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EX-31.2 - CERTIFICATION PURSUANT TO RULE 13A-14(A)/15D-14(A) - YELP INCexhibit31-2.htm
EX-32.1 - CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER - YELP INCexhibit32-1.htm
EX-31.1 - CERTIFICATION PURSUANT TO RULE 13A-14(A)/15D-14(A) - YELP INCexhibit31-1.htm
EX-21.1 - SUBSIDIARIES OF YELP INC. - YELP INCexhibit21-1.htm
EX-23.1 - CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM - YELP INCexhibit23-1.htm

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 
Form 10-K
 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
      OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                           to
 
Commission file number: 001-35444
 

YELP INC.
(Exact name of Registrant as specified in its charter)

   
Delaware 20-1854266
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)

140 New Montgomery Street, 9th Floor
San Francisco, California 94105
(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (415) 908-3801

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class         Name of Each Exchange on Which Registered
Class A Common Stock, par value $0.000001 per share New York Stock Exchange LLC

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 registrant’s 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            Accelerated filer   
 
Non-accelerated filer (Do not check if a smaller reporting company)    Smaller reporting company   

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 $2,823,137,714 as of June 30, 2015, the last day of the registrant’s most recently completed second fiscal quarter, based upon the closing sale price of the registrant’s Class A common stock on the New York Stock Exchange LLC reported for June 30, 2015. Excludes an aggregate of 301,184 shares of the registrant’s Class A common stock and an aggregate of 9,322,929 shares of the registrant’s Class B common stock held by officers, directors, affiliated stockholders and The Yelp Foundation. For purposes of determining whether a stockholder was an affiliate of the registrant at June 30, 2015, the registrant assumed that a stockholder was an affiliate of the registrant if such stockholder (i) beneficially owned 10% or more of the registrant’s 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, 2015. 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 19, 2016, there were 67,614,690 shares of the registrant’s Class A common stock, par value $0.000001 per share, issued and outstanding and 8,445,146 shares of the registrant’s Class B common stock, par value $0.000001 per share, issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement for the 2016 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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YELP INC.
2015 ANNUAL REPORT ON FORM 10-K
T
ABLE OF CONTENTS

        Page  
PART I
Item 1.       Business. 1
Item 1A.   Risk Factors. 15
Item 1B. Unresolved Staff Comments. 38
Item 2. Properties. 38
Item 3. Legal Proceedings. 38
Item 4. Mine Safety Disclosures. 38
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of 39
Equity Securities.
Item 6. Selected Consolidated Financial and Other Data. 40
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 44
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. 62
Item 8. Financial Statements and Supplementary Data. 63
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 63
Item 9A. Controls and Procedures. 63
Item 9B. Other Information. 66
PART III
Item 10. Directors, Executive Officers and Corporate Governance. 66
Item 11. Executive Compensation. 66
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. 66
Item 13. Certain Relationships and Related Transactions, and Director Independence. 66
Item 14. Principal Accounting Fees and Services. 66
PART IV
Item 15. Exhibits, Financial Statement Schedules. 67
SIGNATURES 68
EXHIBIT INDEX 69
FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-3
Consolidated Statements of Comprehensive Income (Loss) F-4
Consolidated Statements of Stockholders’ Equity F-5
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-8

____________________

Unless the context suggests otherwise, references in this Annual Report on Form 10-K, or Annual Report, to “Yelp,” the “Company,” “we,” “us” and “our” refer to Yelp Inc. and, where appropriate, its subsidiaries.

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Yelp, Yelp Inc., the Yelp logo, Eat24, SeatMe and other trade names, trademarks or service marks of Yelp appearing in this Annual Report are the property of Yelp. Trade names, trademarks and service marks of other companies appearing in this Annual Report are the property of their respective holders.

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 both to 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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics” for information on how we define our key metrics. Unless otherwise stated, these metrics do not include metrics from our Eat24 or SeatMe businesses.

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 around the world. 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 discernable user action involved; this activity can cause our system to count the device associated with the app as a unique app device in a given period.

Our metrics 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.

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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. With a total of approximately 95.2 million cumulative reviews of almost every type of local business in more than 30 countries as of December 31, 2015, we are one of the world’s leading local business review sites.

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:

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 low traffic acquisition costs.

 

Engagement. Yelp provides a platform for consumers to share their everyday local business experiences, through reviews, tips, photos and videos, and engage directly with businesses, through reviews, phone calls and our Message the Business feature. Our platform 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 enhance the page with additional information about their business and respond to reviews, among other features. 

