Yelp – Investment Thesis

Agenda

2

i.  Company Overview ii.  Investment Thesis iii.  Industry Tailwinds iv.  Revenue and Product Mix-shift v.  Variant Perception vi.  Valuation

Company Overview

§  Yelp is the #1 business review site and the best way to find a local business

§  Last quarter, Yelp attracted 168 million users onto its platform with more than half coming from mobile visits

§  Frequent Yelp users demonstrate a high level of purchase intent: 89% of users make a purchase within 1 week of finding a business

3

Value Proposition Mobile Reach

Cumulative Reviews Local Ad Revenue Business Model

0%

10%

20%

30%

Yelp Groupon TripAdvisor YP Sites FourSquare Angie's List

0

20

40

60

80

100

Local Revenue

Retained Revenue Ad Delivery New Revenue Number of Salespeople Quota Attainment

Inventory Levels Ad Performance

Number of Existing Customers Revenue Retained

Source:Companyfilings

Revenue Breakdown

4

Local Advertising

81%

Transactions 8%

Brand Advertising

6%

Other 5%

Home & Local 28%

Restaurants 15%

Beauty & Fitness 12%

Shopping 10%

Health 11%

Other 24%

Revenue by Segment

§  The majority of revenue comes from Yelp’s core local advertising product

§  Transaction revenue is a relatively new and fast growing segment that poses substantial opportunity in a young /growing market

Local Ad Revenue by Vertical

§  Yelp’s local ad revenue is spread across multiple verticals and not solely dependent on one single sector

§  This provides protection for Yelp as some verticals experiences different peaks and troughs with their respective industry cycles

Source:Companyfilings

Yelp Stock Price History

5

Yelp is currently trading near its IPO price in 2012

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100

IPO Price: $22.03

Feb. 10, 2015: Yelp acquires Eat24 for $134M in order to enter the food delivery business

Jul. 18, 2013: Yelp acquires online reservation service SeatMe for $12.7M

Jul. 28, 2015: Yelp announces discontinuation of display advertising by end of the year; will shift focus to native and local advertising

Jul. 2, 2015: Yelp decides to stall sale of company

Investment Thesis

§  Competitors in the transaction industry lack one key advantage: Yelp

§  Integrating delivery (transactions) elevates Yelp from a review site to a more comprehensive service

§  Both top-line and bottom-line targets become easier to achieve due to the profitability of the transaction business

6

Monetization will improve with mix-shift

Yelp is an organic driver for Eat24 growth

Stickiness Mitigates Competition Risk

§  Transition from CPM to CPC is fueled by industry demand for CPC

§  Sales-force productivity is increasing (through both focus and better products)

§  U.S. Marketers spent roughly $31 Billion dollars on local advertising, but Yelp’s local advertising revenue was $314 million in 2014

§  Mobile platform allows for accelerated networking effects through increased traffic and engagement

§  Mobile/App users are more sticky than desktop users

§  Less competition for views/clicks on mobile than desktop

§  Yelp becomes the 1st place to search

While the street’s perception towards Yelp’s business initiatives is negative, we see tremendous upside to its growth strategy and an opportunity to purchase shares at a discount relative to their true value.

Investment Recommendation

Industry Drivers

§  By 2019, online and digital advertisements are expected to represent 35% of total ad spending (23% in 2014)

§  Decline in the market share for traditional advertising channels (direct mail, yellow-pages, newspapers-print)

§  This shift in local ad spending should benefit online and mobile advertising platforms

7

Direct Mail 24%

Newspapers (Print) – 8%

Yellow Pages (Print) – 1%

TV 15% Radio

10%

Newspapers (Online) – 3%

Online 13%

Mobile 10%

Cable 5%

Others 11%

U.S. Local Advertising Spending by Channel (2019E):

$159 Billion

Current Tailwinds

Source:Companyfilings,WallStreetResearchNote:Usernumbersinmillions

Underpenetrated Market §  With only ~104,000 paying local advertising

accounts, Yelp has only penetrated about 4% of its claimed local businesses

§  Significant runway to be seen

§  Local advertising business has historically been tough to penetrate

§  Requires significant amounts of investment in sales force to meaningfully penetrate the market (small business take a while to adopt new technologies, therefore lengthening the sales cycle)

