
$
|
154,271
|
|
|
$
|
133,863
|
|
|
$
|
122,757
|
|
|
|
|
|
|
Income (Loss) from
operations
|
|
$
|
8,521
|
|
|
$
|
1,960
|
|
|
$
|
(1,187
|
)
|
|
$
|
(14,273
|
)
|
|
$
|
(6,413
|
)
|
|
$
|
(10,712
|
)
|
|
$
|
50
|
|
|
$
|
(4,249
|
)
|
Other
income (expense), net
|
|
|
742
|
|
|
|
327
|
|
|
|
367
|
|
|
|
258
|
|
|
|
40
|
|
|
|
(545
|
)
|
|
|
329
|
|
|
|
562
|
|
Income (Loss) before
income taxes
|
|
$
|
9,263
|
|
|
$
|
2,287
|
|
|
$
|
(820
|
)
|
|
$
|
(14,015
|
)
|
|
$
|
(6,373
|
)
|
|
$
|
(11,257
|
)
|
|
$
|
379
|
|
|
$
|
(3,687
|
)
|
Benefit
from (Provision for) income taxes
|
|
|
(1,000
|
)
|
|
|
(217
|
)
|
|
|
1,269
|
|
|
|
(1,437
|
)
|
|
|
(15,856
|
)
|
|
|
3,175
|
|
|
|
(1,684
|
)
|
|
|
2,403
|
|
Net income (loss)
attributable to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common stockholders
(Class A and B)
|
|
$
|
8,263
|
|
|
$
|
2,070
|
|
|
$
|
449
|
|
|
$
|
(15,452
|
)
|
|
$
|
(22,229
|
)
|
|
$
|
(8,082
|
)
|
|
$
|
(1,305
|
)
|
|
$
|
(1,284
|
)
|
Net
income (loss) per share attributable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
common stockholders (Class A and B):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.10
|
|
|
$
|
0.03
|
|
|
$
|
0.01
|
|
|
$
|
(0.20
|
)
|
|
$
|
(0.29
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
Diluted
|
|
$
|
0.10
|
|
|
$
|
0.02
|
|
|
$
|
0.01
|
|
|
$
|
(0.20
|
)
|
|
$
|
(0.29
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
Weighted-average shares
used to compute net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
per share attributable
to common stockholders (Class A and B):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
78,851
|
|
|
|
77,521
|
|
|
|
76,467
|
|
|
|
75,884
|
|
|
|
75,372
|
|
|
|
75,019
|
|
|
|
74,631
|
|
|
|
73,684
|
|
Diluted
|
|
|
84,364
|
|
|
|
82,917
|
|
|
|
79,280
|
|
|
|
75,884
|
|
|
|
75,372
|
|
|
|
75,019
|
|
|
|
74,631
|
|
|
|
73,684
|
|
56
Table of Contents
(1)
|
For purposes
of comparison, the following table presents the Companys net revenue by product
line for the periods indicated (in thousands) based on the revenue categories presented in
our SEC filings prior to this Annual Report. Refer to
Business Our Products
for more information on the change to our revenue
classifications.
|
|
|
Quarter
Ended
|
|
|
Dec 31,
|
|
Sep 30,
|
|
Jun 30,
|
|
Mar 31,
|
|
Dec 31,
|
|
Sep 30,
|
|
Jun 30,
|
|
Mar 31,
|
|
|
2016
|
|
2016
|
|
2016
|
|
2016
|
|
2015
|
|
2015
|
|
2015
|
|
2015
|
|
|
(dollars in thousands)
|
Net revenue by product
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Local
|
|
$
|
171,128
|
|
$
|
163,571
|
|
$
|
151,879
|
|
$
|
138,116
|
|
$
|
125,852
|
|
$
|
115,932
|
|
$
|
107,882
|
|
$
|
98,570
|
Transactions
|
|
|
16,568
|
|
|
15,910
|
|
|
15,518
|
|
|
14,499
|
|
|
13,971
|
|
|
11,973
|
|
|
11,304
|
|
|
6,606
|
Brand
advertising
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
7,104
|
|
|
8,978
|
|
|
8,303
|
|
|
6,627
|
Other services
|
|
|
7,100
|
|
|
6,751
|
|
|
6,031
|
|
|
5,998
|
|
|
6,804
|
|
|
6,676
|
|
|
6,424
|
|
|
6,705
|
Total net revenue
|
|
$
|
194,796
|
|
$
|
186,232
|
|
$
|
173,428
|
|
$
|
158,613
|
|
$
|
153,731
|
|
$
|
143,559
|
|
$
|
133,913
|
|
$
|
118,508
|
(2)
Includes non-cash stock-based compensation expense as
follows:
|
|
|
Quarter
Ended
|
|
|
Dec 31,
|
|
Sep 30,
|
|
Jun 30,
|
|
Mar 31,
|
|
Dec 31,
|
|
Sep 30,
|
|
Jun 30,
|
|
Mar 31,
|
|
|
2016
|
|
2016
|
|
2016
|
|
2016
|
|
2015
|
|
2015
|
|
2015
|
|
2015
|
|
|
(dollars in thousands)
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
$
|
874
|
|
$
|
764
|
|
$
|
407
|
|
$
|
401
|
|
$
|
336
|
|
$
|
435
|
|
$
|
222
|
|
$
|
124
|
Sales and
marketing
|
|
|
6,722
|
|
|
7,191
|
|
|
6,843
|
|
|
6,342
|
|
|
5,803
|
|
|
5,568
|
|
|
5,654
|
|
|
4,937
|
Product
development
|
|
|
10,595
|
|
|
9,284
|
|
|
8,413
|
|
|
8,030
|
|
|
6,314
|
|
|
5,947
|
|
|
6,065
|
|
|
5,105
|
General and
administrative
|
|
|
5,673
|
|
|
5,321
|
|
|
5,063
|
|
|
4,337
|
|
|
3,519
|
|
|
3,733
|
|
|
3,575
|
|
|
3,505
|
Total stock-based compensation
|
|
$
|
23,864
|
|
$
|
22,560
|
|
$
|
20,726
|
|
$
|
19,110
|
|
$
|
15,972
|
|
$
|
15,683
|
|
$
|
15,516
|
|
$
|
13,671
|
The following table presents other financial and operational data:
|
|
Quarter
Ended
|
|
|
Dec 31,
|
|
Sep 30,
|
|
Jun 30,
|
|
Mar 31,
|
|
Dec 31,
|
|
Sep 30,
|
|
Jun 30,
|
|
Mar 31,
|
|
|
2016
|
|
2016
|
|
2016
|
|
2016
|
|
2015
|
|
2015
|
|
2015
|
|
2015
|
|
|
(dollars in thousands)
|
Other Financial and Operational Data
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reviews
|
|
|
121,022
|
|
|
115,259
|
|
|
108,251
|
|
|
101,564
|
|
|
95,210
|
|
|
89,635
|
|
|
83,102
|
|
|
77,346
|
Desktop Unique Visitors
|
|
|
73,466
|
|
|
77,162
|
|
|
73,406
|
|
|
77,433
|
|
|
74,607
|
|
|
78,901
|
|
|
79,175
|
|
|
79,543
|
Mobile Web Unique Visitors
|
|
|
65,351
|
|
|
72,040
|
|
|
69,327
|
|
|
68,551
|
|
|
65,860
|
|
|
69,117
|
|
|
64,715
|
|
|
62,923
|
App Unique Devices
|
|
|
24,073
|
|
|
24,900
|
|
|
23,010
|
|
|
21,186
|
|
|
20,006
|
|
|
20,121
|
|
|
18,097
|
|
|
16,039
|
Claimed Local Business Locations
|
|
|
3,363
|
|
|
3,192
|
|
|
3,010
|
|
|
2,834
|
|
|
2,648
|
|
|
2,503
|
|
|
2,349
|
|
|
2,193
|
Advertising and Subscription
Accounts
|
|
|
138
|
|
|
135
|
|
|
128
|
|
|
121
|
|
|
111
|
|
|
104
|
|
|
97
|
|
|
90
|
Adjusted EBITDA
|
|
$
|
45,274
|
|
$
|
33,679
|
|
$
|
28,103
|
|
$
|
13,026
|
|
$
|
17,539
|
|
$
|
12,533
|
|
$
|
22,733
|
|
$
|
16,317
|
(1)
|
For
information on how we define these operational and other metrics, see
Key Metrics.
|
57
Table of Contents
The following table
presents a reconciliation of adjusted EBITDA to net income (loss).
|
|
Quarter
Ended
|
|
|
Dec 31,
|
|
Sep 30,
|
|
Jun 30,
|
|
Mar 31,
|
|
Dec 31,
|
|
Sep 30,
|
|
Jun 30,
|
|
Mar 31,
|
|
|
2016
|
|
2016
|
|
2016
|
|
2016
|
|
2015
|
|
2015
|
|
2015
|
|
2015
|
|
|
(dollars in thousands)
|
Reconciliation of adjusted
EBITDA to net income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
8,263
|
|
|
$
|
2,070
|
|
|
$
|
449
|
|
|
$
|
(15,452
|
)
|
|
$
|
(22,229
|
)
|
|
$
|
(8,082
|
)
|
|
$
|
(1,305
|
)
|
|
$
|
(1,284
|
)
|
(Benefit from) Provision for income
taxes
|
|
|
1,000
|
|
|
|
217
|
|
|
|
(1,269
|
)
|
|
|
1,437
|
|
|
|
15,856
|
|
|
|
(3,175
|
)
|
|
|
1,684
|
|
|
|
(2,403
|
)
|
Other (income) expense, net
|
|
|
(742
|
)
|
|
|
(327
|
)
|
|
|
(367
|
)
|
|
|
(258
|
)
|
|
|
(40
|
)
|
|
|
545
|
|
|
|
(329
|
)
|
|
|
(562
|
)
|
Depreciation and amortization
|
|
|
9,434
|
|
|
|
9,159
|
|
|
|
8,564
|
|
|
|
8,189
|
|
|
|
7,980
|
|
|
|
7,562
|
|
|
|
7,167
|
|
|
|
6,895
|
|
Stock-based compensation
|
|
|
23,864
|
|
|
|
22,560
|
|
|
|
20,726
|
|
|
|
19,110
|
|
|
|
15,972
|
|
|
|
15,683
|
|
|
|
15,516
|
|
|
|
13,671
|
|
Restructuring & Integration
|
|
|
3,455
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Adjusted EBITDA
|
|
$
|
45,274
|
|
|
$
|
33,679
|
|
|
$
|
28,103
|
|
|
$
|
13,026
|
|
|
$
|
17,539
|
|
|
$
|
12,533
|
|
|
$
|
22,733
|
|
|
$
|
16,317
|
|
Liquidity and Capital
Resources
As of December 31, 2016, we
had cash and cash equivalents of $272.2 million. Cash and cash equivalents
consist of both cash and money market funds. Our cash held internationally as of
December 31, 2016 was $8.1 million. We did not have any outstanding bank loans
or credit facilities in place as of December 31, 2016. Our investment portfolio
is comprised of highly rated marketable securities, 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. 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, 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 ESPP.
58
Table of Contents
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 and cash equivalents, together
with any cash generated from operations, will be sufficient to meet our working
capital requirements and anticipated purchases of property and equipment for at
least the next 12 months. However, this estimate is based on a number of
assumptions that may prove to be wrong and we could exhaust our available cash
and cash equivalents earlier than presently anticipated. We may require or
otherwise seek additional funds in the next 12 months to respond to business
challenges, including the need to develop new features and products or enhance
existing services, improve our operating infrastructure or acquire complementary
businesses and technologies, and, accordingly, we may need to engage in equity
or debt financings to secure additional funds.
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 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:
|
|
Year Ended December
31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
(dollars in thousands)
|
Consolidated Statements of Cash Flows
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, equipment and software
|
|
$
|
(22,994
|
)
|
|
$
|
(31,127
|
)
|
|
$
|
(29,054
|
)
|
Depreciation and amortization
|
|
|
35,346
|
|
|
|
29,604
|
|
|
|
17,590
|
|
Cash provided by operating activities
|
|
|
126,900
|
|
|
|
57,362
|
|
|
|
57,932
|
|
Cash used in investing
activities
|
|
|
(55,572
|
)
|
|
|
(158,682
|
)
|
|
|
(228,674
|
)
|
Cash provided by financing activities
|
|
|
29,522
|
|
|
|
26,442
|
|
|
|
29,549
|
|
Operating Activities.
We generated $126.9 million of
cash in operating activities in the year ended December 31, 2016, primarily
resulting from our net loss of $4.7 million, which included non-cash
depreciation and amortization expenses of $35.3 million, non-cash stock-based
compensation expense of $86.3 million and non-cash provision for doubtful
accounts and sales returns of $17.3 million. In addition, significant changes in
our operating assets and liabilities resulted from the following:
●
|
increase in accounts receivable of $31.6
million due to an increase in billings for advertising plans, as well as
the timing of payments from these customers;
|
59
Table of Contents
●
|
increase in accounts payable, accrued expenses
and other liabilities of $15.3 million, primarily driven by an increase in
restaurant revenue share liability, accrued vacation and employee-related
expenses, and the timing of invoices and payments to the vendors,
particularly marketing-related vendors; and
|
●
|
decrease in prepaids and other assets of $5.7
million, primarily due to the collection of non-trade
receivables
|
We generated $57.4 million
of cash in operating activities in the year ended December 31, 2015, primarily
resulting from our net loss of $32.9 million, which included non-cash
depreciation and amortization expenses of $29.6 million, non-cash stock-based
compensation expense of $60.8 million, non-cash provision for doubtful accounts
of $16.8 million and a $20.3 million expense related to a valuation allowance
recorded against certain domestic and foreign deferred tax assets. In addition,
significant changes in our operating assets and liabilities resulted from the
following:
●
|
increase in accounts receivable of $25.3
million due to an increase in billings for advertising plans, as well as
the timing of payments from these customers;
|
●
|
increase in accounts payable, accrued expenses
and other liabilities of $15.9 million related to the growth in our
business, increase in restaurant revenue share liability, accrued vacation and
employee-related expenses, and the timing of invoices and payments to
vendors; and
|
●
|
increase in prepaids and other assets of $22.7
million relating to an increase in prepayments (primarily for marketing
and business licenses) and deferred tax benefits.
|
We generated $57.9 million
of cash in operating activities in the year ended December 31, 2014, primarily
resulting from our net income of $36.5 million, which included non-cash
depreciation and amortization expenses of $17.6 million, non-cash stock-based
compensation expense of $42.3 million, non-cash provision for doubtful accounts
of $7.2 million and a $28.2 million increase related to our release of valuation
allowance previously recorded against certain domestic and foreign deferred tax
assets. In addition, significant changes in our operating assets and liabilities
resulted from the following:
●
|
increase in accounts receivable of $21.3
million due to an increase in billings for advertising plans and brand
advertising campaigns, as well as the timing of payments from these
customers;
|
●
|
increase in accounts payable, accrued expenses
and other liabilities of $8.9 million relating to the growth in our
business and the increase in accrued vacation and employee-related
expenses, accrued cost of sales, deferred rent for new facilities, and
timing of invoices and payments to vendors; and
|
●
|
increase in prepaids and other assets of $4.0
million relating to the increase in prepaid payroll bonuses, prepaid cost
of sales and amounts due from others.
|
Investing
Activities.
Our primary investing
activities in the year ended December 31, 2016 consisted of purchases of
marketable securities, purchases of property and equipment to support the
ongoing build out of leasehold improvements for our new facilities in San
Francisco and other locations, the purchase of technology hardware to support
our growth in headcount and software to support website and mobile app
development, website operations and our corporate infrastructure. Purchases of
property, equipment and software may vary from period to period due to the
timing of the expansion of our offices, operations and website and internal-use
software and development. We expect our investment in property and equipment,
leaseholds and the development of software in 2017 to grow modestly from 2016
levels.
We used $55.6 million of
cash in investing activities during the year ended December 31, 2016. Cash used
in investing activities primarily related to purchases of marketable securities
of $275.0 million, an increase in expenditures related to website and internally
developed software of $14.2 million, purchases of property, equipment and
software of $23.0 million to support the growth in our business, our investment
of $8.0 million in the preferred stock of Nowait and purchases of
intangible data licenses of $0.2 million. In addition, as part of our lease
agreements for additional office space, we were obligated to deliver additional
letters of credit, which resulted in an increase of $0.8 million in restricted
cash. Cash used in investing was offset by $265.5 million of maturities of
investment securities held-to-maturity.
60
Table of
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We used $158.7 million of
cash in investing activities during the year ended December 31, 2015. Cash used
in investing activities primarily related to the $73.4 million cash portion of
the purchase price of Eat24, purchases of marketable securities of $246.2
million, an increase in expenditures related to website and internally developed
software of $11.7 million, purchases of intangible data licenses of $0.6 million
and purchases of property, equipment, software and leasehold improvements of
$31.1 million to support the growth in our business. Cash used in investing was
offset by $202.9 million of maturities of investment securities held-to-maturity
and the release of restrictions on cash of $1.4 million.
We used $228.7 million of
cash in investing activities during the year ended December 31, 2014, including
$14.3 million net of cash received related to acquisitions during the year.
Other cash used in investing activities primarily related to purchases of
marketable securities of $210.5 million, as well as an increase in expenditures
related to website and internally developed software of $11.3 million, purchases
of perpetual data licenses of $1.7 million and purchases of property, equipment,
software and leasehold improvements of $29.1 million to support the growth in
our business and an increase in restricted cash of $14.8 million associated with
letters of credit in connection with leased office space. Cash used in investing
was offset by $53.0 million of maturities of investment securities held to
maturity.
Financing
Activities.
During the year ended
December 31, 2016, we generated $29.5 million in financing activities, primarily
due to net proceeds of $20.6 million from the issuance of common stock upon the
exercise of stock options and $8.9 million in net proceeds from the sale of
shares of common stock under the ESPP.
During the year ended
December 31, 2015, we generated $26.4 million in financing activities, primarily
due to net proceeds of $12.3 million from the issuance of common stock upon the
exercise of stock options, $8.9 million in net proceeds from the sale of stock
under our ESPP and $6.6 million in excess tax benefits from stock-based award
activity.
During the year ended
December 31, 2014, we generated $29.5 million in financing activities, primarily
due to net proceeds of $20.2 million from the issuance of common stock upon the
exercise of stock options and $8.9 million in net proceeds from the sale of
stock under our ESPP.
Off Balance Sheet
Arrangements
We did not have any off
balance sheet arrangements in 2016, 2015 or 2014.