 

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 previously offered display advertising and brand sponsorships for national brands as well; however, we phased out these products over the second half of 2015 to focus on our core strength of local advertising and to ensure that we continue providing a great consumer experience, as discussed in greater detail below. We generate revenue primarily from the sale of advertising on our website and mobile app to businesses. During the year ended December 31, 2015, we generated net revenue of $549.7 million, representing 46% growth over 2014, a net loss of $32.9 million and adjusted EBITDA of $69.1 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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP Financial Measures” in this Annual Report.

 

Transactions. In 2013, we introduced the Yelp Platform, which allows consumers to transact with local businesses in new ways directly on Yelp. In addition to providing consumers with a continuous experience from discovery to completion of transactions such as ordering food through a local delivery service and booking spa appointments, the Yelp Platform creates an additional point of consumer engagement for local businesses. In February 2015, we acquired Eat24Hours.com, Inc., or Eat24, a leading online food ordering service that we had previously partnered with on the Yelp Platform, to drive daily engagement in our restaurant vertical.

At the heart of our business are the vibrant communities of contributors across the world 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 95.2 million cumulative reviews our contributors had submitted through December 31, 2015, approximately 68.0 million were recommended and available on business listing pages; approximately 20.7 million were not recommended and available on secondary pages; and approximately 6.5 million had been removed from our platform. Although they do not factor into a business’s 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, 2015.

Reviewed Businesses*


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Reviews*


*      The charts above include information based upon all contributed reviews and include some businesses that have only received reviews that are not recommended or have been removed.

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 76% of our local revenue for the quarter ended December 31, 2015, broken down as follows: Home & Local Services, 28%; Restaurants, 15%; Beauty & Fitness, 12%; Health, 11%; and Shopping, 10%.

Our Products

Local

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. We recognize revenue from these products as local revenue.

       Free Online Business Account        

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. to reply to reviews either publicly or privately), update information (e.g. address, hours of operation) and offer Yelp Deals and Gift Certificates (as described below).

   
       Enhanced Profile

Our enhanced profile solution eliminates ads from a business’s 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 business’s listing page to the business’s own website to complete the action.


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       Branded Profile        

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 location’s business listing page.

 
       Search and Other Ads

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.

   
       Online Reservations

We provide restaurants, nightlife and certain other venues with the ability to offer online reservations directly from their Yelp business listing pages through our SeatMe product, which also offers front-of-house management tools. We also offer Yelp Reservations, a free tool with basic reservation functionality for businesses in the restaurant and nightlife categories.


Transactions

In addition to our business listing and 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.

       Eat24        

Our Eat24 business generates revenue through arrangements with restaurants in which restaurants pay a commission percentage fee on orders placed through Eat24’s platform.

 
       Yelp Platform

The Yelp Platform allows consumers to transact directly on Yelp. Through our integration of Eat24 and partnerships with companies including Booker, BloomNation and CellarPass, consumers are currently able to complete food delivery transactions, book spa and salon appointments, order flowers and make winery reservations, among others, all without leaving Yelp.

   
       Yelp Deals

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. Yelp Deals typically have a fee structure based solely on transaction volume with no upfront costs, and 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.

 
       Gift Certificates

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.


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 local advertising 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. 

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Other Services

We generate other revenue through partner arrangements and monetization of remnant advertising inventory through third-party ad networks. Our partner arrangements include allowing third-party data providers to update business listing information on behalf of businesses and resale of our local advertising products by certain partners. We recognize revenue from these sources as other services revenue.

Revenue by Product

The following table provides a breakdown of our revenue by product for the years indicated:

Year Ended December 31,
      2015       2014       2013
(as a percentage of net revenue)
Net revenue by product:
       Local 82 % 85 % 83 %
       Transactions 8 % 1 % 2 %
       Brand advertising 6 % 9 % 12 %
       Other services 4 % 5 % 3 %
              Total net revenue      100 %      100 %      100 %

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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:

Network Effect

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. We plan to continue investing in marketing to leverage our brand and benefit from these network dynamics. In 2015, we launched our first television advertising campaign to increase consumer awareness of our brand, and we plan to continue testing various advertising channels in 2016. We also expanded our team of Community Ambassadors — a part-time position similar to Community Managers — to foster and support contributors in our smaller communities.

 

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 innovate and explore ways to expand our content and further enable contributors to share their local experiences, including on new and evolving platforms and distribution channels such as automobile navigation systems, wearable devices and voice-enabled mobile devices. For example, in 2015, we launched versions of our mobile app for the Apple Watch and Samsung Gear S2 smartwatch. We believe the continued expansion of the Yelp Platform will also drive further engagement, and acquired Eat24 in 2015 to that end. In addition, 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.

