Yelp Stock Rises Nearly 3% as Battered Review Site Bets AI Data Deals With OpenAI and Meta Can Offset Ad Slump

Yelp shares rose Friday, extending a modest recovery for the online review company, whose stock has lost about a third of its value this year as its core advertising business shrinks.

Yelp traded at $20.83 at 10:09 a.m. ET on the New York Stock Exchange, up 2.76%. The stock remains near the low end of its 52-week range of $17.27 to $31.72.

There was no company-specific news to explain Friday's gain. Yelp shares have been volatile since the company reported third-quarter results on Nov. 5.

Advertising under pressure

Yelp's results showed a business in transition. Net revenue fell 1% from a year earlier to $371 million. Net income declined to $35 million.

Advertising, Yelp's main source of revenue, fell 6% to $337 million as ad clicks dropped 8%. Revenue from restaurants, retail and other categories fell 13%. Advertising from home services businesses, long Yelp's steadier segment, slipped 2%.

The company cut its full-year revenue forecast to between $1.455 billion and $1.46 billion, from $1.46 billion to $1.47 billion. It forecast fourth-quarter revenue of $347 million to $352 million, below analysts' expectations.

The shares opened sharply lower on Nov. 6, the day after the report, at $18.50 after closing at $20.52.

The AI bet

Yelp is betting that artificial intelligence can help offset the advertising decline. Its "other revenue" segment, which includes data licensing, AI software for businesses and food ordering, rose 82% to a record $34 million. Part of that growth came from Yelp's acquisition of Hatch, an AI customer-communications company.

"Yelp continued to advance its AI transformation in the third quarter, and recently introduced more than 30 new features and updates, including a smarter and more personalized Yelp Assistant," co-founder and chief executive Jeremy Stoppelman said.

Stoppelman said demand for Yelp's data licensing products is growing, including through partnerships with OpenAI and Meta. He said Yelp's reviews, photos and business information could be useful for AI agents that help consumers find local businesses.

"Continued demand for our trusted local content across the AI ecosystem drove growth in revenue from data licensing," Stoppelman said.

Hatch's annual revenue run rate reached about $37 million, up 55% from a year earlier. Yelp is targeting a $250 million annual run rate for its other revenue segment by the end of 2028, up from $136 million in the third quarter.

AI search threat

The pivot reflects a challenge facing many internet companies: AI-powered search tools are changing how consumers find local businesses. Stoppelman said Google's increased use of AI Overviews had some effect on Yelp's traffic during the quarter, but he described the impact as muted.

Analysts cautious

Wall Street remains wary. Several brokers cut price targets after the results. JPMorgan lowered its target to $18 from $19 with an Underweight rating, Jefferies trimmed its target to $21 from $22, and Craig-Hallum cut its target to $24 from $30. Morgan Stanley has kept a Sell rating.

Yelp has also been returning cash to shareholders. It repurchased $25 million of stock in the third quarter, bringing its buybacks this year to $200 million.

Investors will watch whether Yelp's AI products can grow fast enough to make up for its shrinking advertising base.

This article is for informational purposes only and does not constitute investment advice.