Contractual Obligations
We lease various office
facilities, including our corporate headquarters in San Francisco, California,
under operating lease agreements that expire from 2017 to 2025. The terms of the
lease agreements provide for rental payments on a graduated basis. We recognize
rent expense on a straight-line basis over the lease periods. We do not have any
debt or material capital lease obligations, and all of our property, equipment
and software have been purchased with cash. As of December 31, 2016, we had no
material long-term purchase obligations outstanding with vendors or third
parties other than obligations related to the fit out of certain leasehold
properties. As of December 31, 2016, the following table summarizes our future
minimum payments under non-cancelable operating leases and purchase obligations
for equipment and office facilities:
|
|
Payments Due by
Period
|
|
|
Total
|
|
Less Than 1
Year
|
|
1 3
Years
|
|
3 5
Years
|
|
More Than 5
Years
|
|
|
(in thousands)
|
Operating lease obligations
|
|
$
|
307,513
|
|
$
|
42,321
|
|
$
|
88,804
|
|
$
|
83,987
|
|
$
|
92,401
|
Purchase obligations
|
|
$
|
39,841
|
|
$
|
19,426
|
|
$
|
20,415
|
|
$
|
-
|
|
$
|
-
|
The contractual commitment
amounts in the table above are associated with binding agreements and do not
include obligations under contracts that we can cancel without a significant
penalty. In addition, as of December 31, 2016, our total liability for uncertain
tax positions was $0.5 million of the total unrecognized benefit of $10.3
million. We are not reasonably able to estimate the timing of future cash flow
related to this liability. As a result, this amount is not included in the
contractual obligations table above.
61
Table of
Contents
We have subleased certain
office facilities under operating lease agreements that expire in 2021. The
terms of these lease agreements provide for rental receipts on a graduated
basis. We recognize sublease rentals on a straight-line basis over the lease
periods reflected as a reduction in rental expense. As of December 31, 2016, our
future minimum rental receipts to be received under non-cancelable subleases
were $8.3 million.
Item 7A. Quantitative
and Qualitative Disclosures About Market Risk.
We have operations both
within the United States and internationally, and we are exposed to market risks
in the ordinary course of business. These risks include primarily interest rate,
foreign exchange risks and inflation.
Interest Rate
Fluctuation
The primary objective of
our investment activities is to preserve principal while maximizing income
without significantly increasing risk.
Our cash and cash
equivalents consist of cash and money market funds. We do not have any long-term
borrowings. Because our cash and cash equivalents have a relatively short
maturity, their fair value is relatively insensitive to interest rate changes.
We believe a hypothetical 10% increase in the interest rates as of December 31,
2016 would not have a material impact on our cash and cash equivalents
portfolio.
Our marketable securities
are comprised of fixed-rate debt securities issued by U.S. corporations, U.S.
government agencies and the U.S. Treasury; as such, their fair value may be
affected by fluctuations in interest rates in the broader economy. As we have
both the ability and intent to hold these securities to maturity, such
fluctuations would have no impact on our results of operations.
Foreign Currency
Exchange Risk
We have foreign currency
risks related to our revenue and operating expenses denominated in currencies
other than the U.S. dollar, principally in the British pound sterling, Canadian
dollar and the Euro. The volatility of exchange rates depends on many factors
that we cannot forecast with reliable accuracy. Although we have experienced and
will continue to experience fluctuations in net income (loss) as a result of
transaction gains (losses), net related to revaluing certain cash balances,
trade accounts receivable balances and intercompany balances that are
denominated in currencies other than the U.S. dollar, we believe a hypothetical
10% strengthening/(weakening) of the U.S. dollar against the British pound
sterling, Canadian dollar or Euro, either alone or in combination with each
other, would not have a material impact on our results of operations. In the
event our foreign sales and expenses increase as a proportion of our overall
sales and expenses, our operating results may be more greatly affected by
fluctuations in the exchange rates of the currencies in which we do business. At
this time, we do not enter into derivatives or other financial instruments in an
attempt to hedge our foreign currency exchange risk, though we may in the
future. It is difficult to predict the impact hedging activities would have on
our results of operations.
Inflation
Risk
We do not believe that
inflation has had a material effect on our business, financial condition or
results of operations. If our costs were to become subject to significant
inflationary pressures, we may not be able to fully offset such higher costs
through price increases. Our inability or failure to do so could harm our
business, financial condition or results of operations.
Item 8. Financial
Statements and Supplementary Data.
Our financial statements
and the report of our independent registered public accounting firm are included
in this Annual Report beginning on page F-1. The index to our financial
statements is included in Part IV, Item 15 below.
Item 9. Changes in and
Disagreements with Accountants on Accounting and Financial
Disclosure.
None.
62
Table of
Contents
Item 9A. Controls and
Procedures.
Evaluation of Disclosure
Controls and Procedures
We maintain disclosure
controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act, that are designed to ensure that information required to be
disclosed by a company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SECs rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by a company in the reports
that it files or submits under the Exchange Act is accumulated and communicated
to the companys management, including its principal executive and principal
financial officers, as appropriate to allow timely decisions regarding required
disclosure.
Our management, with the
participation of our Chief Executive Officer and Chief Financial Officer,
evaluated the effectiveness of our disclosure controls and procedures as of
December 31, 2016. Based on this evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that, as of December 31, 2016, our disclosure
controls and procedures were effective at the reasonable assurance level.
63
Table of Contents
Managements Annual
Report on Internal Control Over Financial Reporting
Our management is
responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and
15d-15(f). Under the supervision and with the participation of our Chief
Executive Officer and Chief Financial Officer, our management evaluated the
effectiveness of our internal control over financial reporting based on the
framework set forth in
Internal
ControlIntegrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on this evaluation, our management concluded that our internal
control over financial reporting was effective as of December 31, 2016. Our
management reviewed the results of this evaluation with the audit committee of
our board of directors.
Deloitte & Touche LLP,
an independent registered public accounting firm, has audited the consolidated
financial statements included in this Annual Report and, as part of the audit,
has issued a report on the effectiveness of our internal control over financial
reporting as of December 31, 2016, which is included below.
Changes in Internal
Control Over Financial Reporting
There was no change in our
internal control over financial reporting identified in connection with the
evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that
occurred during the three months ended December 31, 2016 that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
Inherent Limitations on
Effectiveness of Controls
Our management, including
our Chief Executive Officer and our Chief Financial Officer, believes that our
disclosure controls and procedures and internal control over financial reporting
are designed to provide reasonable assurance of achieving their objectives and
are effective at the reasonable assurance level. However, our management does
not expect that our disclosure controls and procedures or our internal control
over financial reporting will prevent all errors and all fraud. A control
system, no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are met.
Further, the design of a control system must reflect the fact that there are
resource constraints, and the benefits of controls must be considered relative
to their costs. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, have been detected. These inherent limitations
include the realities that judgments in decision making can be faulty, and that
breakdowns can occur because of a simple error or mistake. Additionally,
controls can be circumvented by the individual acts of some persons, by the
collusion of two or more people or by management override of controls. The
design of any system of controls is also based in part upon certain assumptions
about the likelihood of future events, and there can be no assurance that any
design will succeed in achieving its stated goals under all potential future
conditions; over time, controls may become inadequate because of changes in
conditions, or the degree of compliance with policies or procedures may
deteriorate. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be detected.
64
Table of Contents
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
and
Stockholders of Yelp Inc.
San Francisco, California
We have audited the
internal control over financial reporting of Yelp Inc. and subsidiaries (the
"Company") as of December 31, 2016, based on criteria established in
Internal Control Integrated
Framework (2013)
issued by the
Committee of Sponsoring Organizations of the Treadway Commission. The Company's
management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying Managements
Annual Report on Internal Control Over Financial Reporting. Our responsibility
is to express an opinion on the Company's internal control over financial
reporting based on our audit.
We conducted our audit in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our audit included
obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on the assessed
risk, and performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our
opinion.
A company's internal
control over financial reporting is a process designed by, or under the
supervision of, the company's principal executive and principal financial
officers, or persons performing similar functions, and effected by the company's
board of directors, management, and other personnel to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles. A company's internal control over financial
reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of the inherent
limitations of internal control over financial reporting, including the
possibility of collusion or improper management override of controls, material
misstatements due to error or fraud may not be prevented or detected on a timely
basis. Also, projections of any evaluation of the effectiveness of the internal
control over financial reporting to future periods are subject to the risk that
the controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company
maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2016, based on the criteria established in
Internal Control Integrated
Framework (2013)
issued by the
Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in
accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated financial statements as of and for the year
ended December 31, 2016 of the Company and our report dated March 1, 2017
expressed an unqualified opinion on those financial statements.
DELOITTE & TOUCHE
LLP
San Francisco,
California
March 1, 2017
65
Table of Contents
Item 9B. Other
Information.
None.
66
Table of Contents
PART III
Item 10. Directors,
Executive Officers and Corporate Governance.
Information required by
this item regarding directors and director nominees, executive officers, the
board of directors and its committees, and certain corporate governance matters
is incorporated by reference to the information set forth under the captions
Proposal No. 1Election of Directors, Information Regarding the Board of
Directors and Corporate Governance and Executive Officers in the definitive
proxy statement for our 2017 Annual Meeting of Stockholders, or the 2017 Proxy
Statement. Information required by this item regarding compliance with Section
16(a) of the Exchange Act is incorporated by reference to the information set
forth under the caption Section 16(a) Beneficial Ownership Reporting
Compliance in our 2017 Proxy Statement.
We have adopted a written
code of business conduct and ethics that applies to all of our employees,
officers and directors, including our principal executive officer, principal
financial officer and principal accounting officer. The code of business conduct
and ethics is available on our corporate website at www.yelp-ir.com under the
section entitled Corporate Governance. If we make any substantive amendments
to our code of business conduct and ethics or grant any of our directors or
executive officers any waiver, including any implicit waiver, from a provision
of our code of business conduct and ethics, we will disclose the nature of the
amendment or waiver on our website or in a Current Report on Form
8-K.
Item 11. Executive
Compensation.
Information required by
this item regarding executive compensation is incorporated by reference to the
information set forth under the captions Executive Compensation, Director
Compensation and Information Regarding the Board of Directors and Corporate
Governance in our 2017 Proxy Statement.
Item 12. Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
Information required by
this item regarding security ownership of certain beneficial owners and
management is incorporated by reference to the information set forth under the
caption Security Ownership of Certain Beneficial Owners and Management in our
2017 Proxy Statement. Information required by this item regarding securities
authorized for issuance under our equity compensation plans is incorporated by
reference to the information set forth under the caption Equity Compensation
Plan Information in our 2017 Proxy Statement.
Item 13. Certain
Relationships and Related Transactions, and Director Independence.
Information required by
this item regarding certain relationships and related transactions is
incorporated by reference to the information set forth under the caption
Transactions with Related Persons in our 2017 Proxy Statement. Information
required by this item regarding director independence is incorporated by
reference to the information set forth under the caption Information Regarding
the Board of Directors and Corporate Governance in our 2017 Proxy Statement.
Item 14. Principal
Accounting Fees and Services.
Information required by
this item regarding principal accounting fees and services is incorporated by
reference to the information set forth under the caption Proposal No.
2Ratification of Selection of Independent Registered Public Accounting Firm in
our 2017 Proxy Statement.
67
Table of Contents
PART IV
Item 15. Exhibits,
Financial Statement Schedules.
Item 16. Form 10-K
Summary.
None.
68
Table of
Contents
SIGNATURES
Pursuant to the
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: March 1, 2017
Yelp
Inc.
|
|
/s/ Charles Baker
|
|
Charles Baker
|
Chief Financial Officer
|
(
Principal Financial
and Accounting Officer
)
|
POWER
OF
ATTORNEY
KNOW ALL PERSONS BY THESE
PRESENTS, that each person whose signature appears below constitutes and
appoints Charles Baker and Laurence Wilson, and each of them, as his or her true
and lawful attorneys-in-fact and agents, with full power of substitution for him
or her, and in his or her name in any and all capacities, to sign any and all
amendments to this Annual Report on Form 10-K, and to file the same, with
exhibits thereto and other documents in connection therewith, with the U.S.
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done therewith, as fully to
all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, and either
of them, his or her substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the
requirements of the Securities Exchange Act of 1934, as amended, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
Signature
|
|
Title
|
|
Date
|
/s/ Jeremy Stoppelman
|
|
Chief Executive Officer and Director
|
|
March 1, 2017
|
Jeremy Stoppelman
|
|
(
Principal Executive
Officer
)
|
|
|
|
|
|
|
|
/s/ Charles Baker
|
|
Chief Financial Officer
|
|
March 1, 2017
|
Charles Baker
|
|
(
Principal Financial
and Accounting Officer
)
|
|
|
|
|
|
|
|
/s/ Diane Irvine
|
|
Chairperson
|
|
March 1, 2017
|
Diane Irvine
|
|
|
|
|
|
|
|
|
|
/s/ Fred Anderson
|
|
Director
|
|
March 1, 2017
|
Fred Anderson
|
|
|
|
|
|
|
|
|
|
/s/ Geoff Donaker
|
|
Director
|
|
March 1, 2017
|
Geoff Donaker
|
|
|
|
|
|
|
|
|
|
/s/ Peter Fenton
|
|
Director
|
|
March 1, 2017
|
Peter Fenton
|
|
|
|
|
|
|
|
|
|
/s/ Robert Gibbs
|
|
Director
|
|
March 1, 2017
|
Robert Gibbs
|
|
|
|
|
|
|
|
|
|
/s/ Jeremy Levine
|
|
Director
|
|
March 1, 2017
|
Jeremy Levine
|
|
|
|
|
|
|
|
|
|
/s/ Mariam Naficy
|
|
Director
|
|
March 1, 2017
|
Mariam Naficy
|
|
|
|
|
69
Table of Contents
EXHIBIT
INDEX
|
|
|
|
|
|
|
|
|
|
|
|
Filed
|
|
|
|
|
|
|
Incorporated by
Reference
|
|
Herewith
|
Exhibit
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
Exhibit
Description
|
|
|
Form
|
|
File No.
|
|
Exhibit
|
|
Filing
Date
|
|
|
2.1
|
|
Share Purchase Agreement,
dated October 23, 2012, by and among Yelp Inc., Yelp Ireland Ltd., Qype
GmbH and the shareholders of Qype GmbH.
|
|
8-K
|
|
001-35444
|
|
99.1
|
|
10/24/2012
|
|
|
2.2
|
|
Agreement and Plan of Merger, dated July 18,
2013, by and among Yelp Inc., Ranger Merger Corp., Ranger Merger LLC,
SeatMe, Inc. and Alexander Kvamme, as Stockholders Agent.
|
|
8-K
|
|
001-35444
|
|
99.1
|
|
7/24/2013
|
|
|
2.3
|
|
Agreement and Plan of
Merger, dated February 9, 2015, by and among Yelp Inc., Eat24Hours.com,
Inc., Kale Acquisition Corp., Quinoa Acquisition LLC, the Stockholders of
Eat24Hours.com, Inc. and Nadav Sharon, as Stockholders Agent.
|
|
8-K
|
|
001-35444
|
|
99.1
|
|
2/10/2015
|
|
|
3.1
|
|
Certificate of Retirement.
|
|
8-A/A
|
|
001-35444
|
|
3.1
|
|
9/23/2016
|
|
|
3.2
|
|
Amended and Restated
Certificate of Incorporation of Yelp Inc.
|
|
8-A/A
|
|
001-35444
|
|
3.2
|
|
9/23/2016
|
|
|
3.3
|
|
Amended and Restated Bylaws of Yelp
Inc.
|
|
S-1/A
|
|
333-178030
|
|
3.4
|
|
2/3/2012
|
|
|
4.1
|
|
Reference is made to
Exhibits 3.1, 3.2 and 3.3.
|
|
|
|
|
|
|
|
|
|
|
4.2
|
|
Form of Common Stock Certificate.
|
|
8-A/A
|
|
001-35444
|
|
4.1
|
|
9/23/2016
|
|
|
10.1*
|
|
Amended and Restated 2005
Equity Incentive Plan.
|
|
S-1
|
|
333-178030
|
|
10.2
|
|
11/17/2011
|
|
|
10.2*
|
|
Forms of Option Agreement and Option Grant
Notice under Amended and Restated 2005 Equity Incentive Plan.
|
|
S-1
|
|
333-178030
|
|
10.3
|
|
11/17/2011
|
|
|
10.3*
|
|
2011 Equity Incentive
Plan.
|
|
S-1
|
|
333-178030
|
|
10.4
|
|
2/3/2012
|
|
|
10.4*
|
|
Forms of Option Agreement and Option Grant
Notice under 2011 Equity Incentive Plan.
|
|
S-1
|
|
333-178030
|
|
10.5
|
|
2/3/2012
|
|
|
10.5*
|
|
2012 Equity Incentive Plan,
as amended.
|
|
8-K
|
|
001-35444
|
|
10.1
|
|
9/23/2016
|
|
|
10.6*
|
|
Forms of Option Agreement and Grant Notice
and RSU Agreement and Grant Notice under 2012 Equity Incentive
Plan.
|
|
S-1/A
|
|
333-178030
|
|
10.17
|
|
2/3/2012
|
|
|
10.7*
|
|
2012 Employee Stock Purchase
Plan, as amended.
|
|
8-K
|
|
001-35444
|
|
10.2
|
|
9/23/2016
|
|
|
10.8*
|
|
Executive Severance Benefit Plan.
|
|
S-1/A
|
|
333-178030
|
|
10.19
|
|
2/3/2012
|
|
|
10.9*
|
|
Form of Indemnification
Agreement made by and between Yelp Inc. and each of its directors and
executive officers.
|
|
S-1
|
|
333-178030
|
|
10.6
|
|
2/3/2012
|
|
|
10.10*
|
|
Offer Letter, by and between Yelp Inc. and
Jeremy Stoppelman, dated February 3, 2012.
|
|
S-1/A
|
|
333-178030
|
|
10.15
|
|
2/3/2012
|
|
|
10.11*
|
|
Employment Offer Letter,
dated April 15, 2016, between Yelp Inc. and Charles Baker.
|
|
8-K
|
|
001-35444
|
|
10.1
|
|
4/18/2016
|
|
|
10.12*
|
|
Amended and Restated Offer Letter, by and
between Yelp Inc. and Jed Nachman, dated February 3, 2012.
|
|
S-1/A
|
|
333-178030
|
|
10.9
|
|
2/3/2012
|
|
|
70
Table of
Contents
|
|
|
|
|
|
|
|
|
|
|
|
Filed
|
|
|
|
|
Incorporated by Reference
|
|
Herewith
|
Exhibit
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
Exhibit
Description
|
|
|
Form
|
|
File No.