§  Newer CPC offerings should attract more advertisers and help with retention

35 41 46 54

64 69 77 84 90 97

1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15

Growth in Local Advertising Accounts (mm) 104

Paid Local Advertising Products

8

Yelp Ads SeatMe Call to Action

§  Ability to take customers directly to an order form or website from Yelp page

§  Directly able to measure how many leads you are generating

§  Can customize for specifically mobile or web

§  Allows customers to make reservations directly from the Yelp platform

§  Number of restaurants using SeatMe has grown from 500 to ~18,000 within the past 6 quarters (in comparison, OpenTable has ~25,000 restaurants)

§  Far cheaper than alternatives

§  Search-based advertising: Yelp places local business ads in front of users who are looking to make a purchase similar to what that business provides

§  Demonstrated significant ROI for advertisers using this product based off generated leads

Source:Companyfilings

Local Advertising – Subscription vs. CPC

9

Yelp’s local advertising revenue can be broken up into its self-service and full-service products

Full-Service §  Yelp’s core subscription-based advertising

product §  Based on the number of advertising

impressions that Yelp displays for the business §  Requires businesses to commit to a year long

contract that is billed monthly (~$50 – $1,000 monthly budget)

Self-Service §  Cost-per-click based advertising §  Growing much faster than the legacy product as

local advertisers are becoming more comfortable with digital advertising and prefer performance based pricing

§  We see the trend towards the CPC based product continuing as advertisers tend to be satisfied with the performance based product

§  Improve customer relations §  Gives businesses more flexibility with their

budgets and a better value relative to the subscription model

§  CPC model should increase advertisers’ ROI

19.6 29.8

39.4 49.6

60.3 23%

32% 40%

46% 52%

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30%

40%

50%

60%

0 10 20 30 40 50 60 70

Sep-14 Dec-14 Mar-15 Jun-15 Sep-15

CPC Revenue

CPC Revenue % of Local Revenue

Source:Companyfilings

10

Online ordering adds values to users by: §  Expanded Choices §  Convenience §  Control and Transparency §  Superior Service §  Free to Use Online orders have high value add for restaurants: §  More Orders at Full Menu Prices §  Low Risk/High Return §  Insight from Order Data §  Reach New Customers §  Higher Margin Takeout

High Growth in Online Ordering

§  $67B Spent by US consumers of take-out annually §  $8.5 - $9.5B total market opportunity based on 13-14%

commission rate

Yelp has potential to generate value by connecting its user base to a number of restaurants through Eat24

Restaurants 446,000 25,000 30,000

Locations Nationwide 1,500 Cities 800 Cities

Market Data Users: 168mm Market Cap: $1.92B

Users: 750,000 2015E Revenue: $44mm Acquisition Cost: $127mm Revenue Growth y/y: 73%

Users: 6mm 2015E Revenue: $361mm Market Cap: $2.13B Revenue Growth y/y: 46%

Online Orders, 5%

Paper Menus & Phones,

95%

Online vs. Call-In Takeout Orders

Source:CompanyFilings

Mobile Stickiness

11

14M

20M

Q3'14 Q3'15

App Unique Devices

39% y/y

§  When it comes to mobile, Yelp is a clear leader with ~30% penetration of U.S. smartphones

§  Much higher than key competitors and still plenty of room for growth

§  70% of page views come from the native app1

§  ~56% of new reviews are coming from the mobile app §  Mobile users are more engaged

We see mobile as an opportunity for 3 reasons: §  Clear leader amongst peers §  Higher degree of interaction §  Mobile stickiness reduces the

competition risks

Source:Companyfilings,ComScoreNote:(1)PageviewsincludebusinesslisGngpages,businessphotopages,andsearchlisGngs

Most reviews relative to competitors

Variant Perception

12

Street Perception Our Views

§  Phasing out brand advertising will hurt earnings and near-term revenue and profitability

§  Brand advertising revenue is a relatively small part of total revenues

§  Move will improve user experience, especially in mobile application

§  Little monetization of large user and business base (currently only 4% use advertising services)