 

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. For example, we phased out our brand advertising products in 2015 in part because demand in the brand advertising market has shifted toward products disruptive to the consumer experience. We also plan to continue our consumer protection efforts. In 2015, for example, we partnered with ProPublica, a public interest news organization, to incorporate health care statistics and consumer opinion survey data onto the business listing pages of medical treatment facilities, as well as expanded our consumer alerts program. 

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Enhance Monetization

Focus on Local. Our core strength is our local advertising business in the United States. 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. In 2015, for example, we phased out our brand advertising products and redeployed the associated internal resources elsewhere within our organization, allowing us to focus on our local advertising products. We also invested in our account management processes to improve customer service.

 

Attract More Businesses. As of December 31, 2015, we were recognizing local revenue from approximately 111,000 local advertising accounts; with approximately 63 million local businesses on our platform as of that date, we believe there is significant opportunity to increase the number of local businesses advertising on Yelp. In particular, we believe that the continued expansion of the Yelp Platform, 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 2015, we expanded the Yelp Platform to provide consumers with the ability to book a golf tee time, send flowers, book bottle service at night clubs and schedule legal consultations. 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 addition to our ongoing outreach efforts, such as the Yelp Small Business Advisory Council, we held our first business leader summit in 2015, which brought 100 entrepreneurs representing 86 communities in the United States and Canada to our offices for two days of conversation and strategizing.

 

Expand Our Sales Efforts. We plan to continue to grow our sales force and explore sales partnerships so we can reach more businesses. We have invested, and will continue to invest, aggressively in sales resources, including increases in headcount and initiatives to increase sales force productivity. We are also testing different sales channels, such as sales representative-assisted self-service advertising, to provide business owners with convenient options for purchasing our products. We believe these ongoing investments will lead to additional local businesses advertising on Yelp. In addition, we will continue to explore partnerships, such as our YP partnership, for the sale of our products.

Marketing

Community Management

We have a team of Community Managers and Community Ambassadors based across the United States and in 31 countries internationally, whose 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.

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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.

There are currently active Yelp communities in Argentina, Australia, Austria, Belgium, Brazil, Canada, Chile, the Czech Republic, Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan, Malaysia, Mexico, The Netherlands, New Zealand, Norway, Philippines, Poland, Portugal, Singapore, Spain, Sweden, Switzerland, Taiwan, Turkey, the United Kingdom and the United States.

Community Development

The Yelp communities that we have established to date have generally followed a similar development path: a pre-launch content development phase, followed by the hiring of a Community Manager, leading to review growth and consumer activity, which, at scale, supports our sales efforts to local businesses.

We select new locations based on a number of different location-specific criteria, including, but not limited to, population size, local gross domestic product, pre-existing base of reviews on our platform, Internet and wireless penetration, proximity to existing markets, number of local businesses and local ad market growth.

Before launching in any country, we license business listing information from third-party data providers and create individual pages for each business location in the entire country. During this pre-launch preparation phase, we often hire temporary local employees, called “scouts,” to provide additional rich content, such as reviews, photos and hours of operation. To bolster the integrity of the content they provide, we closely monitor their contributions to the platform, prohibit them from reviewing businesses with which they have a conflict of interest and identify them in their public profiles as paid contributors. At launch, consumers can read and write reviews about any business on our platform and contribute information about businesses that are not already listed.

After launch, we focus on attracting a community of contributors, consumers and local businesses to our platform by hiring a Community Manager to raise brand awareness and foster local engagement as described above. At scale, our platform reaches a critical mass of reviews, consumers and claimed local business accounts, and we begin an active sales effort with local businesses. Thereafter, our largest expense is related to sales efforts to attract local business advertising customers. In Yelp communities that have attained this level of development, we expect to achieve economies of scale and operating cost leverage.

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.

                  Year-Over-             Year-Over-
Year Average Year
Average Growth in Local Growth in
Number of Cumulative Average Revenue Average
  Yelp Reviews Cumulative in Q4 Local
U.S. Market Cohort Communities(1) in Q4 2015(2) Reviews(3) 2015(4) Revenue(5)
2005 – 2006 Cohort 6   6,071 28% $ 8,476 30%
2007 – 2008 Cohort 14 1,353   32%   $ 2,431   35%
2009 – 2010 Cohort 18 479 39% $ 655 39%

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(1)         A Yelp community is defined as a city or region in which we have hired a Community Manager.
 
(2) Average cumulative reviews is defined as the total cumulative reviews of the cohort as of December 31, 2015 (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, 2015 with the average cumulative reviews as of December 31, 2014.
 
(4) Average local revenue is defined as the total local revenue from businesses in the cohort for the quarter ended December 31, 2015 (in thousands), divided by the number of Yelp communities in the cohort.
 