|
|
Exhibit
|
|
Filing Date
|
|
|
10.13*
|
|
Letter Agreement, dated May 22, 2014, by and
between Joseph Nachman and Yelp Inc.
|
|
8-K
|
|
001-35444
|
|
99.1
|
|
5/28/2014
|
|
|
10.14*
|
|
Amended and Restated Offer Letter, by and
between Yelp Inc. and Laurence Wilson, dated February 3, 2012.
|
|
S-1/A
|
|
333-178030
|
|
10.10
|
|
2/3/2012
|
|
|
10.15*
|
|
Offer Letter Agreement, dated March 27,
2007, by and between Yelp Inc. and Michael Stoppelman.
|
|
|
|
|
|
|
|
|
|
X
|
10.16*
|
|
Transition Agreement, dated February 17,
2017, by and between Yelp Inc. and Michael Stoppelman
|
|
8-K
|
|
001-35444
|
|
10.1
|
|
2/17/2017
|
|
|
10.17*
|
|
Amended and Restated Offer letter, by and
between Yelp Inc. and Geoff Donaker, dated February 3, 2012.
|
|
S-1/A
|
|
333-178030
|
|
10.7
|
|
2/3/2012
|
|
|
10.18*
|
|
Transition Agreement, dated August 8, 2016,
by and between Yelp Inc. and Geoff Donaker.
|
|
8-K
|
|
001-35444
|
|
10.1
|
|
8/9/2016
|
|
|
10.19*
|
|
Amended and Restated Offer Letter, by and
between Yelp Inc. and Rob Krolik, dated February 3, 2012.
|
|
S-1/A
|
|
333-178030
|
|
10.8
|
|
2/3/2012
|
|
|
10.20*
|
|
Transition Agreement, dated February 4,
2016, by and between Yelp Inc. and Rob Krolik
|
|
8-K
|
|
001-35444
|
|
10.1
|
|
2/8/2016
|
|
|
10.21*
|
|
Form of Restricted Stock Unit Agreement and
Notice.
|
|
8-K
|
|
001-35444
|
|
10.2
|
|
2/8/2016
|
|
|
10.22*
|
|
Compensation Information for Registrants
Executive Officers.
|
|
8-K
|
|
001-35444
|
|
|
|
2/17/2017
|
|
|
10.23
|
|
Amended and Restated Lease, dated April 1,
2015, by and between Stockdale Galleria Project Owner, LLC and Yelp Inc.;
First Amendment to Lease, dated July 30, 2015; Second Amendment to Lease,
dated April 22, 2016; Third Amendment to Lease, dated July 22,
2016.
|
|
|
|
|
|
|
|
|
|
X
|
10.24
|
|
License Agreement between Harrison 160, LLC,
as Licensor, and MRL Ventures Inc., as Licensee, dated as of April 6,
2004; Addendums through November 10, 2011.
|
|
S-1/A
|
|
333-178030
|
|
10.14
|
|
2/3/2012
|
|
|
10.25
|
|
Office Lease, dated May 9, 2012, by and
between Yelp Inc. and Stockbridge 138 New Montgomery LLC, as amended.
|
|
|
|
|
|
|
|
|
|
X
|
10.26
|
|
Lease, dated July 31, 2014, by and between
Yelp Inc. and 11 Madison Avenue LLC.
|
|
8-K
|
|
001-35444
|
|
10.1
|
|
8/6/2014
|
|
|
21.1
|
|
Subsidiaries of Yelp Inc.
|
|
|
|
|
|
|
|
|
|
X
|
23.1
|
|
Consent of Independent Registered Public
Accounting Firm.
|
|
|
|
|
|
|
|
|
|
X
|
24.1
|
|
Power of Attorney (included on signature
page).
|
|
|
|
|
|
|
|
|
|
X
|
31.1
|
|
Certification pursuant to Rule
13a-14(a)/15d-14(a).
|
|
|
|
|
|
|
|
|
|
X
|
31.2
|
|
Certification pursuant to Rule
13a-14(a)/15d-14(a).
|
|
|
|
|
|
|
|
|
|
X
|
32.1
|
|
Certifications of Chief Executive Officer
and Chief Financial Officer.
|
|
|
|
|
|
|
|
|
|
X
|
101.INS#
|
|
XBRL Instance Document.
|
|
|
|
|
|
|
|
|
|
X
|
101.SCH#
|
|
XBRL Taxonomy Extension Schema
Document.
|
|
|
|
|
|
|
|
|
|
X
|
71
Table of
Contents
|
|
|
|
|
|
|
|
|
|
|
|
Filed
|
|
|
|
|
Incorporated by
Reference
|
|
Herewith
|
Exhibit
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
Exhibit
Description
|
|
|
Form
|
|
File No.
|
|
Exhibit
|
|
Filing Date
|
|
|
101.CAL#
|
|
XBRL Taxonomy
Extension Calculation Linkbase Document.
|
|
|
|
|
|
|
|
|
|
X
|
101.DEF#
|
|
XBRL Taxonomy
Extension Definition Linkbase Document.
|
|
|
|
|
|
|
|
|
|
X
|
101.LAB#
|
|
XBRL Taxonomy
Extension Labels Linkbase Document.
|
|
|
|
|
|
|
|
|
|
X
|
101.PRE#
|
|
XBRL Taxonomy
Extension Presentation Linkbase Document.
|
|
|
|
|
|
|
|
|
|
X
|
*
|
|
Indicates management
contract or compensatory plan or arrangement.
|
|
|
The certifications
attached as Exhibit 32.1 accompany this Annual Report on Form 10-K, are
not deemed filed with the Securities and Exchange Commission and are not
to be incorporated by reference into any filing of Yelp Inc. under the
Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended, whether made before or after the date of this Annual
Report on Form 10-K, irrespective of any general incorporation language
contained in such filing.
|
72
Table of Contents
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
and
Stockholders of Yelp Inc.
San Francisco, California
We have audited the
accompanying consolidated balance sheets of Yelp Inc. and subsidiaries (the
"Company") as of December 31, 2016 and 2015, and the related consolidated
statements of operations, comprehensive income (loss), stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 2016.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statements based on
our audits.
We conducted our audits in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such
consolidated financial statements present fairly, in all material respects, the
financial position of Yelp Inc. and subsidiaries as of December 31, 2016 and
2015, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2016, in conformity with accounting
principles generally accepted in the United States of America.
We have also audited, in
accordance with the standards of the Public Company Accounting Oversight Board
(United States), the Company's internal control over financial reporting as of
December 31, 2016, based on the criteria established in
Internal Control Integrated Framework
(2013)
issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our report dated
March 1, 2017
expressed an unqualified opinion on the Company's internal
control over financial reporting.
DELOITTE & TOUCHE
LLP
San Francisco,
California
March 1, 2017
F-1
Table of
Contents
Yelp
Inc.
CONSOLIDATED BALANCE
SHEETS
(In thousands, except share data)
|
|
December 31,
|
|
December 31,
|
|
|
2016
|
|
2015
|
Assets
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
272,201
|
|
|
$
|
171,613
|
|
Short-term
marketable securities
|
|
|
207,332
|
|
|
|
199,214
|
|
Accounts
receivable (net of allowance for doubtful accounts of $4,992 and
$3,208
|
|
|
|
|
|
|
|
|
at
December 31, 2016 and December 31, 2015, respectively)
|
|
|
68,725
|
|
|
|
52,755
|
|
Prepaid
expenses and other current assets
|
|
|
12,921
|
|
|
|
19,700
|
|
Total
current assets
|
|
|
561,179
|
|
|
|
443,282
|
|
Property,
equipment and software, net
|
|
|
92,440
|
|
|
|
80,467
|
|
Goodwill
|
|
|
170,667
|
|
|
|
172,197
|
|
Intangibles,
net
|
|
|
32,611
|
|
|
|
39,294
|
|
Restricted
cash
|
|
|
17,317
|
|
|
|
16,486
|
|
Other
non-current assets
|
|
|
10,992
|
|
|
|
3,701
|
|
Total
assets
|
|
$
|
885,206
|
|
|
$
|
755,427
|
|
Liabilities and Stockholders
Equity
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
2,003
|
|
|
$
|
3,388
|
|
Accrued
liabilities
|
|
|
55,082
|
|
|
|
43,458
|
|
Deferred
revenue
|
|
|
3,314
|
|
|
|
2,931
|
|
Total
current liabilities
|
|
|
60,399
|
|
|
|
49,777
|
|
Long-term
liabilities
|
|
|
17,621
|
|
|
|
12,030
|
|
Total
liabilities
|
|
|
78,020
|
|
|
|
61,807
|
|
Commitments
and contingencies (Note 13)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common
stock, $0.000001 par value 200,000,000 and 500,000,000 shares
|
|
|
|
|
|
|
|
|
authorized,
79,429,833 and 75,982,802 shares issued and outstanding at
|
|
|
|
|
|
|
|
|
December
31, 2016 and December 31, 2015, respectively
|
|
|
-
|
|
|
|
-
|
|
Additional
paid-in capital
|
|
|
892,983
|
|
|
|
774,022
|
|
Accumulated
other comprehensive loss
|
|
|
(15,576
|
)
|
|
|
(13,519
|
)
|
Accumulated
deficit
|
|
|
(70,221
|
)
|
|
|
(66,883
|
)
|
Total
stockholders equity
|
|
|
807,186
|
|
|
|
693,620
|
|
Total
liabilities and stockholders equity
|
|
$
|
885,206
|
|
|
$
|
755,427
|
|
See notes to consolidated
financial statements.
F-2
Table of
Contents
Yelp
Inc.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(In thousands, except per share data)
|
|
Year Ended December
31,
|
|
|
2016
|
|
2015
|
|
2014
|
Net
revenue
|
|
$
|
713,069
|
|
|
$
|
549,711
|
|
|
$
|
377,536
|
Costs and
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenue (exclusive of depreciation and amortization
|
|
|
60,363
|
|
|
|
51,015
|
|
|
|
24,382
|
shown
separately below)
|
|
|
|
|
|
|
|
|
|
|
|
Sales
and marketing
|
|
|
382,854
|
|
|
|
301,764
|
|
|
|
201,050
|
Product
development
|
|
|
138,549
|
|
|
|
107,786
|
|
|
|
65,181
|
General
and administrative
|
|
|
97,481
|
|
|
|
80,866
|
|
|
|
58,274
|
Depreciation
and amortization
|
|
|
35,346
|
|
|
|
29,604
|
|
|
|
17,590
|
Restructuring
and integration
|
|
|
3,455
|
|
|
|
-
|
|
|
|
-
|
Total
costs and expenses
|
|
|
718,048
|
|
|
|
571,035
|
|
|
|
366,477
|
Income
(Loss) from operations
|
|
|
(4,979
|
)
|
|
|
(21,324
|
)
|
|
|
11,059
|
Other
income, net
|
|
|
1,694
|
|
|
|
386
|
|
|
|
221
|
Income
(Loss) before income taxes
|
|
|
(3,285
|
)
|
|
|
(20,938
|
)
|
|
|
11,280
|
Benefit from
(Provision for) income taxes
|
|
|
(1,385
|
)
|
|
|
(11,962
|
)
|
|
|
25,193
|
Net income
(loss) attributable to common stockholders (Class A and B)
|
|
$
|
(4,670
|
)
|
|
$
|
(32,900
|
)
|
|
$
|
36,473
|
Net income
(loss) per share attributable to common stockholders (Class A and
B)
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.06
|
)
|
|
$
|
(0.44
|
)
|
|
$
|
0.51
|
Diluted
|
|
$
|
(0.06
|
)
|
|
$
|
(0.44
|
)
|
|
$
|
0.48
|
Weighted-average shares used to compute net
income (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
attributable
to common stockholders (Class A and B)
(1)
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
77,186
|
|
|
|
74,683
|
|
|
|
71,936
|
Diluted
|
|
|
77,186
|
|
|
|
74,683
|
|
|
|
76,712
|
(1)
The structure of the Companys common stock
changed in the year ended December 31, 2016. Refer to Note 14 for
details.
See notes to consolidated
financial statements.
F-3
Table of Contents
Yelp
Inc.
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
|
|
Year Ended December
31,
|
|
|
2016
|
|
2015
|
|
2014
|
Net income
(loss)
|
|
$
|
(4,670
|
)
|
|
$
|
(32,900
|
)
|
|
$
|
36,473
|
|
Other
comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency
translation adjustments
|
|
|
(2,057
|
)
|
|
|
(7,910
|
)
|
|
|
(8,795
|
)
|
Other
comprehensive loss
|
|
|
(2,057
|
)
|
|
|
(7,910
|
)
|
|
|
(8,795
|
)
|
Comprehensive income (loss)
|
|
$
|
(6,727
|
)
|
|
$
|
(40,810
|
)
|
|
$
|
27,678
|
|
See notes to consolidated
financial statements
F-4
Table of
Contents
Yelp Inc.
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2014, 2015 AND 2016
(In
thousands, except share data)
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
Other
|
|
|
|
|
|
Total
|
|
|
Common Stock
|
|
Paid-In
|
|
Comprehensive
|
|
Accumulated
|
|
Stockholders'
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Income (Loss)
|
|
Deficit
|
|
Equity
|
BalanceDecember 31, 2013
|
|
70,874,493
|
|
|
$
|
-
|
|
$
|
553,753
|
|
|
$
|
3,186
|
|
|
$
|
(70,456
|
)
|
|
$
|
486,483
|
|
Issuance of common stock upon exercises of employee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock options
|
|
1,679,654
|
|
|
|
-
|
|
|
20,164
|
|
|
|
-
|
|
|
|
-
|
|
|
|
20,164
|
|
Issuance of common stock upon release
of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
restricted stock units
(RSUs)
|
|
90,656
|
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Issuance of common stock for employee stock purchase plan
|
|
279,538
|
|
|
|
-
|
|
|
8,869
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,869
|
|
Stock-based compensation (inclusive of
capitalized stock-based
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
compensation)
|
|
-
|
|
|
|
-
|
|
|
44,520
|
|
|
|
-
|
|
|
|
-
|
|
|
|
44,520
|
|
Repurchase of common stock from employees
|
|
(18,628
|
)
|
|
|
-
|
|
|
(1,318
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,318
|
)
|
Issuance of common stock in connection
with
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
acquisition of SeatMe,
Inc.
|
|
14,869
|
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Excess tax benefit from share-based award activity
|
|
-
|
|
|
|
-
|
|
|
1,754
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,754
|
|
Foreign currency translation
adjustment
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
|
(8,795
|
)
|
|
|
-
|
|
|
|
(8,795
|
)
|
Net
income
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
36,473
|
|
|
|
36,473
|
|
BalanceDecember 31, 2014
|
|
72,920,582
|
|
|
|
-
|
|
|
627,742
|
|
|
|
(5,609
|
)
|
|
|
(33,983
|
)
|
|
|
588,150
|
|
Issuance of common stock upon exercises of employee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock options
|
|
935,143
|
|
|
|
-
|
|
|
12,255
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,255
|
|
Issuance of common stock upon release
of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
restricted stock units
(RSUs)
|
|
422,981
|
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Issuance of common stock for employee stock purchase plan
|
|
312,697
|
|
|
|
-
|
|
|
8,911
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,911
|
|
Stock-based compensation (inclusive of
capitalized stock-based
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
compensation)
|
|
-
|
|
|
|
-
|
|
|
63,887
|
|
|
|
-
|
|
|
|
-
|
|
|
|
63,887
|
|
Repurchase of common stock from employees
|
|
(12,022
|
)
|
|
|
-
|
|
|
(482
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(482
|
)
|
Issuance of common stock in connection
with
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
acquisition of SeatMe,
Inc.
|
|
577
|
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Issuance of common stock in connection with
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
acquisition of
Eat24Hours.com, Inc.
|
|
1,402,844
|
|
|
|
-
|
|
|
59,158
|
|
|
|
-
|
|
|
|
-
|
|
|
|
59,158
|
|
Excess tax benefit from share-based award
activity
|
|
-
|
|
|
|
-
|
|
|
2,551
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,551
|
|
Foreign currency translation adjustment
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
|
(7,910
|
)
|
|
|
-
|
|
|
|
(7,910
|
)
|
Net loss
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
(32,900
|
)
|
|
|
(32,900
|
)
|
BalanceDecember 31, 2015
|
|
75,982,802
|
|
|
|
-
|
|
|
774,022
|
|
|
|
(13,519
|
)
|
|
|
(66,883
|
)
|
|
|
693,620
|
|
Cumulative effect adjustment upon
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
adoption of ASU
2016-09
(1)
|
|
-
|
|
|
|
-
|
|
|
(1,163
|
)
|
|
|
-
|
|
|
|
1,332
|
|
|
|
169
|
|
Issuance of common stock upon exercises of employee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock options
|
|
1,290,836
|
|
|
|
-
|
|
|
20,599
|
|
|
|
-
|
|
|
|
-
|
|
|
|
20,599
|
|
Issuance of common stock upon release
of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
restricted stock units
(RSUs)
|
|
1,814,138
|
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Issuance of common stock for employee stock purchase plan
|
|
342,057
|
|
|
|
-
|
|
|
8,923
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,923
|
|
Stock-based compensation (inclusive of
capitalized stock-based
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
compensation)
|
|
-
|
|
|
|
-
|
|
|
90,602
|
|
|
|
-
|
|
|
|
-
|
|
|
|
90,602
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
adjustment
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
|
(2,057
|
)
|
|
|
-
|
|
|
|
(2,057
|
)
|
Net loss
|
|
-
|
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,670
|
)
|
|
|
(4,670
|
)
|
BalanceDecember 31, 2016
|
|
79,429,833
|
|
|
$
|
-
|
|
$
|
892,983
|
|
|
$
|
(15,576
|
)
|
|
$
|
(70,221
|
)
|
|
$
|
807,186
|
|
(1)
Adopted on a modified retrospective basis; refer
to significant accounting policies in Note 2 for details regarding this
adoption.
See notes to consolidated
financial statements.