§  Sales Staff Productivity and Churn §  Low barriers to entry and competition

§  Fundamental change in monetarization structures §  Shift from CPM to CPC marketing §  Wider adoption of marketing services from

businesses §  More competition on advertising from

businesses §  Slower growth in CPM revenues mask growth §  Higher demand for CPC

§  Maturation of cohorts §  Older cohorts have consistently higher

expenditures

§  Transaction revenues §  Transaction revenues are small §  Company at disadvantage due to not being

first movers in the space §  Diversification businesses are expensive and

inefficient

§  High synergy between core business and new businesses §  Integrating reviews, deals and orders will drive user

experience §  Bundling these services together will offer better

opportunities to businesses §  Taking of market share of GRUB, GRPN, PCLN etc.

Comparable Companies

13 Source:ThomsonReuters,Companyfilings,StaGsta,FactsetNote:(1)UsersdefinedasUniqueMonthlyVisitors(thenumberofusersthatusetheserviceinagivenmonthasopposedtoasingleuservisiGngthewebsitemorethanonce);UMVisequivalenttoMonthlyAcGveUsers(MAU)

(metrics in millions)

(1)

Valuation – Cases

14

Bear Base Bull

Local Ad Revenue §  8% growth in claimed §  4.1% monetization §  -5% growth in Rev/Acct

§  25% growth in claimed §  4.4% monetization §  -2% growth in Rev/Acct

§  30% growth in claimed §  4.6% monetization §  +1% growth in Rev/Acct

Transaction Revenue §  40% growth in 2016 §  80% growth in 2016 §  120% growth in 2016

Sales and Marketing §  Expense jumps by 200 bps §  Expense fall by 200 bps §  Expenses fall by 600 bps

EBITDA/Rev Multiple 12.4x / 3x 15.4x / 3.4x 15.4x / 3.4x

Current Price $25.50

Bear Case $21.66(-15%)

Base Case $33.03(+30%)

Bull Case $44.64 (+75%)

Probability: 15% 60% 25%

Upside: $34.25 (+34%)

Valuation

15

Growth Assumptions

§  Local Revenue continues to grow at a steady pace fueled by continued sales force expansion and productivity , as well as slightly higher monetization rate of claimed businesses as the CPC product becomes more popular.

§  Transaction revenue has consistent growth rate for the second half of 2015 and continues to grow quickly as Eat24 becomes integrated with the Yelp platform

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12x

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

2016

EV

/ Rev

enue

3-year Forward Revenue CAGR

Yelp trades at a discount to peers in spite of having stronger top line growth

TWTR FB

LNKD

YELP

P

RUBI

TRUE

GOOGL

SALE IACI AOL

Source:WallStreetResearch,ThomsonReuters,Bloomberg,BerkeleyInvestmentGroupassumpGons

Valuation (Cont.)

16

EV/EBITDA (50%) EV/Revenue (50%)

Appendix

17

i.  Historical Financials i.  Income Statement ii.  Balance Sheet iii.  Cash Flow Statement

ii.  Comparable Company Analysis iii.  Catalysts for Growth iv.  Distribution of Reviewed Businesses v.  CPM vs. CPC vi.  Sales Force & HR Concerns vii.  Yelp Products – Local Advertising viii.  International Content ix.  User Growth x.  Customer Satisfaction

xi.  SeatMe xii.  Cohort Analysis xiii.  Valuation Model

i.  Income Statement – Base Case ii.  Income Statement – Bull Case iii.  Income Statement – Bear Case iv.  Revenue Assumptions v.  Revenue Build – Base Case

xiv.  Sum of the Parts Valuation

Historical Income Statement

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Comparable

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12

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

2016

EV

/ Rev

enue

3-year Forward Revenue CAGR

21

Yelp trades at a discount to peers in spite of having stronger top line growth

TWTR

GOOGL

FB

LNKD

YELP

SALE P

RUBI

TRUE

IACI

AOL

Source:WallStreetResearch

Catalysts for Growth

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Sales Performance §  Yelp has been able to

consistently grow its sales force and increase the productivity of the each sales rep on average