(5) Year-over-year growth in average local revenue compares average local revenue for the quarter ended December 31, 2015 with the average local revenue for the quarter ended December 31, 2014.

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 Europe. For these and other reasons, launching additional communities may not yield results similar to those of our existing communities, particularly in the United States. As a result, we 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 2016.

Advertising

Prior to the second half of 2014, we had not spent significantly on marketing programs, but instead focused on organic and viral growth driven by our community development efforts as described above. However, we believe there is significant opportunity to increase our brand awareness and, in the longer term, traffic 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. We plan to continue testing various advertising channels in 2016. Our marketing expenses may increase if we significantly expand these efforts to attract additional consumers.

Sales

We sell our products directly through our sales force, indirectly through partners and online through our website. Our sales force consisted of 2,220 employees as of December 31, 2015 and is located across our offices in San Francisco, California; Scottsdale, Arizona; New York, New York; Chicago, Illinois; Dublin, Ireland; and Hamburg, Germany.

Direct Sales. A large majority of our sales force is dedicated to selling our local advertising products, with a significantly smaller component responsible for selling Eat24 and SeatMe products. Historically, another small component of our sales force was responsible for selling display advertisements and brand sponsorships to national advertisers; however, we phased out our brand advertising products in 2015 and redeployed the associated internal resources, including members of our brand sales team, elsewhere within our organization. Local sales representatives are primarily responsible for generating qualified sales leads by identifying and contacting local businesses through direct engagement, direct marketing campaigns and weekly e-mails to claimed local businesses. To date, our sales force has focused on increasing revenue by adding new customers, and our sales representatives are typically compensated on the basis of advertising sold in a given period.

Sales Partnerships. In 2014, we entered into a partnership with YP under which YP sells certain of our local advertising products as part of a package with its own advertising products to its advertiser base. The products covered by this arrangement include our enhanced profile and Call to Action products. We continue to explore additional partnerships for the sale or bundling of our products.

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Self-Service Ads. Our online, or self-service, sales channel allows businesses to purchase local 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.

Account Management. Although the focus of our sales force is on adding new customers, we also see opportunity to deepen our relationships with existing customers. To this end, our account management team supports existing local business advertisers, primarily in a customer service role. Our account managers are currently salaried rather than commission-based employees.

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, 2015, our mobile devices accounted for approximately 70% of all searches and approximately 63% of all ad clicks on our platform.

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. The primary and secondary locations are within shared data center environments in California and Virginia. We also host parts of our infrastructure through Amazon Web Services, 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.

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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.

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 reviewer’s type and level of activity with Yelp (which might correspond to the reviewer’s 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, 2015, 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 business’s overall star rating. As of December 31, 2015, 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.

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 business’s listing page. As of December 31, 2015, approximately 7% of the reviews submitted to our platform had been removed.

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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 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. While we are pursuing a number of patent applications, we do not currently have any issued patents, which may make it more difficult to defend certain of our intellectual property rights, particularly related to our core business. 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 local 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 local 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 local 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.

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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 and our products are used in a greater number of countries, we will also become subject to laws and regulations in additional jurisdictions. 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, 2015, we had 3,826 full-time employees globally.

Our culture extends beyond our offices and into the local communities in which people use Yelp. Our community management team’s 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 have also worked 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.

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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 130,000 shares as of December 31, 2015. 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, 2015, the Foundation held 390,000 shares of Class B 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 16 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, 9th 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.

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.

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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.

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 42% of the businesses that had been reviewed on our platform and approximately 57% of the cumulative reviews as of December 31, 2015. 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.

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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, the number of major geographic markets, especially within the United States, that we have not yet entered is declining; 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;
 

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 worldwide. 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.

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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 63% of ad clicks delivered on mobile in the three months ended December 31, 2015, 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.

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. In 2014, for example, Google made changes to its algorithms and methodologies that may be contributing to the slowing of our traffic growth rate and the decline in traffic in the fourth quarter of 2014. Google also recently 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 Google’s policy may change from time to time, be poorly defined and inconsistently interpreted. 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 Google’s 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 Apple’s App Store and Google’s 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.

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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 Google’s 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, 2015, our success depends on our ability to maintain a prominent presence in search results for queries regarding local businesses on Google. As a result, Google’s 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.

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 the 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.

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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. However, 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.
 

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. 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 markets effectively, including our international markets where we have limited operating experience and may be subject to increased risks, our revenue and business will be harmed.

We intend to further develop our operations both domestically and abroad. Our current and future plans will require significant resources and management attention, and the returns on such investments may not be achieved for several years, or at all. For example, our plans include efforts to further develop and tailor our products and marketing to local needs in certain international communities, where we have limited operating experience and familiarity with the local competitive environments.