F-5
Table of
Contents
Yelp
Inc.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In thousands)
|
|
Year Ended December
31,
|
|
|
2016
|
|
2015
|
|
2014
|
OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(4,670
|
)
|
|
$
|
(32,900
|
)
|
|
$
|
(36,473
|
)
|
Adjustments
to reconcile net loss to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
35,346
|
|
|
|
29,604
|
|
|
|
17,590
|
|
Provision
for doubtful accounts and sales returns
|
|
|
17,261
|
|
|
|
16,788
|
|
|
|
7,238
|
|
Stock-based
compensation
|
|
|
86,261
|
|
|
|
60,842
|
|
|
|
42,273
|
|
Recording
(release) of valuation allowance
|
|
|
1,351
|
|
|
|
20,341
|
|
|
|
(28,197
|
)
|
Loss
on disposal of assets
|
|
|
277
|
|
|
|
213
|
|
|
|
4
|
|
Premium
amortization, net, on marketable securities
|
|
|
1,348
|
|
|
|
1,190
|
|
|
|
349
|
|
Excess
tax benefit from stock-based award activity
|
|
|
-
|
|
|
|
(6,583
|
)
|
|
|
(1,834
|
)
|
Realized
gain on investments
|
|
|
-
|
|
|
|
(4
|
)
|
|
|
-
|
|
Changes in
operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(31,624
|
)
|
|
|
(25,279
|
)
|
|
|
(21,291
|
)
|
Prepaid
expenses and other assets
|
|
|
5,687
|
|
|
|
(22,703
|
)
|
|
|
(4,011
|
)
|
Accounts
payable, accrued expenses and other liabilities
|
|
|
15,278
|
|
|
|
15,894
|
|
|
|
(8,927
|
)
|
Deferred
revenue
|
|
|
385
|
|
|
|
(41
|
)
|
|
|
411
|
|
Net
cash provided by operating activities
|
|
|
126,900
|
|
|
|
57,362
|
|
|
|
57,932
|
|
INVESTING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
of marketable securities
|
|
|
(274,965
|
)
|
|
|
(246,160
|
)
|
|
|
(210,459
|
)
|
Maturities
of marketable securities
|
|
|
265,500
|
|
|
|
202,870
|
|
|
|
53,002
|
|
Purchase
of cost-method investment
|
|
|
(8,000
|
)
|
|
|
-
|
|
|
|
-
|
|
Acquisition,
net of cash received
|
|
|
-
|
|
|
|
(73,422
|
)
|
|
|
(14,340
|
)
|
Purchases
of property, equipment and software
|
|
|
(22,994
|
)
|
|
|
(31,127
|
)
|
|
|
(29,054
|
)
|
Proceeds
from sale of property, equipment and software
|
|
|
88
|
|
|
|
134
|
|
|
|
14
|
|
Capitalized
website and software development costs
|
|
|
(14,191
|
)
|
|
|
(11,734
|
)
|
|
|
(11,349
|
)
|
Purchases
of intangible assets
|
|
|
(179
|
)
|
|
|
(647
|
)
|
|
|
(1,724
|
)
|
Changes
in restricted cash
|
|
|
(831
|
)
|
|
|
1,404
|
|
|
|
(14,764
|
)
|
Net
cash used in investing activities
|
|
|
(55,572
|
)
|
|
|
(158,682
|
)
|
|
|
(228,674
|
)
|
FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of common stock for employee stock-based plans
|
|
|
29,522
|
|
|
|
21,166
|
|
|
|
29,033
|
|
Excess
tax benefit from share-based award activity
|
|
|
-
|
|
|
|
6,583
|
|
|
|
1,834
|
|
Repurchase
of common stock
|
|
|
-
|
|
|
|
(482
|
)
|
|
|
(1,318
|
)
|
Contingent
consideration payment
|
|
|
-
|
|
|
|
(825
|
)
|
|
|
-
|
|
Net
cash provided by financing activities
|
|
|
29,522
|
|
|
|
26,442
|
|
|
|
29,549
|
|
EFFECT OF
EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
|
|
|
(262
|
)
|
|
|
(821
|
)
|
|
|
(1,259
|
)
|
CHANGE IN
CASH AND CASH EQUIVALENTS
|
|
|
100,588
|
|
|
|
(75,699
|
)
|
|
|
(142,452
|
)
|
CASH AND
CASH EQUIVALENTSBeginning of period
|
|
|
171,613
|
|
|
|
247,312
|
|
|
|
389,764
|
|
CASH AND
CASH EQUIVALENTSEnd of period
|
|
$
|
272,201
|
|
|
$
|
171,613
|
|
|
$
|
247,312
|
|
SUPPLEMENTAL
DISCLOSURES OF OTHER CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for income taxes, net of refunds
|
|
$
|
813
|
|
|
$
|
352
|
|
|
$
|
1,972
|
|
SUPPLEMENTAL
DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
of property, equipment and software recorded in accounts payable and
accrued liabilities
|
|
$
|
989
|
|
|
$
|
2,233
|
|
|
$
|
6,543
|
|
Goodwill
measurement period adjustment
|
|
|
146
|
|
|
|
(255
|
)
|
|
|
-
|
|
Contingent
consideration related to acquisitions
|
|
|
-
|
|
|
|
-
|
|
|
|
(835
|
)
|
Issuance
of common stock in connection with acquisition
|
|
|
-
|
|
|
|
59,158
|
|
|
|
-
|
|
See notes to consolidated
financial statements.
F-6
Table of Contents
Yelp
Inc.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
YEARS
ENDED DECEMBER 31, 2016, 2015 AND 2014
1. ORGANIZATION AND
DESCRIPTION OF BUSINESS
Yelp Inc. was incorporated
in Delaware on September 3, 2004. Except where specifically noted or the context
otherwise requires, the use of terms such as the Company and Yelp in these
Notes to Consolidated Financial Statements refers to Yelp Inc. and its
subsidiaries.
Yelp connects people with
great local businesses by bringing word of mouth online and providing a
platform for businesses and consumers to engage and transact. Yelps platform is
transforming the way people discover local businesses; every day, millions of
consumers visit its website or use its mobile app to find great local businesses
to meet their everyday needs. Businesses of all sizes use the Yelp platform to
engage with consumers at the critical moment when they are deciding where to
spend their money.
The Company consists of
Yelp Inc. and 15 wholly-owned entities. Yelp UK Ltd was incorporated on December
1, 2008, Darwin Social Marketing Inc. was
incorporated on February 24, 2009, Yelp Ireland Limited was incorporated on May
31, 2010, Yelp Ireland Holding Company Limited was incorporated on June 16,
2010, Yelp France SAS was incorporated on July 8, 2010, Yelp Italia S.r.l. was
incorporated on June 27, 2011, Yelp Australia Pty. Ltd was incorporated on
August 9, 2011, Yelp Spain, S.L. was incorporated on May 4, 2012, Yelp Singapore
PTE Ltd was incorporated on June 15, 2012, Yelp Brazil Serviços de Marketing
Ltda. was incorporated on May 29, 2013, Yelp Japan, G.K. was incorporated on
September 20, 2013 and Darwin Sweden AB was incorporated on September 4, 2014.
Yelp GmbH (formerly Qype GmbH)
and
Qype SARL (collectively, Qype) were acquired on
October 23, 2012. Eat24, LLC (the successor to Eat24Hours.com, Inc.) (Eat24)
was acquired on February 9, 2015 (see Note 5). The financial results of these
subsidiaries are included within the consolidated financial statements of the
Company presented herein.
Basis of
Presentation
The consolidated
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America (GAAP). All intercompany
balances and transactions have been eliminated in consolidation.
Certain Significant
Risks and Uncertainties
The
Company operates in a dynamic industry and, accordingly, can be affected by a
variety of factors. For example, the Companys management believes that changes
in any of the following areas could have a significant negative impact on the
Company in terms of its future financial position, results of operations or cash
flows: rates of revenue growth; traffic to the Companys websites and mobile
applications and the number of reviews and advertisers they attract; reliance on
search engines and the placement and prominence in results rankings; the quality
and reliability of reviews; scaling and adaptation of existing technology and
network infrastructure; management of the Companys growth; expansion of Yelp
communities; protection of the Companys brand, reputation and intellectual
property; industry competition; qualified employees and key personnel;
intellectual property infringement and other claims; and changes in government
regulation affecting the Companys business, among other things.
2. SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
Use of
Estimates
The preparation of the
Companys consolidated financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
income and expenses during the reporting period. These estimates are based on
information available as of the date of the consolidated financial statements;
therefore, actual results could differ from managements estimates.
Foreign Currency
Translation
The consolidated
financial statements of the Companys foreign subsidiaries are measured using
the local currency as the functional currency. Assets and liabilities of foreign
subsidiaries are translated at exchange
rates in effect as of the balance sheet date. Revenues and expenses are
translated at average exchange rates in effect during the year. Translation
adjustments are recorded within accumulated other comprehensive loss, a separate
component of stockholders equity.
F-7
Table of Contents
Cash and Cash
Equivalents
The Company considers
all highly liquid investments, such as treasury bills, commercial paper,
certificates of deposit and money market instruments with maturities of three
months or less at the time of acquisition to be cash equivalents. Cash and cash
equivalents primarily consist of amounts held in interest-bearing money market
funds that were readily convertible to cash. The fair value of cash and cash
equivalents approximates their carrying value.
Marketable
Securities
The Company determines
the classification of its marketable securities at the time of purchase and
re-evaluates these determinations at each balance sheet date. Debt securities
are classified as held-to-maturity when the Company has the positive intent and
ability to hold the securities to maturity. Held-to-maturity securities are
stated at amortized cost and are periodically assessed for other-than-temporary
impairment. Amortized cost of debt securities is adjusted for amortization of
premiums and accretion of discounts to maturity, and is included in interest
income. Held-to-maturity securities with less than one year to maturity are
included in short-term marketable securities. All other held-to-maturity
securities are classified as long-term securities.
Concentrations of Credit
Risk
Financial instruments that
potentially subject the Company to concentration of credit risk consist
primarily of cash and cash equivalents and accounts receivable. The Company
places its cash and cash equivalents with major financial institutions, which
management assesses to be of high credit quality, in order to limit the exposure
of each investment.
Credit risk with respect to
accounts receivable is dispersed due to the Companys large number of customers.
In addition, the Companys credit risk is mitigated by the relatively short
collection period. Collateral is not required for accounts receivable. The
Company maintains an allowance for doubtful accounts receivable balances. The
allowance is based upon historical loss patterns, the number of days that
billings are past due and an evaluation of the potential risk of loss associated
with delinquent accounts. When new information becomes available to indicate
that the estimate provided for the allowance was incorrect, an adjustment, which
is considered a change in the estimate, is made. The carrying value of accounts
receivable approximates their fair value.
As of December 31, 2016,
2015 and 2014, there were no customers that accounted for more than 10% of total
accounts receivable.
The following table
presents the changes in the allowance for doubtful accounts (in thousands):
|
|
Year Ended December
31,
|
|
|
2016
|
|
2015
|
|
2014
|
Allowance
for doubtful accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
beginning of period
|
|
$
|
3,208
|
|
|
$
|
1,627
|
|
|
$
|
810
|
|
Add:
bad debt expense
|
|
|
15,913
|
|
|
|
10,271
|
|
|
|
6,369
|
|
Less:
write-offs, net of recoveries
|
|
|
(14,129
|
)
|
|
|
(8,690
|
)
|
|
|
(5,552
|
)
|
Balance, end
of period
|
|
$
|
4,992
|
|
|
$
|
3,208
|
|
|
$
|
1,627
|
|
Property, Equipment and
Software
Property, equipment and
software are stated at cost less accumulated depreciation and amortization.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, which are approximately three to five years.
Leasehold improvements are amortized over the shorter of the lease term or 10
years.
Website and Internal-Use
Software Development Costs
Costs
related to website and internal-use software are primarily related to the
Companys website, including support systems. The Company capitalizes its 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. Such costs are amortized on a straight-line basis over the estimated
useful life of the related asset, which is generally three years.
Costs incurred prior to meeting these criteria, together with costs incurred for
training and maintenance, are expensed as incurred. 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.
F-8
Table of Contents
The Company capitalized
$19.2 million, $14.7 million and $13.9 million in website and internal-use
software costs during the years ended December 31, 2016, 2015 and 2014,
respectively, which are included in property, equipment and software, net on the
consolidated balance sheets. Amortization expense related to website and
internal-use software was $12.3 million, $8.4 million and $4.6 million for the
years ended December 31, 2016, 2015 and 2014, respectively.
The Company wrote off $0.1
million, $0.1 million and $0.0 million of website and internal-use software
costs in the years ended December 31, 2016, 2015 and 2014, respectively. The
retirements were related to obsolete projects no longer supported by the
Company. The loss on disposition of the projects has been included in
depreciation and amortization expense in the Companys consolidated statements
of operations.
Business
Combinations
The Company accounts
for acquisitions of entities that include inputs and processes and have the
ability to create outputs as business combinations. The Company allocates the
purchase price of the acquisition to the tangible assets, liabilities and
identifiable intangible assets acquired based on their estimated fair values.
The excess of the purchase price over those fair values is recorded as goodwill.
Acquisition-related expenses and integration costs are expensed as incurred.
During the measurement period, the Company records adjustments to the assets
acquired and liabilities assumed with the corresponding offset to goodwill.
After the measurement period, which could be up to one year after the
transaction date, subsequent adjustments are recorded to the Companys
consolidated statements of operations.
Goodwill
Goodwill represents the excess of the purchase
price in a business combination over the fair value of net tangible and
intangible assets acquired. The carrying amount of goodwill is reviewed at least
annually, or more frequently if events or changes in circumstances indicate that
the carrying value of goodwill may not be recoverable. The Company has the
option to first assess qualitative factors to determine whether it is more
likely than not that the fair value of its single reporting operating unit is
less than its carrying amount as a basis for determining whether it is necessary
to perform the two-step goodwill impairment test under the authoritative
guidance issued by the Financial Accounting Standards Board (FASB). If the
Company determines that it is more likely than not that its fair value is less
than the carrying amount, or opts not to perform a qualitative assessment, then
the two-step goodwill impairment test will be performed. The first step,
identifying a potential impairment, compares the fair value of the reporting
unit with its carrying amount. If the carrying amount exceeds its fair value,
the second step will be performed; otherwise, no further step is required. The
second step, measuring the impairment loss, compares the implied fair value of
the goodwill with the carrying amount of the goodwill. Any excess of the
goodwill carrying amount over the applied fair value is recognized as an
impairment loss, and the carrying value of goodwill is written down to fair
value. No impairment charges have been recorded to date.
Intangible
Assets
Intangible assets include
acquired intangible assets identified through business combinations, which are
carried at fair value less accumulated amortization, and purchased intangible
assets, which are carried at cost less accumulated amortization. Amortization is
recorded over the estimated useful lives of the assets, generally two years to
12 years. The Company reviews amortizable intangible assets to be held and used
for impairment whenever events or changes in circumstances indicate that the
carrying value of the assets may not be recoverable. Determination of
recoverability is based on the lowest level of identifiable estimated
undiscounted cash flows resulting from the use of the asset and its eventual
disposition. Measurement of any impairment loss is based on the excess of the
carrying value of the asset over its fair value. No impairment charges have been
recorded to date.
Cost-Method
Investments
Nonmarketable equity
investments, that the Company has determined do not meet the criteria for
accounting under the equity method of accounting, are accounted for using the
cost method of accounting and classified as Other non-current assets on the
consolidated balance sheets. Under the cost method, investments are carried at
cost and are adjusted only for other-than-temporary declines in fair value,
certain distributions and additional investments. The carrying amount of
investments is reviewed if events or changes in circumstances indicate that the
carrying value may not be recoverable.
F-9
Table of Contents
Impairment of Long-Lived
Assets and Long-Lived Assets to Be Disposed of
The Company evaluates its long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an
asset to future undiscounted net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment to be
recognized is measured as the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to sell.
Revenue
Recognition
The Company generates
revenue from its advertising products, transactions, other services and, through
the end of 2015, brand advertising. The Company recognizes revenue when all of
the following conditions are met: there is persuasive evidence of an
arrangement, service has been provided to the customer, the amount to be paid by
the customer is fixed or determinable, and collection is reasonably assured.
Payments received in advance of services being rendered are recorded as deferred
revenue and recognized over the requisite service period.
Advertising
. The Company
generates advertising revenue primarily through the display of advertising
products on its website and mobile app. These arrangements are evidenced by
either written or electronic acceptance of an agreement that stipulates the
types of advertising to be delivered, the timing and pricing. Performance-based
advertising placements are priced on a cost-per-click basis through an auction,
while impression-based ads are delivered pursuant to fixed monthly fee
advertising plans. The Company recognizes revenue from the delivery of
performance-based ads in the period of delivery and from the delivery of
impression-based ads ratably over the service period, in each case net of
customer discounts. The Company also generates advertising revenue through
indirect sales of advertising products, such as through reseller
agreements that allow partners to sell Yelp Branded Profiles to their clients
and the monetization of remnant advertising inventory through third-party ad
networks.
Transactions
. The Company
generates transactions revenue from Yelp Eat24, revenue-sharing partner arrangements
and the sale of vouchers through the Companys Yelp Deals and Gift
Certificates. Yelp Eat24 generates revenue through
arrangements with restaurants, in which restaurants pay a commission percentage
fee on orders placed through the Yelp Eat24 platform. The Company records revenue
associated with Yelp Eat24 transactions on a net basis. Yelp Platform partnerships provide consumers with the ability to complete food delivery and
other transactions through third parties directly on Yelp. The Company earns a fee on Platform partnerships for acting as an agent for these transactions, which it record on a net basis and include in revenue upon completion of a transaction. Yelp Deals allow
merchants to promote themselves and offer discounted goods and services on a
real-time basis to consumers directly on the Companys website and mobile app.
The Company earns a fee on Yelp Deals for acting as an agent in these
transactions, which are recorded on a net basis and included in revenue upon
sale of the deal. The Company records a sales allowance for potential Yelp Deals
refunds based on the Companys estimate of future refunds. Gift Certificates
allow merchants to sell full-priced gift certificates directly to consumers
through their business listing pages. The Company earns a fee based on the
amount of the Gift Certificate sold, which it records on a net basis and
includes in revenue upon a consumers purchase of the Gift Certificate.
Brand Advertising.
Through the end of 2015, the
Company generated brand advertising revenue through the sale of graphic and text
display advertisements on its website. The Company recognized revenue from the
sale of impression-based advertisements on its online network in the period in
which the advertisements (impressions) were delivered, net of customer
discounts. The Company also generated brand revenue from fixed-price brand
sponsorships that were recognized ratably over the service period. The
arrangements were evidenced by insertion orders or contracts that stipulate the
types of advertising delivered and the pricing.