§  Sales team has grown nearly 70% since Q1 2014

§  Sales force productivity continues to increase

Eat24 Integration Beyond Restaurants

57.67

64.73

58.27

64.23

61.08

65.81 66.10

70.90 74.07

76.52

Mar

-13

Jun-

13

Sep-

13

Dec

-13

Mar

-14

Jun-

14

Sep-

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Dec

-14

Mar

-15

Jun-

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Revenue / Sale Rep

§  Since Yelp acquired Eat24, the company has seen considerable growth in transaction revenue

§  Eat24 is just beginning its integration with the Yelp platform

§  Provides a one-stop-shop for customers looking to read reviews and place an order

§  Most people don’t know that Yelp offers services beyond simply restaurant reviews

§  Yelp is undermarketed – 26% unaided brand awareness

§  “We know just the place” §  Home & Local is the fastest

growing vertical

Source:CompanyFilings

Increasing Brand Awareness

14

25

44

2013 2014 2015E

Eat24 Annual Revenue

23

Distribution of Reviewed Businesses

Shopping 23%

Restaurants 19%

Home & Local Services 12%

Beauty & Fitness 9%

Arts, Entertainment

& Events 7%

Health 6%

Auto 4%

Nightlife 4%

Travel & Hotel 4%

Other 12%

Source:Companyfilings

Cost Per Impression vs. Cost Per Click

24

While an ad optimizer could also use CPC to test their campaigns, an expert optimizer will at some point use CPM for extremely high performance ads. The reason is that when bidding on a CPC basis, you will never pay less than your bid rate.

“If you’re new to advertising your best bet is to bid on a CPC basis. This way, you are hedging against your exposure to low performing advertisements.”

Sales Force and HR Concerns

25

Street Concerns

Yelp is dependent on a highly productive and growing sales force to be able to grow its revenue and reach more local businesses

Yelp did not meet initial hiring goals (35% instead of 40%) for the first half of 2015 and subsequently lowered its yearly revenue guidance to account for lower than expected sales representatives

Our View

Yelp’s sales force is extremely productive and has consistently been increasing its productivity quarter over quarter

Many reps are leading with the CPC – because it works with local advertisers. They have more offerings such as SeatMe, Eat24 & Yelp Deals. They have more products that are easier to sell

0

500

1,000

1,500

2,000

Sales Headcount

CAGR: 65%

57.67

64.73

58.27

64.23

61.08

65.81 66.10

70.90 74.07

76.52

Revenue / Sale Rep

Source:CompanyFilings

Yelp Products – Local Advertising

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Free Self Service Full-Service

Pricing Plan NA CPC Subscription

Respond to reviews ✓ ✓ ✓

Update business information ✓ ✓ ✓

Business analytics ✓ ✓ ✓

Upload photos ✓ ✓ ✓

Mobile app ✓ ✓ ✓

Yelp reservations ✓ ✓ ✓

Deals and gift certificates ✓ ✓ ✓

Check-In offers ✓ ✓ ✓

Yelp ads ✓ ✓

SeatMe ✓ ✓

Competitor ad removal + $50/month ✓

Slideshow +$25/month ✓

Call to action button +$50/month ✓

Featured video ✓

Call tracking ✓

Account Manager ✓

Model

27

Internet Mkt Place 2014 2015 2016 2017 2018 2019 2020

Revenue (Base) 377,536 538,589 680,876 797,632 885,688 972,636 1,068,199 EBITDA (Base) 70,922 68,696 121,843 168,432 228,455 266,995 286,688 Revenue (Bull) 377,536 540,285 773,976 1,030,665 1,294,849 1,483,345 1,578,589 EBITDA (Bull) 70,922 94,224 201,234 267,973 362,558 445,004 473,577 Revenue (Bear) 377,536 393,535 586,203 666,906 726,460 758,202 759,298 EBITDA (Bear) 70,922 46,898 46,896 46,683 50,852 68,238 68,337