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Our communities in many of the largest markets in the United States are in a relatively late stage of development, and further development of smaller markets may not yield similar results. As a result, our continued growth depends on our ability to successfully develop our international communities and operations. We have a limited operating history in international markets, which makes it difficult to evaluate our future prospects and may increase the risk that we will not be successful. If we are not able to develop our international markets as we expect, or if we fail to address the needs of those markets, our business will be harmed. Expanding our international operations may also subject us to risks that we have not faced before or that increase our exposure to risks that we currently face, including risks associated with:

operating a rapidly growing business in an environment of multiple languages, cultures, customs, legal systems, regulatory systems and commercial infrastructures;
 

recruiting and retaining qualified, multi-lingual employees, including sales personnel;
 

increased competition from local websites and guides, and potential preferences by local populations for local providers;
 

potentially lower levels of advertiser demand and user engagement;
 

our ability to achieve prominent display of our content in unpaid search results, which may be more difficult in newer markets where we may have less content and more competitors than in more established markets;
 

providing solutions in different languages for different cultures, which may require that we modify our solutions and features to ensure that they are culturally relevant in different countries;
 

compliance with applicable foreign laws and regulations, including different privacy, censorship and liability standards;
 

the enforceability of our intellectual property rights;
 

credit risk and higher levels of payment fraud;
 

currency exchange rate fluctuations;
 

compliance with anti-bribery laws, including but not limited to the Foreign Corrupt Practices Act and the U.K. Bribery Act;
 

foreign exchange controls that might prevent us from repatriating cash earned outside the United States;
 

political and economic instability in some countries;
 

double taxation of our international earnings and potential adverse tax consequences due to changes in the tax laws of the United States or foreign jurisdictions in which we operate; and
 

higher costs of doing business internationally.

We may acquire other companies or technologies, which could divert our management’s 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.

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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.

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 SeatMe and Yelp Reservations 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.

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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.

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, Yahoo! 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.

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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.

Despite these efforts, we cannot guarantee that each of the 68 million reviews on our platform that have been recommended and that have not been removed as of December 31, 2015 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 in foreign jurisdictions in which we expect to expand our presence. 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 in certain jurisdictions. 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.

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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, sales and marketing and community management organizations. As a result, we must effectively integrate, develop and motivate a large number of new employees, including employees in international markets and from any acquired businesses, while maintaining the beneficial aspects of our company culture.

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. 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. If our senior management team, including any 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.

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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 Class A 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.

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.

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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 business’s 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.

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.

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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 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. 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.

Effective trade secret, copyright, trademark 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. Litigation may become necessary to enforce our 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 management’s 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 regain 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, 2015, we had an accumulated deficit of approximately $66.9 million. Although our revenues have grown rapidly in the last several years, increasing from $12.1 million in 2008 to $549.7 million in 2015, 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, especially within the United States, to which we have not already expanded. In addition, we incurred net losses in the year ended December 31, 2015. 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:

sales and marketing;
 

our technology infrastructure;
 

product and feature development;

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domestic and international expansion efforts;
 

strategic opportunities, including commercial relationships and acquisitions; and
 

general administration, including legal and accounting expenses related to being a public company.

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 regain 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;
 

attract and retain new advertising clients, many of which may have limited or no online advertising experience;
 

forecast revenue and adjusted EBITDA accurately, which may be more difficult as we sell more performance-based advertising, as well as appropriately estimate and plan our expenses;
 

continue to earn and preserve a reputation for providing meaningful and reliable reviews of local businesses;
 

effectively monetize our mobile products as usage continues to migrate toward mobile devices;
 

successfully compete with existing and future providers of other forms of offline and online advertising;
 

successfully compete with other companies that are currently in, or may in the future enter, the business of providing information regarding local businesses;
 

successfully manage our growth, including in international markets;
 

successfully develop and deploy new features and products;
 

manage and integrate successfully any acquisitions of businesses, solutions or technologies, such as Eat24;
 

avoid interruptions or disruptions in our service or slower than expected load times;
 

develop a scalable, high-performance technology infrastructure that can efficiently and reliably handle increased usage globally, as well as the deployment of new features and products;
 

hire, integrate and retain talented sales and other personnel;
 

effectively manage rapid growth in our sales force, other personnel and operations; and
 

effectively identify, engage and manage third-party partners and service providers.