Other
Services
. The Company generates
other revenue through subscription services, such as sales of monthly
subscriptions to its Yelp Reservations product, licensing payments for access to
Yelp data and other non-advertising, non-transaction partnerships. Subscription
revenues are recognized ratably over the contract terms beginning on the
commencement date of each contract, which is the date the service is made
available to customers.
Multiple Element
Arrangements
. The Company enters
into arrangements with its customers to sell advertising packages that include
different media placements or ad services that are delivered at the same time,
or within close proximity of one another.
F-10
Table of Contents
The Company allocates
arrangement consideration in multiple-deliverable arrangements at the inception
of the arrangement to all deliverables or those packages in which all components
of the package are delivered at the same time, based on the relative selling
price method in accordance with the selling price hierarchy, which includes: (1)
vendor-specific objective evidence (VSOE), if available; (2) third-party
evidence (TPE), if VSOE is not available; and (3) best estimate of selling
price (BESP), if neither VSOE nor TPE is available.
VSOEThe Company determines
VSOE based on its historical pricing and discounting practices for the specific
product or service when sold separately. In determining VSOE, the Company
requires that a substantial majority of the standalone selling prices for these
services fall within a reasonably narrow price range; however, the Company has
not historically sold a large volume of advertising products on a standalone
basis. As a result, the Company has not been able to establish VSOE for any of
its advertising products.
TPEWhen VSOE cannot be
established for deliverables in multiple element arrangements, the Company
applies judgment with respect to whether it can establish a selling price based
on TPE. TPE is determined based on competitor prices for similar deliverables
when sold separately. Generally, the Companys go-to-market strategy differs
from that of its peers and its offerings contain a significant level of
differentiation such that the comparable pricing of services cannot be obtained.
Furthermore, the Company is unable to reliably determine what similar competitor
services selling prices are on a standalone basis. As a result, the Company has
not been able to establish selling price based on TPE.
BESPWhen it is unable to
establish selling price using VSOE or TPE, the Company uses BESP in its
allocation of arrangement consideration. The objective of BESP is to determine
the price at which the Company would transact a sale if the service were sold on
a standalone basis. BESP is generally used to allocate the selling price to
deliverables in the Companys multiple element arrangements. The Company
determines BESP for deliverables by considering multiple factors including, but
not limited to, prices it charges for similar offerings, market conditions,
competitive landscape and pricing practices. The Company limits the amount of
allocable arrangement consideration to amounts that are fixed or determinable
and that are not contingent on future performance or future deliverables. The
Company will regularly review BESP. Changes in assumptions or judgments or
changes to elements in the arrangement could cause a material increase or
decrease in the amount of revenue that the Company reports in a particular
period.
The Company recognizes the
relative fair value of the media placements or ad services as they are delivered
assuming all other revenue recognition criteria are met.
Cost of
Revenue
The Companys cost of
revenue primarily consists of credit card processing fees, web hosting,
salaries, benefits and stock-based compensation expense for its infrastructure
teams related to operating the Companys website and mobile app. It also
includes food delivery related costs as well as creative design for brand
advertising and video production expenses. All costs are expensed when incurred.
Stock-Based
Compensation
The Company accounts
for stock-based employee compensation plans under the fair value recognition and
measurement provisions in accordance with applicable accounting standards, which
require all stock-based payments to employees, including grants of stock
options, restricted stock awards, restricted stock units and issuances under its
2012 Employee Stock Purchase Plan, as amended (ESPP), to be measured based on
the grant-date fair value of the awards.
Prior to January 1, 2016,
stock-based compensation expense was recorded net of estimated forfeitures in
the Companys consolidated statements of income (loss) and, accordingly, was
recorded for only those stock-based awards that the Company expected to vest.
The Company estimated the forfeiture rate based on historical forfeitures of
equity awards and adjusted the rate to reflect changes in facts and
circumstances, if any. The Company revised its estimated forfeiture rate if
actual forfeitures differed from its initial estimates.
Effective as of January 1,
2016, the Company adopted a change in accounting policy in accordance with
Accounting Standards Update 2016-09, CompensationStock Compensation (Topic
718) (ASU 2016-09) to account for forfeitures as they occur. The change was
applied on a modified retrospective basis with a cumulative effect adjustment to
retained earnings of $1.1 million (which reduced the accumulated deficit) as of
January 1, 2016. No prior periods were recast as a result of this change in
accounting policy.
F-11
Table of Contents
Advertising
Expenses
Advertising costs are expensed in the period in which the advertising takes place. Costs of producing
advertising are expensed in the period in which production takes place. Total advertising expenses incurred
were $46.9 million, $30.9 million and $8.1 million for the years ended December
31, 2016, 2015 and 2014, respectively.
Comprehensive Income
(Loss)
Comprehensive income
(loss) consists of net income (loss) and other comprehensive income (loss),
which includes certain changes in equity that are excluded from net income
(loss). Specifically, it includes foreign currency translation adjustments.
Income
Taxes
The Company records 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 the Companys financial statements or tax
returns. In estimating future tax consequences, generally all expected future
events other than enactments or changes in the tax law or rates are considered.
Valuation allowances are provided to reduce deferred tax assets to the amount
that is more likely than not to be realized.
The Company operates in
various tax jurisdictions and is subject to audit by various tax authorities.
The Company provides 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.
The Company recognizes 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.
Effective as of January 1,
2016, the Company early adopted a change in accounting policy in accordance with
ASU 2016-09, which eliminated the requirement that excess tax benefits be
realized as a reduction in current taxes payable before the associated tax
benefit could be recognized as an increase in paid in capital. Under ASU
2016-09, these previously unrecognized deferred tax assets were recognized on a
modified retrospective basis as of January 1, 2016, the start of the year in
which the Company early adopted ASU 2016-09. The U.S. federal and state net
operating losses and credits recognized as of January 1, 2016, as described
above, have been offset by a valuation allowance. As a result, only the Ireland
net operating losses resulted in a cumulative-effect adjustment to retained
earnings of $0.2 million (which reduced the accumulated deficit) as of January
1, 2016. Additionally, ASU 2016-09 addresses the presentation of excess tax
benefits and employee taxes paid on the statement of cash flows. The Company is
now required to present excess tax benefits as an operating activity in the same
manner as other cash flows related to income taxes on the statement of cash
flows rather than as a financing activity. The Company adopted this change
prospectively.
Employee Benefit
Plan
The Company sponsors a
qualified 401(k) defined contribution plan covering eligible employees.
Participants may contribute a portion of their annual compensation up to a
maximum annual amount set by the Internal Revenue Service (IRS). Employer
contributions under this plan were $3.8 million, $2.9 million and $1.9 million
for the years ended December 31, 2016, 2015 and 2014, respectively.
Recent Accounting
Pronouncements Not Yet Effective
In May 2014, the Financial Accounting Standards
Board (“FASB”) issued Accounting Standards Update 2014-09 “Revenue from Contracts with Customers”
(“ASU 2014-09”). ASU 2014-09 supersedes the revenue recognition requirements in “Revenue Recognition
(Topic 605),” and requires entities to recognize revenue when they transfer promised goods or services to
customers, in an amount that reflects the consideration that the entity expects to be entitled to in exchange for
such goods or services. As currently issued and amended, ASU 2014-09 is effective for annual reporting periods
beginning after December 15, 2017, including interim periods within that reporting period, though early
adoption is permitted for annual reporting periods beginning after December 15, 2016. In December 2016, the
FASB issued guidance on Technical Corrections and Improvements to Topic 606, Revenue from Contracts with
Customers.
F-12
Table of Contents
The new revenue standard may be applied retrospectively to each prior period presented "
full retrospective
", or retrospectively with the
cumulative effect recognized as of the date of adoption- "
modified retrospective
". The Company expects the requirement to defer incremental
contract acquisition costs and recognize them over the contract period or expected customer life will result in the recognition of a deferred
charge on our balance sheets. The Company is currently in the process of evaluating the impact of the adoption of ASU 2014-09 and the
related implementation guidance on its consolidated financial statements.
In January 2016, FASB
issued Accounting Standards Update 2016-01, Recognition and Measurement of
Financial Assets and Financial Liabilities (Subtopic 825-10) (ASU 2016-01).
The new standard provides guidance for the recognition, measurement,
presentation and disclosure of financial instruments. This guidance is effective
for annual and interim periods beginning after December 15, 2017 and early
adoption is not permitted. The Company is currently evaluating the impact of the
adoption of ASU 2016-01 on its consolidated financial statements.
In February 2016, FASB
issued Accounting Standards Update No. 2016-02, Leases (ASU 2016-02). The
new guidance generally requires an entity to recognize on its balance sheet
operating and financing lease liabilities and corresponding right-of-use assets.
The standard will be effective for the first interim period within annual
reporting periods beginning after December 15, 2018 and early adoption is
permitted. The new standard requires a modified retrospective transition for
existing leases to each prior reporting period presented. The Company is
currently evaluating the impact of the adoption of ASU 2016-02 on its
consolidated financial statements.
In August 2016, FASB issued
Accounting Standards Update No. 2016-15, Statement of Cash Flows (Subtopic
230) (ASU 2016-15). The new guidance provides clarity around the cash flow
classification for specific issues in an effort to reduce the current and
potential future diversity in practice. The standard will be effective for the
first interim period within annual reporting periods beginning after December
15, 2017 and early adoption is permitted. The Company is currently evaluating
the impact of the adoption of ASU 2016-15 on its consolidated financial
statements.
In November 2016, FASB
issued Accounting Standards Update No. 2016-18, Statement of Cash Flows
(Subtopic 230) (ASU 2016-18). The new guidance requires that the statement of
cash flows explain the change during the period in the total of cash, cash
equivalents, and amounts generally described as restricted cash or restricted
cash equivalents. The standard will be effective for the first interim period
within annual reporting periods beginning after December 15, 2017 and early
adoption is permitted. The Company is currently evaluating the impact of the
adoption of ASU 2016-18 on its consolidated financial statements.
3. FAIR VALUE OF
FINANCIAL INSTRUMENTS
The Companys investments
in money market accounts are recorded as cash equivalents at fair value in the
consolidated financial statements. All other financial instruments are
classified as held-to-maturity investments and, accordingly, are recorded at
amortized cost; however, the Company is required to determine the fair value of
these investments on a recurring basis to identify any potential impairment. The
accounting guidance for fair value measurements prioritizes the inputs used in
measuring fair value in the following hierarchy:
Level 1
Observable inputs, such as quoted prices in
active markets,
Level 2
Inputs other than quoted prices in active markets
that are observable either directly or indirectly, or
Level 3
Unobservable inputs in which there are little or
no market data, which require the Company to develop its own assumptions.
This hierarchy requires the
Company to use observable market data, when available, to minimize the use of
unobservable inputs when determining fair value. The Companys money market
funds are classified within Level 1 of the fair value hierarchy because they are
valued using quoted prices in active markets. The Companys commercial paper,
corporate bonds, agency bonds and agency discount notes are classified within
Level 2 of the fair value hierarchy because they have been valued using inputs
other than quoted prices in active markets that are observable directly or
indirectly.
F-13
Table of Contents
The following table
represents the Companys financial instruments measured at fair value as of
December 31, 2016 and December 31, 2015 (in thousands):
|
|
December 31,
2016
|
|
December 31,
2015
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Cash
Equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money
market funds
|
|
$
|
152,423
|
|
$
|
-
|
|
$
|
-
|
|
$
|
152,423
|
|
$
|
86,660
|
|
$
|
-
|
|
$
|
-
|
|
$
|
86,660
|
Agency
bonds
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
4,999
|
|
|
-
|
|
|
4,999
|
Marketable Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
paper
|
|
|
-
|
|
|
45,894
|
|
|
-
|
|
|
45,894
|
|
|
-
|
|
|
36,981
|
|
|
-
|
|
|
36,981
|
Corporate
bonds
|
|
|
-
|
|
|
9,006
|
|
|
-
|
|
|
9,006
|
|
|
-
|
|
|
18,024
|
|
|
-
|
|
|
18,024
|
Agency
bonds
|
|
|
-
|
|
|
152,394
|
|
|
-
|
|
|
152,394
|
|
|
-
|
|
|
132,102
|
|
|
-
|
|
|
132,102
|
Agency
discount notes
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
11,986
|
|
|
-
|
|
|
11,986
|
Total cash equivalents and marketable
securities
|
|
$
|
152,423
|
|
$
|
207,294
|
|
$
|
-
|
|
$
|
359,717
|
|
$
|
86,660
|
|
$
|
204,092
|
|
$
|
-
|
|
$
|
290,752
|
4. MARKETABLE SECURITIES
The amortized cost, gross
unrealized gains and losses, and fair value of securities held-to-maturity, all
of which mature within one year, as of December 31, 2016 and December 31, 2015
were as follows (in thousands):
|
|
As of December 31,
2016
|
|
|
|
|
Gross
|
|
Gross
|
|
|
|
|
|
|
|
Unrealized
|
|
Unrealized
|
|
|
|
|
|
Amortized
Cost
|
|
Gains
|
|
Losses
|
|
Fair
Value
|
Short-term marketable
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
paper
|
|
$
|
45,894
|
|
$
|
-
|
|
$
|
-
|
|
|
$
|
45,894
|
Corporate
bonds
|
|
|
9,009
|
|
|
-
|
|
|
(3
|
)
|
|
|
9,006
|
Agency
bonds
|
|
|
152,429
|
|
|
18
|
|
|
(53
|
)
|
|
|
152,394
|
Total marketable securities
|
|
$
|
207,332
|
|
$
|
18
|
|
$
|
(56
|
)
|
|
$
|
207,294
|
|
|
|
As of December 31,
2015
|
|
|
|
|
Gross
|
|
Gross
|
|
|
|
|
|
|
|
Unrealized
|
|
Unrealized
|
|
|
|
|
|
Amortized
Cost
|
|
Gains
|
|
Losses
|
|
Fair
Value
|
Short-term marketable
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
paper
|
|
$
|
36,981
|
|
$
|
-
|
|
$
|
-
|
|
|
$
|
36,981
|
Corporate
bonds
|
|
|
18,027
|
|
|
2
|
|
|
(5
|
)
|
|
|
18,024
|
Agency
bonds
|
|
|
132,224
|
|
|
-
|
|
|
(122
|
)
|
|
|
132,102
|
Agency
discount notes
|
|
|
11,982
|
|
|
4
|
|
|
-
|
|
|
|
11,986
|
Total marketable securities
|
|
$
|
199,214
|
|
$
|
6
|
|
$
|
(127
|
)
|
|
$
|
199,093
|
F-14
Table of Contents
The following tables
present gross unrealized losses and fair values for those securities that were
in an unrealized loss position as of December 31, 2016 and December 31, 2015,
aggregated by investment category and the length of time that the individual
securities have been in a continuous loss position (in thousands):
|
|
As of December 31,
2016
|
|
|
Less Than 12
Months
|
|
12 Months or
Greater
|
|
Total
|
|
|
Fair
Value
|
|
Unrealized
Loss
|
|
Fair
Value
|
|
Unrealized
Loss
|
|
Fair
Value
|
|
Unrealized
Loss
|
Corporate bonds
|
|
$
|
8,006
|
|
$
|
(3
|
)
|
|
$
|
-
|
|
$
|
-
|
|
$
|
8,006
|
|
$
|
(3
|
)
|
Agency bonds
|
|
|
92,018
|
|
|
(53
|
)
|
|
|
-
|
|
|
-
|
|
|
92,018
|
|
|
(53
|
)
|
Total
|
|
$
|
100,024
|
|
$
|
(56
|
)
|
|
$
|
-
|
|
$
|
-
|
|
$
|
100,024
|
|
$
|
(56
|
)
|
|
|
|
As of December 31,
2015
|
|
|
Less Than 12
Months
|
|
12 Months or
Greater
|
|
Total
|
|
|
Fair
Value
|
|
Unrealized
Loss
|
|
Fair
Value
|
|
Unrealized
Loss
|
|
Fair
Value
|
|
Unrealized
Loss
|
Corporate bonds
|
|
$
|
10,021
|
|
$
|
(5
|
)
|
|
$
|
-
|
|
$
|
-
|
|
$
|
10,021
|
|
$
|
(5
|
)
|
Agency bonds
|
|
|
127,102
|
|
|
(122
|
)
|
|
|
-
|
|
|
-
|
|
|
127,102
|
|
|
(122
|
)
|
Total
|
|
$
|
137,123
|
|
$
|
(127
|
)
|
|
$
|
-
|
|
$
|
-
|
|
$
|
137,123
|
|
$
|
(127
|
)
|
The Company periodically
reviews its investment portfolio for other-than-temporary impairment. The
Company considers such factors as the duration, severity and reason for the
decline in value, and the potential recovery period. The Company also considers
whether it is more likely than not that it will be required to sell the
securities before the recovery of their amortized cost basis, and whether the
amortized cost basis cannot be recovered as a result of credit losses. During
the three months and year ended December 31, 2016, the Company did not recognize
any other-than-temporary impairment loss.
5. ACQUISITIONS
2015
Acquisition
On February 9, 2015, the
Company acquired Eat24Hours.com, Inc. In connection with the acquisition, all of
the outstanding capital stock of Eat24 was converted into the right to receive
an aggregate of approximately $75.0 million in cash, less certain transaction
expenses, and 1,402,844 shares of Yelp Class A common stock with an aggregate
fair value of approximately $59.2 million, as determined on the basis of the
closing market price of the Companys Class A common stock on the acquisition
date. Of the total consideration paid in connection with the acquisition, $16.5
million in cash and 308,626 shares were initially held in escrow to secure
indemnification obligations. The balance remaining in the escrow fund was $3.4
million in cash as of December 31, 2016. The key purpose underlying the
acquisition was to obtain an online food ordering solution to drive daily
engagement in the Companys key restaurant vertical.