Case Return WeightBase 38.2% 55%Bull 81.4% 10%Bear -3.2% 35%

Weighted return 28%

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Base Case 1Assumptions COGS as % of Revenue 4.3% 6.5% 7.1% 7.1% 6.9% 6.3% 7.2% 9.6% 9.6% 10.0% 9.2% 8.5% 8.5% 8.5% 8.5% 8.5%Bear Case 12.0% 10.0% 10.0% 10.0% 10.0% 10.0%Base Case 10.0% 8.5% 8.5% 8.5% 8.5% 8.5%Bull Case 8.0% 7.0% 7.0% 7.0% 7.0% 7.0%

Sales and Marketing as % of Revenue 68.8% 69.7% 63.6% 58.9% 52.3% 49.3% 49.2% 46.6% 53.9% 50.0% 50.0% 48.0% 47.0% 45.0% 44.0% 44.0%Bear Case 53.0% 52.0% 52.0% 52.0% 50.0% 50.0%Base Case 50.0% 48.0% 47.0% 45.0% 44.0% 44.0%Bull Case 47.0% 44.0% 44.0% 43.0% 42.0% 42.0%

Product Development as % of Revenue 11.9% 13.2% 13.0% 13.6% 13.7% 13.3% 15.9% 15.1% 15.7% 16.0% 15.7% 15.0% 15.0% 14.0% 14.0% 14.0%Bear Case 18.0% 17.0% 18.0% 18.0% 18.0% 18.0%Base Case 16.0% 15.0% 15.0% 14.0% 14.0% 14.0%Bull Case 14.0% 14.0% 14.0% 13.0% 12.0% 12.0%

General and Administrative as % of Revenue 17.2% 22.6% 17.7% 17.0% 14.4% 12.3% 13.9% 11.7% 12.0% 12.0% 12.3% 11.0% 10.0% 10.0% 10.0% 10.0%Bear Case 13.0% 13.0% 13.0% 13.0% 13.0% 13.0%Base Case 12.0% 11.0% 10.0% 10.0% 10.0% 10.0%Bull Case 10.0% 9.0% 9.0% 9.0% 9.0% 9.0%

Stock Based Comensation as % if Revenue 2.2% 3.0% 5.9% 10.8% 11.4% 11.2% 11.5% 11.6% 10.9% 11.0% 11.2% 10.0% 10.0% 10.0% 10.0% 10.0%Bear Case 12.0% 12.0% 12.0% 12.0% 12.0% 12.0%Base Case 11.0% 10.0% 10.0% 10.0% 10.0% 10.0%Bull Case 9.0% 9.0% 9.0% 9.0% 9.0% 9.0%

Depreciation and Amortization as % of Revenue 4.7% 4.9% 5.1% 5.3% 4.9% 4.7% 5.8% 5.4% 5.3% 5.5% 5.5% 4.5% 4.5% 4.5% 4.5% 4.5%Bear Case 6.5% 5.5% 5.5% 5.5% 5.5% 5.5%Base Case 5.5% 4.5% 4.5% 4.5% 4.5% 4.5%Bull Case 4.5% 4.0% 4.0% 4.0% 4.0% 4.0%

29

Customers Businesses

Most reviews relative to competitors

Integrated Platform

168 million users that are using Yelp with the intent to make a purchase Targeted native advertisements that generate high ROI for local businesses

No more CPM – businesses pay for performance (aka leads) Ability to interact with customers and improve social media presence

Read Review

Interact with Data

Make Purchases

International Content Continues to Grow Globally

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Review Growth Relative to Community Manager Start

Source:CompanyfilingsNote:Bubblesize=adultmetropopulaGon

International

U.S.

User Growth §  Overall User

growth slowing, but mobile app users reaccelerating

§  Possibly due to law of large numbers and traffic issues due to Google algo change

§  However, engagement on mobile platforms remains healthy as over 50% of reviews and photos are contributed via mobile app

31

9.5 10.4 11.2 10.6 10.9

12

14.5 14.5 16

18.1

11.6 11.4 13.4 13.4 14.8

17

67%

44% 36%

15% 10%

16%

30% 37%

47% 51%

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1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15

Yelp (Worldwide) Yelp Mobile Users (U.S) Yelp Reported Mobile App User Growth

40.2 45.1 50.5 52.9 61.2 67.9 73.4 72.3 79 82.8

71.8 73.4 78.2 77.7 82.2 81.9 80.5 77.6 79.5 79.2 112 118.5 128.7 130.6

143.4 149.8 153.9 149.9 158.5 162

1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15

Reported Users Breakdown

Mobile Desktop Source:Companyfilings,WallStreetResearch,comScore,SFGResearchNote:Usernumbersinmillions

Customer Satisfaction

32

18%

82%

10%

90%

0% 50% 100%

Dissatisfied

Satisfied

How satisfied are SMBs with Yelp's Paid Ad Product?