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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;
 

changes in our pricing policies and terms of contracts, whether initiated by us or as a result of competition;
 

cyclicality and seasonality, which may become more pronounced as our growth rate slows;
 

the effects of changes in search engine placement and prominence;
 

the adoption of any laws or regulations that adversely affect the growth, popularity or use of the Internet, such as laws impacting Internet neutrality;
 

the success of our sales and marketing efforts;
 

costs associated with defending intellectual property infringement and other claims and related judgments or settlements;
 

interruptions in service and any related impact on our reputation;
 

the impact of fluctuations in currency exchange rates;
 

changes in advertiser budgets or the market acceptance of online advertising solutions;
 

changes in consumer behavior with respect to local businesses;
 

changes in our tax rates or exposure to additional tax liabilities;
 

the impact of worldwide economic conditions, including the resulting effect on consumer spending at local businesses and the level of advertising spending by local businesses; and
 

the effects of natural or man-made catastrophic events.

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 earnings.

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 accounting principles generally accepted in the United States, or 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 Class A 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 arm’s 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 arm’s-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, many countries in the European Union, as well as a number of other countries and organizations such as the Organization for Economic Cooperation and Development, are actively considering changes to existing tax laws that, if enacted, could increase our tax obligations in many countries where we do business. Due to the expanding scale of our international business activities, any changes in the taxation of such activities may increase our worldwide effective tax rate and harm our financial position and results of operations.

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 Eat24’s 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 discernable user action involved; this activity can cause our system to count the device associated with the app as a unique app 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.

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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.

There are also inherent challenges in measuring usage across our large user base around the world. 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. 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 do not currently have any issued patents, 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 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 management’s 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 management’s 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.

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Risks Related to Ownership of Our Class A Common Stock

The dual class structure of our common stock has the effect of concentrating voting control with those stockholders who held our stock prior to our initial public offering, including our founders, directors, executive officers and employees and their affiliates, and limiting our other stockholders’ ability to influence corporate matters.

Our Class B common stock has 10 votes per share and our Class A common stock has one vote per share. As a result, the holders of our Class B common stock collectively will continue to control a majority of the combined voting power of our common stock even when the shares of Class B common stock represent a small minority of all outstanding shares of our capital stock. The current holders of our Class B common stock collectively are able to control all matters submitted to our stockholders for approval even though their stock holdings represent less than 50% of the outstanding shares of our common stock. All shares of Class A and Class B common stock will automatically convert into a single class of common stock upon the earlier of (x) the date on which the number of outstanding shares of Class B common stock represents less than 10% of the aggregate combined number of outstanding shares of Class A and Class B common stock, and (y) March 1, 2019.

As of December 31, 2015, stockholders who held shares of Class B common stock, including certain of our founders, directors, executive officers, employees and their affiliates, together beneficially owned approximately 12% of the outstanding shares of our Class A and Class B common stock, representing approximately 59% of the voting power of our outstanding capital stock. Future transfers by holders of Class B common stock will generally result in those shares converting to Class A common stock, which will have the effect, over time, of increasing the relative voting power of those holders of Class B common stock who retain their shares, which may include existing founders, officers, directors and their affiliates. This concentrated control could limit our other stockholders’ ability to influence corporate matters through as late as March 2019 and even when the shares of Class B common stock represent as little as 10% of the outstanding shares of our capital stock. As a result, the market price of our Class A common stock could be adversely affected.

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Our share price has been and will likely continue to be volatile.

The trading price of our Class A 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 2015, our Class A common stock’s daily closing price ranged from $20.87 to $57.47, and was $18.34 on February 19, 2016. 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;
 

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 Class A 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 Class A or Class B 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, interest rate changes or international currency fluctuations.

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 management’s 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 Class A common stock.

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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 Class A 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 Class A 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;
 

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;
 

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; and
 

reflect two classes of common stock, as discussed above.

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 Class A common stock in the public market could cause our share price to decline.

Sales of a substantial number of shares of our Class A 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 Class A common stock and could impair our ability to raise capital through the sale of additional equity securities. As of December 31, 2015, we had 66,535,156 shares of Class A common stock and 9,447,646 shares of Class B common stock outstanding. Although a public market exists for our Class A common stock only, shares of our Class B common stock are generally convertible into an equivalent number of shares of Class A common stock at the option of the holder or upon transfer (subject to certain exceptions).

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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 court’s 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 for payments in the aggregate amount of up to approximately $550,000. Once finalized, the settlement will be subject to court approval.

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 $200,000. Once finalized, the settlement will be subject to court approval.