F-15
Table of Contents
The acquisition was
accounted for as a business combination in accordance with Accounting Standards
Codification Topic 805, Business Combinations (ASC 805), with the results of
Eat24s operations included in the Companys consolidated financial statements
from February 9, 2015. The initial purchase price allocation was as follows (in
thousands):
|
|
February 9,
2015
|
Fair value
of purchase consideration:
|
|
|
|
|
Cash:
|
|
|
|
|
Distributed
to Eat24 stockholders
|
|
$
|
56,624
|
|
Held
in escrow account
|
|
|
16,500
|
|
Payable
on behalf of Eat24 stockholders
|
|
|
1,876
|
|
Total
cash
|
|
|
75,000
|
|
|
Class
A common stock:
|
|
|
|
|
Distributed
to Eat24 stockholders
|
|
|
46,143
|
|
Held
in escrow account
|
|
|
13,015
|
|
Total
purchase consideration
|
|
$
|
134,158
|
|
|
Fair value
of net assets acquired:
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
1,578
|
|
Intangibles
|
|
|
39,600
|
|
Goodwill
|
|
|
110,927
|
|
Other
assets
|
|
|
6,031
|
|
Total
assets acquired
|
|
|
158,136
|
|
Deferred
tax liability
|
|
|
(15,207
|
)
|
Other
liabilities
|
|
|
(8,771
|
)
|
Total
liabilities assumed
|
|
|
(23,978
|
)
|
Net
assets acquired
|
|
$
|
134,158
|
|
Estimated useful lives and
the amount assigned to each class of intangible assets acquired are as follows:
Intangible Asset Type
|
|
Amount Assigned
|
|
Useful Life
|
Restaurant
relationships
|
|
|
$
|
17,400
|
|
|
12.0 years
|
Developed
technology
|
|
|
$
|
7,400
|
|
|
5.0
years
|
User
relationships
|
|
|
$
|
12,000
|
|
|
7.0 years
|
Trade
name
|
|
|
$
|
2,800
|
|
|
4.0 years
|
Weighted
average
|
|
|
|
|
|
|
8.6 years
|
The intangible assets are
being amortized on a straight-line basis, which reflects the pattern in which
the economic benefits of the intangible assets are being utilized. The goodwill
results from the Companys opportunity to drive daily engagement in its
restaurant vertical and potentially expand Eat24s offering to the U.S.
restaurants listed on the Companys platform. None of the goodwill is deductible
for tax purposes.
The Company recorded no
acquisition-related costs for the year ended December 31, 2016 and $0.2 million
in acquisition-related costs in the year ended December 31, 2015, which were
included in the general and administrative expense in the accompanying
consolidated statements of operations.
The consolidated statements
of operations for the year ended December 31, 2015 include $39.2 million of
revenue attributable to Eat24.
F-16
Table of Contents
2014
Acquisitions
In October 2014, the
Company, through its wholly-owned subsidiary, Yelp Ireland Ltd., acquired all of
the outstanding equity interests in Cityvox SAS. Also in October 2014, the
Company, through its wholly-owned subsidiaries Yelp Ireland Ltd. and Qype GmbH,
acquired the assets comprising the business conducted under the name Restaurant
Kritik from Kabukiman Ltd. The aggregate purchase price of these businesses was
$15.3 million, net of $0.1 million cash acquired; the purchase price did not
include stock in either transaction. Each of these acquisitions has been
accounted for as a business combination in accordance with ASC 805, under the
acquisition method. Accordingly, the aggregate purchase price is allocated to
the tangible and intangible assets acquired and the liabilities assumed based on
their respective fair values on the acquisition dates, and is subject to
adjustment based on the purchase price adjustment provisions contained in the
acquisition agreements. The results of operations of the acquired companies have
been included in the Companys consolidated financial statements from the
respective acquisition dates. Net revenues, earnings since the acquisition and
pro forma results of operations for these acquisitions have not been presented
because they are not material to the consolidated results of operations, either
individually or in the aggregate. During the three months ended December 31,
2014, the Company recorded acquisition-related transaction costs of $0.6
million, which were included in general and administrative expense.
Under the Restaurant Kritik
asset purchase agreement, the Company agreed to pay an additional €0.8 million
($0.9 million at the acquisition date) in consideration if the migration of
Restaurant Kritiks content to Yelp was completed within one year of the
acquisition date. The estimated fair value of the contingent consideration was
approximately $0.8 million as of the acquisition date and the Company paid $0.8
million in the three months ended December 31, 2015 in satisfaction of this
liability.
The following table
presents the aggregate purchase price allocations of these individually
immaterial acquisitions recorded in the Companys consolidated balance sheets of
their acquisition dates (in thousands):
Net tangible
assets
|
|
$
|
(277
|
)
|
Goodwill
|
|
|
13,995
|
|
Intangible
assets
|
|
|
1,546
|
|
Total
purchase price (excluding contingent consideration)
|
|
|
15,264
|
|
Contingent
consideration
|
|
|
826
|
|
Total
purchase price
|
|
$
|
16,090
|
|
Estimated useful lives as
of the acquisition dates of the intangible assets acquired are as follows:
Intangible Type
|
|
Useful Life
|
Content
|
|
5.0
years
|
Developed
technology
|
|
0.5
years
|
Trade
name
|
|
2.0 years
|
Weighted
average
|
|
4.3
years
|
The intangible assets are
being amortized on a straight-line basis, which reflects the pattern in which
the economic benefits of the intangible assets are being utilized. The goodwill
represents the excess value over both tangible and intangible assets acquired.
The goodwill in these transactions is primarily attributable to traffic and the
opportunity for expansion. None of the goodwill is deductible for tax purposes.
F-17
Table of Contents
6. CASH AND CASH
EQUIVALENTS
Cash and cash equivalents
as of December 31, 2016 and 2015 consisted of the following (in thousands):
|
|
December 31,
|
|
December 31,
|
|
|
2016
|
|
2015
|
Cash and
cash equivalents
|
|
|
|
|
|
|
Cash
|
|
$
|
119,778
|
|
$
|
79,954
|
Money
market funds
|
|
|
152,423
|
|
|
91,659
|
Total cash
and cash equivalents
|
|
$
|
272,201
|
|
$
|
171,613
|
The lease agreements for
certain of the Companys offices require the Company to maintain letters of
credit issued to the landlords of each facility. Each letter of credit is
subject to renewal annually until the applicable lease expires and is
collateralized by restricted cash. As of December 31, 2016 and 2015, the Company
had letters of credit totaling $17.3 million and $16.5 million, respectively,
related to such leases, which are classified as restricted cash.
7. PROPERTY, EQUIPMENT
AND SOFTWARE, NET
Property, equipment and
software, net as of December 31, 2016 and 2015 consisted of the following (in
thousands):
|
|
December 31,
|
|
December 31,
|
|
|
2016
|
|
2015
|
Computer
equipment
|
|
$
|
28,551
|
|
|
$
|
26,004
|
|
Software
|
|
|
1,079
|
|
|
|
1,213
|
|
Capitalized
website and internal-use software development costs
|
|
|
61,515
|
|
|
|
42,320
|
|
Furniture
and fixtures
|
|
|
14,162
|
|
|
|
10,771
|
|
Leasehold
improvements
|
|
|
60,101
|
|
|
|
47,552
|
|
Telecommunication
|
|
|
3,457
|
|
|
|
2,970
|
|
Total
|
|
|
168,865
|
|
|
|
130,830
|
|
Less
accumulated depreciation
|
|
|
(76,425
|
)
|
|
|
(50,363
|
)
|
Property,
equipment and software, net
|
|
$
|
92,440
|
|
|
$
|
80,467
|
|
Depreciation expense for
the years ended December 31, 2016, 2015 and 2014 was approximately $28.5
million, $23.0 million and $14.3 million, respectively.
F-18
Table of Contents
8. GOODWILL AND
INTANGIBLE ASSETS
The Companys goodwill is
the result of its acquisitions of other businesses, and represents the excess of
purchase consideration over the fair value of assets and liabilities acquired.
The Company performed its annual goodwill impairment analysis during the three
months ended September 30, 2016 and concluded that goodwill was not impaired, as
the fair value of each reporting unit exceeded its carrying value.
Goodwill as of December 31,
2016 and 2015, and changes in the carrying amount of goodwill during the years
ended December 31, 2016 and 2015, were as follows (in thousands):
Balance as
of December 31, 2014
|
$
|
67,307
|
|
Goodwill measurement period
adjustment
|
|
(255
|
)
|
Goodwill
acquired
|
|
110,927
|
|
Effect of currency translation
|
|
(5,782
|
)
|
Balance as
of December 31, 2015
|
$
|
172,197
|
|
Goodwill measurement period
adjustment
|
|
146
|
|
Effect of
currency translation
|
|
(1,676
|
)
|
Balance as of December 31, 2016
|
$
|
170,667
|
|
Intangible assets at
December 31, 2016 and 2015 consisted of the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
Average
|
|
|
Carrying
|
|
Accumulated
|
|
Carrying
|
|
Remaining
|
|
|
Amount
|
|
Amortization
|
|
Amount
|
|
Life
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant
and user relationships
|
|
$
|
29,400
|
|
$
|
(5,981
|
)
|
|
$
|
23,419
|
|
8.2 years
|
Developed
technology
|
|
|
9,280
|
|
|
(4,122
|
)
|
|
|
5,158
|
|
3.1
years
|
Content
|
|
|
3,674
|
|
|
(2,581
|
)
|
|
|
1,093
|
|
2.0 years
|
Trade name
and other
|
|
|
3,338
|
|
|
(1,861
|
)
|
|
|
1,477
|
|
2.1
years
|
Domains and
data licenses
|
|
|
2,804
|
|
|
(1,340
|
)
|
|
|
1,464
|
|
3.0 years
|
Advertiser
relationships
|
|
|
1,549
|
|
|
(1,549
|
)
|
|
|
-
|
|
0.0
years
|
Total
|
|
$
|
50,045
|
|
$
|
(17,434
|
)
|
|
$
|
32,611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
Average
|
|
|
Carrying
|
|
Accumulated
|
|
Carrying
|
|
Remaining
|
|
|
Amount
|
|
Amortization
|
|
Amount
|
|
Life
|
December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant
and user relationships
|
|
$
|
29,400
|
|
$
|
(2,817
|
)
|
|
$
|
26,583
|
|
9.1 years
|
Developed
technology
|
|
|
9,295
|
|
|
(2,441
|
)
|
|
|
6,854
|
|
4.1
years
|
Content
|
|
|
3,922
|
|
|
(2,066
|
)
|
|
|
1,856
|
|
2.7 years
|
Trade name
and other
|
|
|
3,350
|
|
|
(1,139
|
)
|
|
|
2,211
|
|
3.1
years
|
Domains and
data licenses
|
|
|
2,625
|
|
|
(835
|
)
|
|
|
1,790
|
|
3.9 years
|
Advertiser
relationships
|
|
|
1,708
|
|
|
(1,708
|
)
|
|
|
-
|
|
0.0
years
|
Total
|
|
$
|
50,300
|
|
$
|
(11,006
|
)
|
|
$
|
39,294
|
|
|
F-19
Table of Contents
Amortization expense for
the years ended December 31, 2016, 2015 and 2014 was $6.8 million, $6.5 million
and $2.4 million, respectively.
As of December 31, 2016,
the estimated future amortization of purchased intangible assets for (i) each of
the succeeding five years and (ii) thereafter is as follows (in thousands):
Year Ending December
31,
|
Amount
|
2017
|
$
|
6,763
|
2018
|
|
6,280
|
2019
|
|
5,399
|
2020
|
|
3,406
|
2021
|
|
3,166
|
Thereafter
|
|
7,597
|
Total amortization
|
$
|
32,611
|
9. OTHER NON-CURRENT
ASSETS
Other non-current assets as
of December 31, 2016 and 2015 consisted of the following (in thousands):
|
|
December 31,
|
|
December 31,
|
|
|
2016
|
|
2015
|
Cost-method investments
|
|
$
|
8,000
|
|
$
|
-
|
Other
|
|
|
2,992
|
|
|
3,701
|
Total
|
|
$
|
10,992
|
|
$
|
3,701
|
F-20
Table of Contents
Cost-method investments
represent the Companys investment in the preferred stock of Nowait, Inc. a
mobile platform that allows restaurants to manage their waitlists, which was
completed on July 15, 2016. The remaining other non-current assets are primarily
deferred tax assets.
10. ACCRUED
LIABILITIES
Accrued liabilities as of
December 31, 2016 and 2015 consisted of the following (in thousands):
|
|
December 31,
|
|
December 31,
|
|
|
2016
|
|
2015
|
Restaurant revenue share liability
|
|
$
|
17,372
|
|
$
|
12,654
|
Accrued employee vacation
|
|
|
6,196
|
|
|
4,662
|
Accrued income, payroll and other
taxes
|
|
|
5,456
|
|
|
3,451
|
Accrued marketing
|
|
|
4,633
|
|
|
2,144
|
Accrued employee benefits and other employee
expenses
|
|
|
4,337
|
|
|
3,631
|
Accrued bonuses and commissions
|
|
|
3,079
|
|
|
4,546
|
Accrued facilities and related
|
|
|
2,427
|
|
|
1,928
|
Accrued consulting
|
|
|
1,824
|
|
|
1,763
|
Deferred rent
|
|
|
1,655
|
|
|
786
|
Employee stock purchase plan liability
|
|
|
1,059
|
|
|
817
|
Merchant revenue share liability
|
|
|
980
|
|
|
1,212
|
Fixed
asset purchase commitments
|
|
|
723
|
|
|
1,318
|
Other accrued expenses
|
|
|
5,341
|
|
|
4,546
|
Total
|
|
$
|
55,082
|
|
$
|
43,458
|
11. LONG-TERM
LIABILITIES
Long-term liabilities as of
December 31, 2016 and 2015 consisted of the following (in thousands):
|
|
December 31,
|
|
December 31,
|
|
|
2016
|
|
2015
|
Deferred rent
|
|
$
|
16,896
|
|
$
|
11,324
|
Other long-term liabilities
|
|
|
725
|
|
|
706
|
Total
|
|
$
|
17,621
|
|
$
|
12,030
|
12. OTHER INCOME
(EXPENSE), NET
Other income (expense), net
for the years ended December 31, 2016, 2015 and 2014 consisted of the following
(in thousands):
|
|
Year
Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
(in thousands)
|
Interest income, net
|
|
$
|
1,724
|
|
|
$
|
622
|
|
|
$
|
375
|
|
Transaction loss on foreign
exchange
|
|
|
(175
|
)
|
|
|
(687
|
)
|
|
|
(121
|
)
|
Other non-operating income (loss),
net
|
|
|
145
|
|
|
|
451
|
|
|
|
(33
|
)
|
Other
income, net
|
|
$
|
1,694
|
|
|
$
|
386
|
|
|
$
|
221
|
|
F-21
Table of Contents
13. COMMITMENTS AND
CONTINGENCIES
Office Facility
Leases
The Company leases its
office facilities under operating lease agreements that expire from 2017 to
2025. Certain lease agreements provide for rental payments on a graduated basis.
The Company recognizes rent expense on a straight-line basis over the lease
period. Rental expense was $36.8 million, $30.9 million and $14.6 million for
the years ended December 31, 2016, 2015 and 2014, respectively.
The Companys minimum
payments under noncancelable operating leases for equipment and office space
having initial terms in excess of one year were as follows as of December 31,
2016 (in thousands):
|
|
Operating
|
Year Ending
December 31,
|
|
Leases
|
2017
|
|
$
|
42,321
|
2018
|
|
|
44,355
|
2019
|
|
|
44,449
|
2020
|
|
|
45,892
|
2021
|
|
|
38,095
|
Thereafter
|
|
|
92,401
|
Total minimum lease payments
|
|
$
|
307,513
|
The Company has subleased
certain office facilities under operating lease agreements that expire in 2021.
The Company recognizes sublease rentals as a reduction in rental expense on a
straight-line basis over the lease period. Sublease rental income was $2.0
million, $1.4 million, and zero for the years ended December 31, 2016, 2015, and
2014, respectively. The Company expects future sublease rental receipts of $8.3
million between 2017 and 2021.
Legal
Proceedings
The Company is
subject to legal proceedings arising in the ordinary course of business.
Although the results of litigation and claims cannot be predicted with
certainty, the Company currently does not believe that the final outcome of any
of these matters will have a material adverse effect on the Companys business,
financial position, results of operations or cash flows.
In August 2014, two
putative class action lawsuits alleging violations of federal securities laws
were filed in the U.S. District Court for the Northern District of California,
naming as defendants the Company and certain of its officers. The lawsuits
allege violations of the Exchange Act by the Company and certain of its officers
for allegedly making materially false and misleading statements regarding the
Companys business and operations between October 29, 2013 and April 3, 2014.
These cases were subsequently consolidated and, in January 2015, the plaintiffs
filed a consolidated complaint seeking unspecified monetary damages and other
relief. Following the courts dismissal of the consolidated complaint on April
21, 2015, the plaintiffs filed a first amended complaint on May 21, 2015. On
November 24, 2015, the court dismissed the first amended complaint with
prejudice, and entered judgment in the Companys favor on December 28, 2015. The
plaintiffs have appealed this decision to the U.S. Court of Appeals for the
Ninth Circuit.
On April 23, 2015, a
putative class action lawsuit was filed by former Eat24 employees in the
Superior Court of California for San Francisco County, naming as defendants the
Company and Eat24. The lawsuit asserts that the defendants failed to permit meal
and rest periods for certain current and former employees working as Eat24
customer support specialists, and alleges violations of the California Labor
Code, applicable Industrial Welfare Commission Wage Orders and the California
Business and Professions Code. The plaintiffs seek monetary damages in an
unspecified amount and injunctive relief. On May 29, 2015, plaintiffs filed a
first amended complaint asserting an additional cause of action for penalties
under the Private Attorneys General Act. In January 2016, the Company reached a
preliminary agreement to settle this matter, which the court preliminarily approved on
June 27, 2016. The settlement received final court approval on December 5, 2016
and the $550 thousand settlement amount was paid on February 10, 2017.
F-22
Table of Contents
On June 24, 2015, a former
Eat24 sales employee filed a lawsuit, on behalf of herself and a putative class
of current and former Eat24 sales employees, against Eat24 in the Superior Court
of California for San Francisco County. The lawsuit alleges that Eat24 failed to
pay required wages, including overtime wages, allow meal and rest periods and
maintain proper records, and asserts causes of action under the California Labor
Code, applicable Industrial Welfare Commission Wage Orders and the California
Business and Professions Code. The plaintiff seeks monetary damages and
penalties in unspecified amounts, as well as injunctive relief. On August 3,
2015, the plaintiff filed a first amended complaint asserting an additional
cause of action for penalties under the Private Attorneys General Act. In
January 2016, the Company reached a preliminary agreement to settle this matter
for payments in the aggregate amount of up to approximately $0.2 million, which
the court preliminarily approved on August 29, 2016. The settlement received
final court approval on February 1, 2017.
Based on the settlement
agreements reached in connection with the two lawsuits by former Eat24 employees
described above, the Company recognized a liability for each of the proposed
settlement amounts as part of its accrued liabilities as of December 31, 2016.
In February 2016, $1.1 million was released to the Company from the escrow fund
established in connection with the acquisition of Eat24, to fund such settlement
amounts and related legal expenses.