2015

2013

•  We see a trend towards rising customer satisfaction with Yelp’s core local advertising product. (800 bp increase from 2013)

•  SMBs intend to increase their Yelp spending by 6% in the NTM.

•  A year ago, SMBs planned to decrease their spending by 18%.

25%

66%

52%

60%

74%

89%

100%

19%

74%

49%

65%

83%

86%

100%

Newspaper website

Email

OpenTable

Groupon

Yelp

Facebook

Google

Effectiveness*of*Driving*New*Customers

2015

2013

+900bp Improvement

•  From 2013 to 2015 we see a 900bp increase in the percentage of SMBs observing improved customer traffic from Yelp’s paid advertising product

•  Yelp remains the third most effective channel to drive new customers (after Google and Facebook)

Source:WallStreetResearch

SeatMe

33

SeatMe is an affordable cloud-based online reservation solution

•  Table Management •  Online Reservations •  Streamlined Waitlists •  Create Targeted Guest Lists

•  135 million unique users •  78% of Yelp users search

for restaurants •  89% of Yelp users make a

purchase within a week

•  SeatMe is far more affordable than competing products

•  SeatMe has the Yelp network behind it

Cohort Analysis

34

22.4 35.1 55.9

85.7 136.9

8.2 15.7

29.1

50.4

86.3

2.6

7.1

14.4

28.6

2010 2011 2012 2013 2014

Growth potential in existing markets

2005-2006 Cohort 2007-2008 Cohort 2009-2010 Cohort

IS – Base Case

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IS – Bull Case

36

IS – Bear Case

37

Revenue Build – Base Case

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Revenue Assumptions

39

Sum of the Parts Valuation

40

WedecidedtoincludeasumofthepartsvaluaGontoidenGfyhowmuchvaluewefeeliscomingfromthefastgrowingtransacGonbasedproductssegmentofYelp.

2016 Transaction Based Revenue 2016 Local Ad RevenueCase Revenue Multiple Revenue Multiple

Bear 58,254 5.0 519,040 3.4Base 79,578 5.0 626,107 3.4Bull 102,982 5.0 708,882 3.4

Local Advertising ValueRevenue

1.5 2.0 2.5 3.0 3.5 $519,040 $778,560 $1,038,080 $1,297,600 $1,557,120 $1,816,640$588,882 $883,323 $1,177,765 $1,472,206 $1,766,647 $2,061,088$628,882 $943,323 $1,257,765 $1,572,206 $1,886,647 $2,201,088$668,882 $1,003,323 $1,337,765 $1,672,206 $2,006,647 $2,341,088$708,882 $1,063,323 $1,417,765 $1,772,206 $2,126,647 $2,481,088

2016 EV/Revenue LATransaction Value

Revenue982% 3.0 4.5 6.0 7.5 9.0

$58,254 $174,762 $262,143 $349,524 $436,905 $524,286$66,982 $200,946 $301,419 $401,892 $502,365 $602,838$78,982 $236,946 $355,419 $473,892 $592,365 $710,838$90,982 $272,946 $409,419 $545,892 $682,365 $818,838

$102,982 $308,946 $463,419 $617,892 $772,365 $926,838

2016 EV/Revenue TR

Revenue0%

$577,294 -30.2% -11.8% 6.5% 24.9% 43.2%$655,864 -23.3% -2.4% 18.5% 39.4% 60.3%$707,864 -18.2% 4.7% 27.6% 50.5% 73.4%$759,864 -13.1% 11.8% 36.7% 61.6% 86.6%$811,864 -8.0% 18.9% 45.8% 72.8% 99.7%

Return Sensitivity