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 Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

Our Class A common stock, par value $0.000001 per share, is listed on the New York Stock Exchange LLC, or NYSE, under the symbol “YELP.” There is no public trading market for our Class B common stock. The following table sets forth on a per-share basis the high and low intraday sales prices of our Class A common stock, as reported by the NYSE for the periods presented:

2015 2014
      High       Low       High       Low
First Quarter $      57.70 $      42.10 $      101.75 $      66.47
Second Quarter   $ 52.51 $ 37.91 $ 81.40 $ 49.11
Third Quarter $ 43.49   $ 20.50   $ 86.88   $ 64.70
Fourth Quarter $ 32.47 $ 20.60 $ 73.41 $ 49.17

On February 19, 2016, the last reported sale price of our Class A common stock was $18.34.

Stockholders

As of the close of business on February 19, 2016, there were 47 stockholders of record of our Class A common stock and 22 stockholders of record of our Class B 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 Class A common stock commenced trading on the NYSE) through December 31, 2015 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 Class A common stock.

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Period
Index       3/2/2012       12/31/2012       12/31/2013       12/31/2014       12/31/2015
Yelp Inc. 100 125.67 459.67 364.87 192.00
NYSE Composite Index 100   105.63 128.22   133.63   125.05
NYSE Arca Tech 100 Index 100 103.53   138.98 158.73 155.70

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 Class A or Class B common stock were repurchased during the three months ended December 31, 2015.

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, “Management’s 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, 2015, 2014 and 2013 and the consolidated balance sheet data as of December 31, 2015 and 2014 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, 2012 and 2011, as well as the consolidated balance sheet data as of December 31, 2013, 2012 and 2011, 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.

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Consolidated Statements of Operations Data:

Year Ended December 31,
      2015       2014       2013       2012       2011
(in thousands, except per share amounts)
Net revenue $      549,711 $      377,536 $      232,988 $      137,567 $      83,285
Costs and expenses:
       Cost of revenue (exclusive of depreciation and amortization shown
       separately below)(1) 51,015 24,382 16,561 9,928 5,931
       Sales and marketing(1) 301,764 201,050 131,970 85,915 54,539
       Product development(1) 107,786 65,181 38,243 20,473 11,586
       General and administrative(1) 80,866 58,274 42,907 31,531 17,234
       Depreciation and amortization(1) 29,604 17,590 11,455 7,223 4,238
       Restructuring and integration(1) 675 1,262
       Contribution to The Yelp Foundation 5,928
Total costs and expenses 571,035 366,477 241,811 156,332 99,456
Income (Loss) from operations   (21,324 ) 11,059 (8,823 ) (18,765 ) (16,171 )
Other income (expense), net 386 221 (407 )   (226 ) (395 )
Income (Loss) before income taxes (20,938 ) 11,280 (9,230 )   (18,991 )     (16,566 )
Benefit (Provision) for income taxes (11,962 ) 25,193 (838 ) (122 ) (102 )
Net income (loss) (32,900 ) 36,473   (10,068 ) (19,113 ) (16,668 )
Accretion of redeemable convertible preferred stock   (32 ) (189 )
Net income (loss) attributable to common stockholders (Class A and B) $ (32,900 ) $ 36,473 $ (10,068 ) $ (19,145 ) $ (16,857 )
Net income (loss) per share attributable to common stockholders (Class A and B):      
       Basic $ (0.44 ) $ 0.51 $ (0.15 ) $ (0.35 ) $ (1.10 )
       Diluted $ (0.44 ) $ 0.48 $ (0.15 ) $ (0.35 ) $ (1.10 )
Weighted-average shares used to compute net income (loss) per share attributable to
common stockholders (Class A and B):
       Basic 74,683 71,936 65,665 54,149 15,291
       Diluted 74,683 76,712 65,665 54,149 15,291

(1)        Stock-based compensation expense included in the statements of operations data above was as follows:

Year Ended December 31,
      2015       2014       2013       2012       2011
(in thousands)
Cost of revenue $      1,117 $      729 $      421 $      122 $      50
Sales and marketing   21,962   15,083 10,131 4,917   1,607
Product development   23,431 14,804 6,270     1,705 721
General and administrative 14,332   11,657     9,300 8,134   2,499
Restructuring and integration 555
Total stock-based compensation $

60,842

$

42,273

$

26,677

$

14,878

$ 4,877

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Consolidated Balance Sheet Data:

As of December 31,
      2015       2014       2013       2012       2011
(in thousands)
Cash and cash equivalents

171,613

247,312 389,764 95,124 21,736
Property, equipment and software, net 80,467 62,761 30,666 14,799 9,881
Working capital   393,505   386,785   391,844 91,218   18,996
Total assets 755,427 629,650 515,977   187,696 43,821
Redeemable convertible preferred stock 55,435
Total stockholders’ equity (deficit) 693,620 588,150 486,483 165,662 (24,347 )

Other Financial and Operational Data:

Year Ended December 31,
      2015       2014       2013       2012       2011
(in thousands)
Reviews(1) 95,210 71,232 52,757 35,959 24,817
Desktop Unique Visitors(2) 74,607 77,628   77,713 62,336 53,946
Mobile Web Unique Visitors(3)   65,860 57,770 42,292 23,972 11,850
Unique App Devices(4) 20,006   14,541 10,613 9,178 5,654
Claimed Local Business Locations(5) 2,648 2,029 1,488 994   606
Local Advertising Accounts(6) 111 84 54 31 19
Adjusted EBITDA(7) 69,122 70,922 29,429 4,598 (1,128 )

(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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics—Reviews.”
 