Indemnification
Agreements
In the ordinary course
of business, the Company may provide indemnifications of varying scope and terms
to customers, vendors, lessors, business partners and other parties with respect
to certain matters, including, but not limited to, losses arising out of breach
of such agreements, services to be provided by the Company or from intellectual
property infringement claims made by third parties. In addition, the Company has
entered into indemnification agreements with directors and certain officers and
employees that will require the Company to, among other things, indemnify them
against certain liabilities that may arise by reason of their status or service
as directors, officers or employees.
While the outcome of claims
cannot be predicted with certainty, the Company does not believe that the
outcome of any claims under the indemnification arrangements will have a
material effect on the Companys financial position, results of operations or
cash flows.
Payroll Tax
Audit
In June 2015, the IRS began
a payroll tax audit of the Company for 2014 and 2013. The Company has assessed
the estimated range of such loss and, as of December 31, 2016, a liability of
$0.5 million has been recorded. The Company expects the audits and any related
assessments to be finalized in 2017.
14. STOCKHOLDERS
EQUITY
Elimination of
Dual-Class Common Stock Structure
On September 22, 2016, all
outstanding shares of the Companys Class A common stock and Class B common
stock automatically converted into a single class of common stock (the
Conversion) pursuant to the terms of the Companys Amended and Restated
Certificate of Incorporation. On September 23, 2016, the Company filed a
certificate with the Secretary of State of the State of Delaware effecting the
retirement and cancellation of the Class A common stock and Class B common
stock. This certificate of retirement had the additional effect of eliminating
the authorized Class A and Class B shares, thereby reducing the Companys total
number of authorized shares of common stock from 500,000,000 to 200,000,000.
F-23
Table of Contents
The following table
presents the number of shares authorized and issued and outstanding as of the
dates indicated:
|
|
December 31,
2016
|
|
December 31,
2015
|
|
|
|
|
Shares
|
|
|
|
Shares
|
|
|
Shares
|
|
Issued and
|
|
Shares
|
|
Issued and
|
|
|
Authorized
|
|
Outstanding
|
|
Authorized
|
|
Outstanding
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Class A common stock, $0.000001 par value
|
|
|
|
|
|
200,000,000
|
|
66,535,156
|
Class B common stock, $0.000001 par value
|
|
|
|
|
|
100,000,000
|
|
9,447,646
|
Common stock, $0.000001 par value
|
|
200,000,000
|
|
79,429,833
|
|
200,000,000
|
|
|
Undesignated Preferred Stock
|
|
10,000,000
|
|
|
|
10,000,000
|
|
|
Common Stock Reserved
for Future Issuance
As of December 31, 2016,
the Company had reserved shares of common stock for future issuances in
connection with the following:
Options outstanding
|
8,018,941
|
Restricted stock units and awards outstanding
|
7,090,465
|
Available for future stock option and restricted stock units
and awards grants
|
2,787,277
|
Available for future ESPP offerings
|
1,303,913
|
Total reserved for future issuance
|
19,200,596
|
Equity Incentive
Plans
The Company has outstanding
awards under three equity incentive plans: the Amended and Restated 2005 Equity
Incentive Plan (the 2005 Plan), the 2011 Equity Incentive Plan (the 2011
Plan) and the 2012 Equity Incentive Plan, as amended (the 2012 Plan). In July
2011, the Company adopted the 2011 Plan, terminated the 2005 Plan and provided
that no further stock awards were to be granted under the 2005 Plan. All
outstanding stock awards under the 2005 Plan continue to be governed by their
existing terms. Upon the effectiveness of the underwriting agreement in
connection with the Companys initial public offering (IPO), the Company
terminated the 2011 Plan and all shares that were reserved under the 2011 Plan
but not issued were assumed by the 2012 Plan. No further awards will be granted
pursuant to the 2011 Plan. All outstanding stock awards under the 2011 Plan
continue to be governed by their existing terms. Under the 2012 Plan, the
Company has the ability to issue incentive stock options, non-statutory stock
options, stock appreciation rights, restricted stock units (RSUs), restricted
stock awards (RSAs), performance units and performance shares. Additionally,
the 2012 Plan provides for the grant of performance cash awards to employees,
directors and consultants.
Stock
Options
Stock options granted under
the 2012 Plan are granted at a price per share not less than the fair value of a
share of the Companys common stock at date of grant. Options granted to date
generally vest over a four-year period, on one of three schedules: (a) 25%
vesting at the end of one year and the remaining shares vesting monthly
thereafter; (b) 10% vesting over the first year, 20% vesting over the second
year, 30% vesting over the third year and 40% vesting over the fourth year; or
(c) ratably on a monthly basis. Options granted are generally exercisable for up
to 10 years. The Company issues new shares when stock options are exercised.
F-24
Table of Contents
A summary of stock option
activity for the year ended December 31, 2016 is as follows:
|
|
Options
Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Weighted-
|
|
Remaining
|
|
Aggregate
|
|
|
|
|
|
Average
|
|
Contractual
|
|
Intrinsic
|
|
|
Number of
|
|
Exercise
|
|
Term (in
|
|
Value (in
|
|
|
Shares
|
|
Price
|
|
years)
|
|
thousands)
|
Outstanding - December 31, 2015
|
|
8,206,356
|
|
|
$
|
20.93
|
|
6.44
|
|
$
|
92,454
|
Granted
|
|
1,341,250
|
|
|
|
23.58
|
|
|
|
|
|
Exercised
|
|
(1,290,205
|
)
|
|
|
15.95
|
|
|
|
|
|
Canceled
|
|
(238,460
|
)
|
|
|
36.59
|
|
|
|
|
|
Outstanding - December 31, 2016
|
|
8,018,941
|
|
|
$
|
21.71
|
|
6.10
|
|
$
|
147,673
|
Options vested and exercisable as of
December 31, 2016
|
|
6,292,994
|
|
|
$
|
19.18
|
|
5.44
|
|
$
|
128,488
|
Aggregate intrinsic value
represents the difference between the closing price of the Companys common
stock and the exercise price of outstanding, in-the-money options. The total
intrinsic value of options exercised was approximately $23.23 million, $26.2
million and $108.7 million for the years ended December 31, 2016, 2015 and 2014,
respectively.
The weighted-average grant
date fair value of options granted was $10.16, $22.48 and $41.84 per share for
the years ended December 31, 2016, 2015 and 2014, respectively.
As of December 31, 2016,
total unrecognized compensation costs related to unvested stock options was
approximately $21 million, which is expected to be recognized over a
weighted-average time period of 2.2 years.
The following table
summarizes information about outstanding and vested stock options as of December
31, 2016:
|
|
|
|
|
|
|
|
|
Options Vested and
|
|
|
Options
Outstanding
|
|
Exercisable
|
|
|
|
|
Weighted-
|
|
Weighted
|
|
|
|
Weighted
|
|
|
Number of
|
|
Average
|
|
Average
|
|
|
|
Average
|
|
|
Options
|
|
Remaining
|
|
Exercise
|
|
Number of
|
|
Exercise
|
Exercise Price Range
|
|
Outstanding
|
|
Life (Years)
|
|
Price
|
|
Options
|
|
Price
|
$1.00 - $6.92
|
|
88,816
|
|
2.86
|
|
$
|
4.48
|
|
84,649
|
|
$
|
4.45
|
$7.16
|
|
2,196,634
|
|
4.01
|
|
|
7.16
|
|
2,196,634
|
|
|
7.16
|
$8.16 - $18.85
|
|
803,343
|
|
5.65
|
|
|
15.43
|
|
728,696
|
|
|
15.04
|
$18.91 - $21.13
|
|
733,521
|
|
9.06
|
|
|
20.53
|
|
280,551
|
|
|
20.55
|
$21.18
|
|
1,533,803
|
|
6.10
|
|
|
21.18
|
|
1,437,801
|
|
|
21.18
|
$21.24 - $26.03
|
|
936,234
|
|
6.95
|
|
|
24.01
|
|
606,256
|
|
|
25.02
|
$26.89 - $45.50
|
|
890,637
|
|
7.08
|
|
|
31.49
|
|
565,519
|
|
|
32.46
|
$47.79 - $78.18
|
|
818,028
|
|
7.73
|
|
|
56.18
|
|
382,097
|
|
|
60.02
|
$82.42
|
|
9,025
|
|
7.33
|
|
|
79.06
|
|
4,488
|
|
|
79.21
|
$94.42
|
|
8,900
|
|
7.16
|
|
|
94.42
|
|
6,303
|
|
|
94.42
|
Total
|
|
8,018,941
|
|
6.10
|
|
$
|
21.71
|
|
6,292,994
|
|
$
|
19.18
|
F-25
Table of Contents
RSUs and RSAs
The cost of RSUs and RSAs
is determined using the fair value of the Companys common stock on the date of
grant. RSUs and RSAs generally vest over a four-year period, on one of three
schedules: (a) 25% vesting at the end of one year and the remaining vesting
quarterly or annually thereafter; (b) 10% vesting over the first year, 20%
vesting over the second year, 30% vesting over the third year and 40% vesting
over the fourth year; or (c) ratably on a quarterly basis.
A summary of RSU and RSA
activity for the year ended December 31, 2016 is as follows:
|
|
Restricted Stock Units
|
|
Restricted Stock Awards
|
|
|
|
|
|
Weighted-
|
|
Number
|
|
Weighted-
|
|
|
Number of
|
|
Average Grant
|
|
of
|
|
Average Grant
|
|
|
Shares
|
|
Date
Fair Value
|
|
Shares
|
|
Date
Fair Value
|
Unvested--December 31, 2015
|
|
4,093,204
|
|
|
$
|
39.45
|
|
312
|
|
|
$
|
11.68
|
Granted
|
|
5,879,390
|
|
|
|
28.51
|
|
-
|
|
|
|
-
|
Released
|
|
(1,813,712
|
)
|
|
|
35.29
|
|
(312
|
)
|
|
|
11.68
|
Canceled
|
|
(1,068,417
|
)
|
|
|
32.92
|
|
-
|
|
|
|
-
|
Unvested--December 31, 2016
|
|
7,090,465
|
|
|
$
|
32.43
|
|
0
|
|
|
$
|
-
|
As of December 31, 2016,
the Company had approximately $208.8 million of unrecognized stock-based
compensation expense related to RSUs and RSAs, which is expected to be
recognized over the remaining weighted-average vesting period of approximately
3.0 years.
Employee Stock Purchase
Plan
The ESPP allows eligible
employees to purchase shares of the Companys common stock at a discount through
payroll deductions of up to 15% of their eligible compensation, subject to any
plan limitations, during designated offering periods. At the end of each
offering period that began prior to December 1, 2014, employees were able to
purchase shares at 85% of the lower of the fair market value of the Companys
common stock on the first trading day of the offering period or on the last day
of the offering period. At the end of each offering period that began December
1, 2014 or later, employees are able to purchase shares at 85% of the fair
market value of the Companys common stock on the last day of the offering
period.
During the year ended
December 31, 2016, employees purchased 342,057 shares at a weighted-average
purchase price of $26.12 per share. The Company recognized $1.5 million of
stock-based compensation expense related to the ESPP in the year ended December
31, 2016.
Stock-Based
Compensation
The fair value of options
granted to employees is estimated on the grant date using the
Black-Scholes-Merton option valuation model. This valuation model for
stock-based compensation expense requires the Company to make assumptions and
judgments about the variables used in the calculation, including the expected
term (weighted-average period of time that the options granted are expected to
be outstanding), the volatility in the fair market value of the Companys common
stock, a risk-free interest rate, and expected dividends. No compensation cost
is recorded for options that do not vest. The Company uses the simplified
calculation of expected life and volatility is based on an average of the
historical volatilities of the common stock of several entities with
characteristics similar to those of the Company. The risk-free rate is based on
the U.S. Treasury yield curve in effect at the time of grant for periods
corresponding with the expected life of the option.
F-26
Table of Contents
The Company uses the
straight-line method for expense attribution. For the years ended December 31,
2016, 2015 and 2014, the weighted-average assumptions are as follows:
|
|
Year
Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Dividend yield
|
|
-
|
|
|
-
|
|
|
-
|
|
Annual risk-free rate
|
|
1.53
|
%
|
|
1.78
|
%
|
|
2.07
|
%
|
Expected volatility
|
|
44.00
|
%
|
|
49.27
|
%
|
|
57.56
|
%
|
Expected term (years)
|
|
5.84
|
|
|
6.11
|
|
|
6.17
|
|
The following table
summarizes the effects of stock-based compensation expense related to
stock-based awards in the consolidated statements of operations during the
periods presented (in thousands):
|
|
Year Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Cost of Revenue
|
|
$
|
2,446
|
|
|
$
|
1,117
|
|
|
$
|
729
|
|
Sales and marketing
|
|
|
27,098
|
|
|
|
21,962
|
|
|
|
15,083
|
|
Product Development
|
|
|
36,323
|
|
|
|
23,431
|
|
|
|
14,804
|
|
General and administrative
|
|
|
20,394
|
|
|
|
14,332
|
|
|
|
11,657
|
|
Restructuring and integration
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total stock-based compensation in income
(loss) before
|
|
|
|
|
|
|
|
|
|
|
|
|
incomes taxes
|
|
|
86,261
|
|
|
|
60,842
|
|
|
|
42,273
|
|
Benefit from income taxes
|
|
|
(643
|
)
|
|
|
(402
|
)
|
|
|
(15,064
|
)
|
Total stock-based compensation in income
(loss)
|
|
$
|
85,618
|
|
|
$
|
60,440
|
|
|
$
|
27,209
|
|
During the years ended
December 31, 2016, 2015 and 2014, the Company capitalized $4.5 million, $3.0
million and $2.3 million, respectively, of stock-based compensation expense as
website development costs.
15. NET INCOME (LOSS)
PER SHARE
Basic and diluted net
income (loss) per share attributable to common stockholders for periods prior to
the Conversion are presented in conformity with the two-class method required
for participating securities. Prior to the Conversion, shares of Class A and
Class B common stock were the only outstanding equity in the Company. The rights
of the holders of Class A and Class B common stock were identical, except with
respect to voting and conversion. Each share of Class A common stock was
entitled to one vote per share and each share of Class B common stock was
entitled to ten votes per share. Shares of Class B common stock were convertible
into Class A common stock at any time at the option of the stockholder, and were
automatically converted upon sale or transfer to Class A common stock, subject
to certain limited exceptions, and in connection with certain other conversion
events.
Under the two-class method,
basic net income (loss) per share is computed using the weighted-average number
of shares of common stock outstanding during the period. Diluted net income
(loss) per share is computed using the weighted-average number of shares of
common stock and, if dilutive, potential shares of common stock outstanding
during the period. The Companys potential shares of common stock consist of the
incremental shares of common stock issuable upon the exercise of stock options,
shares issuable upon the vesting of RSUs and, to a lesser extent, unvested
shares subject to RSAs and purchases related to the ESPP. The dilutive effect of
these potential shares of common stock is reflected in diluted earnings per
share by application of the treasury stock method. The computation of the
diluted net income (loss) per share of Class A common stock assumes the
conversion of Class B common stock, while the diluted net income (loss) per
share of Class B common stock does not assume the conversion of Class B common
stock.
F-27
Table of Contents
The undistributed earnings
are allocated based on the contractual participation rights of the Class A and
Class B common stock as if the earnings for the year have been distributed. As
the liquidation and dividend rights are identical, the undistributed earnings
are allocated on a proportionate basis. Further, as the conversion of Class B
common stock is assumed in the computation of the diluted net income (loss) per
share of Class A common stock, the undistributed earnings are equal to net
income (loss) for that computation.
On September 22, 2016, the
Companys Class A and Class B common stock converted into a single class of
common stock. Because shares of Class A and Class B common stock were
outstanding for a portion of the year ended December 31, 2016, the Company has
disclosed earnings per common share for both classes of common stock for the
current period.
Basic and diluted net income (loss) per share
attributable to common stockholders for periods after the conversion will be
presented based on the number of shares of common stock outstanding.
The following table
presents the calculation of basic and diluted net income (loss) per share (in
thousands, except per share data):
|
|
Year Ended December
31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
Class A
|
|
Class B
|
|
Class A
|
|
Class B
|
|
Class A
|
|
Class B
|
Basic net income (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
attributable to common
stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(4,296
|
)
|
|
$
|
(374
|
)
|
|
$
|
(28,694
|
)
|
|
$
|
(4,206
|
)
|
|
$
|
31,178
|
|
$
|
5,295
|
Allocation of undistributed earnings
|
|
$
|
(4,296
|
)
|
|
$
|
(374
|
)
|
|
$
|
(28,694
|
)
|
|
$
|
(4,206
|
)
|
|
$
|
31,178
|
|
$
|
5,295
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
outstanding
|
|
|
70,997
|
|
|
|
6,189
|
|
|
|
65,135
|
|
|
|
9,548
|
|
|
|
61,492
|
|
|
10,444
|
Basic net income (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
attributable to common
stockholders:
|
|
$
|
(0.06
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.44
|
)
|
|
$
|
(0.44
|
)
|
|
$
|
0.51
|
|
$
|
0.51
|
Diluted net income (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
attributable to common stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of undistributed earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for basic calculations
|
|
$
|
(4,296
|
)
|
|
$
|
(374
|
)
|
|
$
|
(28,694
|
)
|
|
$
|
(4,206
|
)
|
|
$
|
31,178
|
|
$
|
5,295
|
Reallocation of undistributed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
earnings as a result of conversion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
from Class B to Class A shares
|
|
|
(374
|
)
|
|
|
-
|
|
|
|
(4,206
|
)
|
|
|
-
|
|
|
|
5,295
|
|
|
-
|
Reallocation of undistributed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
earnings to Class B shares
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
911
|
Allocation of undistributed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
earnings
|
|
$
|
(4,670
|
)
|
|
$
|
(374
|
)
|
|
$
|
(32,900
|
)
|
|
$
|
(4,206
|
)
|
|
$
|
36,473
|
|
$
|
6,206
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares used in basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
calculation
|
|
|
70,997
|
|
|
|
6,189
|
|
|
|
65,135
|
|
|
|
9,548
|
|
|
|
61,492
|
|
|
10,444
|
Weighted-average effect of dilutive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of Class B to Class
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A common shares outstanding
|
|
|
6,189
|
|
|
|
-
|
|
|
|
9,548
|
|
|
|
-
|
|
|
|
10,444
|
|
|
-
|
Stock options
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,377
|
|
|
2,584
|
Other dilutive securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
399
|
|
|
25
|
Number of shares used in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
diluted calculation
|
|
|
77,186
|
|
|
|
6,189
|
|
|
|
74,683
|
|
|
|
9,548
|
|
|
|
76,712
|
|
|
13,053
|
Diluted net income (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
attributable to common stockholders:
|
|
$
|
(0.06
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.44
|
)
|
|
$
|
(0.44
|
)
|
|
$
|
0.48
|
|
$
|
0.48
|
F-28
Table of Contents
The following
weighted-average stock-based instruments were excluded from the calculation of
diluted net income (loss) per share because their effect would have been
anti-dilutive for the periods presented (in thousands):
|
|
Year Ended
December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
Stock options
|
|
|
2,082
|
|
|
|
8,206
|
|
|
71
|
Restricted stock units and awards
|
|
|
2,090
|
|
|
|
4,095
|
|
|
|
Contingently issuable shares
|
|
|
-
|
|
|
|
309
|
|
|
|
16. INCOME TAXES
The Company accounts for
income taxes in accordance with authoritative guidance, which requires the use
of the asset and liability method. Under this method, deferred income tax assets
and liabilities are determined based upon the difference between the
consolidated financial statement carrying amounts and the tax basis of assets
and liabilities and are measured using the enacted tax rate expected to apply to
taxable income in the years in which the differences are expected to be
reversed.
The following table
presents domestic and foreign components of income (loss) before income taxes
for the periods presented (in thousands):
|
|
2016
|
|
2015
|
|
2014
|
United States
|
|
$
|
1,679
|
|
|
$
|
(18,604
|
)
|
|
$
|
13,083
|
|
Foreign
|
|
|
(4,964
|
)
|
|
|
(2,334
|
)
|
|
|
(1,803
|
)
|
Total
|
|
$
|
(3,285
|
)
|
|
$
|
(20,938
|
)
|
|
$
|
11,280
|
|
F-29
Table of Contents
The income tax provision is
composed of the following (in thousands):
|
|
2016
|
|
2015
|
|
2014
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
$
|
(10
|
)
|
|
$
|
-
|
|
State
|
|
|
35
|
|
|
370
|
|
|
|
704
|
|
Foreign
|
|
|
86
|
|
|
1,010
|
|
|
|
1,322
|
|
|
|
$
|
121
|
|
$
|
1,370
|
|
|
$
|
2,026
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
106
|
|
$
|
3,505
|
|
|
$
|
(14,806
|
)
|
State
|
|
|
13
|
|
|
6,245
|
|
|
|
(7,613
|
)
|
Foreign
|
|
|
1,145
|
|
|
842
|
|
|
|
(4,800
|
)
|
|
|
|
1,264
|
|
|
10,592
|
|
|
|
(27,219
|
)
|
Total provision for (benefit from)
|
|
|
|
|
|
|
|
|
|
|
|
income taxes
|
|
$
|
1,385
|
|
$
|
11,962
|
|
|
$
|
(25,193
|
)
|
The following table
presents a reconciliation of the statutory federal rate and the Companys
effective tax rate for the periods presented:
|
|
2016
|
|
2015
|
|
2014
|
Tax
benefit at federal statutory rate
|
|
35.00
|
%
|
|
35.00
|
%
|
|
35.00
|
%
|
State-net of federal effect
|
|
21.41
|
|
|
5.32
|
|
|
3.63
|
|
Foreign rate differential
|
|
(1.54
|
)
|
|
(10.03
|
)
|
|
(2.17
|
)
|
Stock-based compensation
|
|
10.50
|
|
|
(3.60
|
)
|
|
12.76
|
|
Acquisition costs
|
|
-
|
|
|
(0.38
|
)
|
|
-
|
|
Meals & Entertainment
|
|
(13.84
|
)
|
|
(2.63
|
)
|
|
3.75
|
|
Tax
credits
|
|
163.87
|
|
|
14.30
|
|
|
(23.37
|
)
|
Change in valuation allowance
|
|
(189.19
|
)
|
|
(96.18
|
)
|
|
(248.14
|
)
|
Change in tax rate
|
|
(0.12
|
)
|
|
(0.73
|
)
|
|
(4.72
|
)
|
Benefit for tax only asset
|
|
-
|
|
|
4.99
|
|
|
-
|
|
Non-deductible expenses
|
|
(6.16
|
)
|
|
(1.58
|
)
|
|
1.36
|
|
Prior year deferred true-ups
|
|
(11.81
|
)
|
|
(0.57
|
)
|
|
-
|
|
Expiration of deferred benefit
|
|
(50.76
|
)
|
|
-
|
|
|
-
|
|
Other
|
|
0.47
|
|
|
(1.00
|
)
|
|
(1.44
|
)
|
Effective Tax Rate
|
|
(42.17
|
)%
|
|
(57.09
|
)%
|
|
(223.34
|
)%
|
In assessing the
realization of deferred tax assets, management considers 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.
As of December 31, 2016 and
2015, based on the available objective evidence, management believes it is more
likely than not that its domestic deferred tax assets will not be realized.
Accordingly, management has applied a full valuation allowance against its
domestic net deferred tax assets.
The effective tax rate in
2016 reflects a $1.4 million expense associated with establishing a valuation
allowance against certain foreign deferred tax assets as a result of the winding
down of sales and marketing activities outside of the United States and Canada.
At the end of 2016, the Company could not assert at the required
more-likely-than-not level of certainty, that some of its foreign operations
would generate sufficient taxable income to realize all of its deferred tax
assets after considering the relative impact of all evidence, positive and
negative. In making its evaluation, the Company considered recent changes in
foreign operations as a significant piece of negative evidence. As a result, the
Company established a valuation allowance against some of its foreign deferred
tax assets in the year ended December 31, 2016.
F-30
Table of Contents
Deferred income taxes
reflect the net tax effects of temporary differences between carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for
income tax purposes. The following table presents the significant components of
the Companys deferred tax assets and liabilities for the periods presented (in
thousands):
|
2016
|
|
2015
|
Deferred tax assets:
|
|
|
|
|
|
|
|
Reserves
and others
|
$
|
13,382
|
|
|
$
|
8,656
|
|
Stock-based
compensation
|
|
29,402
|
|
|
|
26,236
|
|
Contribution
carryforward
|
|
11
|
|
|
|
1,782
|
|
Net
operating loss carryforward
|
|
64,478
|
|
|
|
7,048
|
|
Tax credit
carryforward
|
|
17,185
|
|
|
|
8,985
|
|
Gross
deferred tax assets
|
|
124,458
|
|
|
|
52,707
|
|
Valuation allowance
|
|
(92,191
|
)
|
|
|
(20,542
|
)
|
Total
deferred tax assets
|
|
32,267
|
|
|
|
32,165
|
|
Deferred tax
liabilities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
(30,140
|
)
|
|
|
(28,896
|
)
|
Total
deferred tax liabilities
|
|
(30,140
|
)
|
|
|
(28,896
|
)
|
Net
deferred tax assets (liabilities)
|
$
|
2,127
|
|
|
$
|
3,269
|
|
At December 31, 2016, the
Company had federal and state net operating loss carryforwards of approximately
$154.9 million and $132.9 million, respectively, expiring beginning in 2024 and
2017, respectively. The Company also had cumulative trading losses of $10.1
million and of $7.2 million at December 31, 2016 in Ireland and Germany
respectively, which may be carried forward indefinitely against profits in the
respective jurisdictions. At December 31, 2016, the Company had federal research
credit carryforwards of approximately $8.6 million that expire beginning in
2024, and California research credit carryforwards of approximately $8.0 million
that do not expire. At December 31, 2016, the Company also had $5.2 million of
California Enterprise Zone credit, expiring beginning in 2024.
Utilization of net
operating loss carryforwards and credits may be subject to a substantial annual
limitation due to the ownership change limitations provided by the Internal
Revenue Code of 1986, as amended, and similar state provisions. The annual
limitation may result in the expiration of net operating losses and credits
before utilization. The Company does not expect any previous ownership changes,
as defined under Section 382 and 383 of the Internal Revenue Code, to result in
a limitation that will reduce the total amount of net operating loss
carryforwards and credits that can be utilized. Further, foreign loss
carryforwards may be subject to limitations under the applicable laws of the
taxing jurisdictions due to ownership change limitations.
Effective as of January 1,
2016, the Company early adopted a change in accounting policy in accordance with
ASU 2016-09, which eliminated the requirement that excess tax benefits be
realized as a reduction in current taxes payable before the associated tax
benefit could be recognized as an increase in paid in capital. Under ASU
2016-09, these previously unrecognized deferred tax assets were recognized on a
modified retrospective basis as of January 1, 2016, the start of the year in
which the Company early adopted ASU 2016-09. Approximately $164.1
million of federal net operating losses, $125.7 million of state net operating
losses, $1.4 million of Ireland net operating losses, $1.3 million of federal
research and development tax credits and $0.1 million of state Enterprise Zone
credits are related to tax stock option deductions in excess of book deductions
and are not included in the balance shown above as of December 31,
2015. The U.S. federal and state net
operating losses and credits recognized as of January 1, 2016, as described
above, have been offset by a valuation allowance. As a result, only the Ireland
net operating losses resulted in a cumulative-effect adjustment to retained
earnings of $0.2 million (which reduced the accumulated deficit) as of January
1, 2016. Additionally, ASU 2016-09 addresses the presentation of excess tax
benefits and employee taxes paid on the statement of cash flows. The Company is
now required to present excess tax benefits as an operating activity in the same
manner as other cash flows related to income taxes on the statement of cash
flows rather than as a financing activity. The Company adopted this change
prospectively.
F-31
Table of Contents
It is the intention of the
Company to reinvest the earnings from Darwin Social Marketing Inc., Yelp UK Ltd.
and Yelp Ireland Holding Company Limited and its subsidiaries. The Company does
not provide for U.S. income taxes of foreign subsidiaries as such earnings are
to be reinvested indefinitely. As of December 31, 2016, the Company estimates
$2.6 million of cumulative earnings upon which U.S. income taxes have not been
provided. Determination of the amount of unrecognized deferred tax liability
with respect to such earnings is not practicable. The additional taxes on the
earnings of foreign subsidiaries, if remitted, would be partially offset by U.S.
tax credits for foreign taxes already paid.
As of December 31, 2016,
2015 and 2014, the Company had $10.3 million, $5.0 million and $3.3 million,
respectively, of unrecognized tax benefits. A reconciliation of the beginning
and ending amount of unrecognized benefits is as follows (in thousands):
|
|
2016
|
|
2015
|
|
2014
|
Balance at the beginning of the year
|
|
$
|
5,049
|
|
|
$
|
3,276
|
|
|
$
|
1,774
|
Increase
(Decrease) based on tax positions related to the prior year
|
|
|
1,381
|
|
|
|
(31
|
)
|
|
|
69
|
Increase
based on tax positions related to the current year
|
|
|
4,131
|
|
|
|
1,804
|
|
|
|
1,433
|
Lapse of
statute of limitations
|
|
|
(221
|
)
|
|
|
-
|
|
|
|
-
|
Balance at the end of the year
|
|
$
|
10,340
|
|
|
$
|
5,049
|
|
|
$
|
3,276
|
As of December 31, 2016,
the Company had $0.8 million of unrecognized tax benefits that, if recognized,
would affect the effective tax rate. The Companys policy is to record interest
and penalties related to unrecognized tax benefits as income tax expense. During
each of the years ended December 31, 2016, 2015 and 2014, the Company had an
immaterial amount related to the accrual of interest and penalties.
In addition, the Company is
subject to the continuous examination of its income tax returns by the IRS and
other tax authorities. The Companys federal and state income tax returns for
fiscal years subsequent to 2003 remain open to examination. In the Companys
most significant foreign jurisdictions Ireland, United Kingdom and Germany
the tax years subsequent to 2010 remain open to examination. The Company
regularly assesses the likelihood of adverse outcomes resulting from
examinations to determine the adequacy of its provision for income taxes, and
monitors the progress of ongoing discussions with tax authorities and the
impact, if any, of the expected expiration of the statute of limitations in
various taxing jurisdictions. The Company believes that an adequate provision
has been made for any adjustments that may result from tax examinations.
However, the outcome of tax audits cannot be predicted with certainty. If any
issues addressed in the Companys tax audits are resolved in a manner not
consistent with managements expectations, the Company could be required to
adjust its provision for income taxes in the period such resolution occurs.
Although the timing of the resolution or closure of audits is not certain, the
Company believes that it is reasonably possible that its unrecognized tax
benefits could be reduced by an immaterial amount over the 12 months following
December 31, 2016.
17. RELATED PARTY
TRANSACTIONS
The Company does not have
any significant related party transactions.
18. INFORMATION ABOUT
REVENUE AND GEOGRAPHIC AREAS
The Company considers
operating segments to be components of the Company in which separate financial
information is available that is evaluated regularly by the Companys chief
operating decision maker in deciding how to allocate resources and in assessing
performance. The chief operating decision maker for the Company is the chief
executive officer. The chief executive officer reviews financial information
presented on a consolidated basis, accompanied by information
about revenue by product line and geographic region for purposes of allocating
resources and evaluating financial performance.
F-32
Table of Contents
The Company has one
business activity and there are no segment managers who are held accountable for
operations, operating results or plans for levels or components below the
consolidated unit level. Accordingly, the Company has determined that it has a
single operating and reporting segment. Revenue by geography is based on the
billing address of the customer.
Net
Revenue
Prior to this annual report, the Company classified revenue from its
local products consisting of business listing and advertising products that
are sold directly to businesses and Yelp Reservations as local revenue, and
revenue generated through partner arrangements, including resale of advertising
products by certain partners, and monetization of remnant advertising inventory
through third-party ad networks as other services revenue.
The Company now classifies revenue from all of its business
listing and advertising products, including advertising sold by partners, as
advertising revenue. As a result, revenue generated through ad resales and
monetization of remnant advertising inventory through third-party ad networks is
now classified as advertising revenue rather than other services revenue, and
revenue from Yelp Reservations, a subscription service, is recognized as other
services revenue. All disclosures relating to revenue by product have been
updated to this revised classification for all periods presented.
The following table
presents the Companys net revenue by product line for the periods presented (in
thousands), reflecting the changes to its revenue categories described above:
|
|
Year Ended December
31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
(dollars in
thousands)
|
Net
revenue by product:
|
|
|
|
|
|
|
|
|
|
Advertising
|
|
$
|
645,241
|
|
$
|
471,416
|
|
$
|
335,450
|
Transactions
|
|
|
62,495
|
|
|
43,854
|
|
|
5,247
|
Brand
advertising
|
|
|
-
|
|
|
31,012
|
|
|
34,482
|
Other
services
|
|
|
5,333
|
|
|
3,429
|
|
|
2,357
|
Total
net revenue
|
|
$
|
713,069
|
|
$
|
549,711
|
|
$
|
377,536
|
For purposes of comparison,
the following table presents the Companys net revenue by product line for the
periods presented (in thousands) based on the revenue categories in effect prior
to the three months ended December 31, 2016:
|
|
Year Ended December 31,
|
|
|
2016
|
|
2015
|
|
2014
|
|
|
(dollars in
thousands)
|
Net revenue by product:
|
|
|
|
|
|
|
|
|
|
Local
|
|
$
|
624,694
|
|
$
|
448,236
|
|
$
|
319,137
|
Transactions
|
|
|
62,495
|
|
|
43,854
|
|
|
5,247
|
Brand
advertising
|
|
|
-
|
|
|
31,012
|
|
|
34,482
|
Other
services
|
|
|
25,880
|
|
|
26,609
|
|
|
18,670
|
Total
net revenue
|
|
$
|
713,069
|
|
$
|
549,711
|
|
$
|
377,536
|
F-33
Table of Contents
During the years ended
December 31, 2016, 2015 and 2014, no individual customer accounted for 10% or
more of consolidated net revenue.
The following table
presents the Companys net revenue by geographic region for the periods
indicated (in thousands):
|
Year
E
nded
Decemb
er 31,
|
|
2016
|
|
2015
|
|
2014
|
United States
|
$
|
698,244
|
|
$
|
537,567
|
|
$
|
366,579
|
All
other countries
|
|
14,825
|
|
|
12,144
|
|
|
10,957
|
Total net revenue
|
$
|
713,069
|
|
$
|
549,711
|
|
$
|
377,536
|
Long-Lived
Assets
The following table
presents the Companys long-lived assets by geographic region for the periods
indicated (in thousands):
|
|
Year
E
nded
Decemb
er 31,
|
|
|
2016
|
|
2015
|
|
2014
|
United States
|
|
$
|
89,362
|
|
$
|
78,675
|
|
$
|
73,344
|
All
other countries
|
|
|
3,078
|
|
|
5,493
|
|
|
5,900
|
Total long-lived assets
|
|
$
|
92,440
|
|
$
|
84,168
|
|
$
|
79,244
|
19. RESTRUCTURING AND
INTEGRATION
The following table
presents the Companys restructuring and integration costs for the periods
indicated (in thousands):
|
Year En
ded December
31,
|
|
2016
|
|
2015
|
|
2014
|
Restructuring and integration
|
$
|
3,455
|
|
$
|
-
|
|
$
|
-
|
On November 2, 2016, the
Company announced plans to significantly reduce sales and marketing activities
in markets outside of the United States and Canada. The Company incurred $ 3.5 million in restructuring and
integration costs associated with this plan for
the year ended December 31, 2016, of which $2.0 million had been paid by December 31,
2016. The Company expects to pay the remaining $1.5 million during the
year ending December 31, 2017.
The costs primarily related
to severance costs for affected employees. No goodwill, intangible assets or
other long lived assets have been determined to be impaired. The restructuring
plan was substantially completed by the year ended December 31, 2016, with
approximately $0.2 million expected to be incurred during the year ended
December 31, 2017.
F-34
Table of Contents
20. SUBSEQUENT
EVENTS
On February 28, 2017, the Company acquired Nowait, a restaurant technology company with the industry’s leading waitlist
system and seating tool. The aggregate purchase price of approximately $40 million was paid in cash, and includes the partial
stake previously acquired by the Company.
The purchase price is subject to customary working capital adjustments. The Company is currently in the process of valuing
the assets acquired and liabilities assumed in the transaction, which will be reflected in the Company's financial statements
for the period ending March 31, 2017.
In October 2016, the Company acquired a 20% interest in the preferred stock of Nowait for $8.0 million in cash, which is recorded
as a cost-method investment as part of non-current in the Company’s consolidated balance sheet as of December 31, 2016
(see Note 9).
The Company expects the acquisition to drive daily engagement in the key restaurant vertical, by allowing Yelp users to more
quickly move from search and discovery to transacting at a local business.
F-35
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