(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 have visited our non-mobile optimized website at least once in a given month, averaged over the three-month period. For more information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics—Traffic.”
 

(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 have visited our mobile-optimized website at least once in a given month, averaged over the three-month period. For more information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics—Traffic.”
 

(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 using our mobile app in a given month, averaged over the three-month period. For more information, see Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics—Traffic.
 

(5)

Represents the cumulative number of business locations that have 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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics—Claimed Local Business Locations.”
 


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(6)      Represents the number of local business accounts from which we recognized local revenue during the last three months of the period. For more information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics—Local Advertising Accounts.”
 
(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, interest income, depreciation and amortization, stock-based compensation expense, restructuring and integration costs and contribution to the Foundation. 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 or liquidity. 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 “Management’s Discussion and Analysis of Financial Condition and Results of Operation—Non-GAAP Financial Measures—Adjusted EBITDA.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Annual Report. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs, and involve risks and uncertainties. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those discussed in the section titled “Risk Factors” included under Part I, Item 1A and elsewhere in this Annual Report. See “Special Note Regarding Forward-Looking Statements” in this Annual Report.

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, 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. In the year ended December 31, 2014, our net revenue was $377.5 million, which represented an increase of 62% from the year ended December 31, 2013, and we generated net income of $36.5 million and adjusted EBITDA of $70.9 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 and expand our communities, we plan to explore new ways for contributors to share content and engage and transact on the Yelp Platform. For example, we plan to continue to invest in our mobile platform, where we find our most engaged users, and to further integrate Eat24 into our platform. We believe that expanding our content and developing innovative features, while maintaining a great user experience, will attract new consumers as well as increase the number of visits and searches per user.

   

Enhance Monetization. Our core strength is our local advertising business in the United States. In 2015, we phased out our brand advertising business to allow us to, among other things, focus on our local business, which has a significant and growing base of revenue. We plan to continue to invest in initiatives to enhance our opportunity in this area, including by aggressively growing our sales force in order to reach more businesses. We will also continue the expansion of the Yelp Platform, 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 2016 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.

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Factors Affecting Our Performance

Traffic and User Engagement. Changes in consumer traffic, as well as the quality and quantity of contributed content, will 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 engine’s 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, in 2014, Google made changes to its algorithms and methodologies that may be contributing to the slowing of our traffic growth rate and the decline in traffic in the fourth quarter of 2014. Google also recently announced that the rankings of sites showing certain types of app install interstitials could be penalized on its mobile search results page. While we believe the type of interstitial we currently use will not be penalized, the parameters of Google’s policy may change from time to time, or may be poorly defined or inconsistently interpreted. As a result, Google may unexpectedly penalize our app install interstitials, which may cause links to our website to be featured less prominently in Google’s 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.

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 Local Businesses. Our revenue growth is driven by our ability to attract and retain local business advertisers that purchase our advertising products. Our largest sales and marketing expenses consist of the costs associated with acquiring local business advertisers. We spent a majority of our sales and marketing expense for 2015 on initiatives related to local business advertiser acquisition and expect to continue to expend significant amounts to attract additional local business advertisers. At the same time, our local advertising agreements increasingly provide for performance-based cost-per-click payment terms, which may make it more difficult to forecast local 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.

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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 testing various advertising channels in 2016.

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. Local revenue for the oldest cohort of Yelp communities in the United States, which launched in 2005-2006, grew at 30% in 2015 compared to 2014. This is lower than the growth rate of local revenue for the 2007-2008 cohort, which grew 35% over the same period. We believe this is indicative of continued revenue growth, but slowing revenue growth for more mature communities. 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 Europe. For these and other reasons, launching additional communities may not yield results similar to those of our existing communities, particularly in the United States. As a result, we 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 2016.

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 2015, we acquired Eat24, a leading web and app-based food ordering service, to drive daily engagement in our restaurant vertical and provide the opportunity to expand Eat24’s services to all the restaurants listed on our platform. 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 Eat24 metrics.

Reviews

Number of reviews represents the cumulative number of reviews submitted to Yelp since inception, as of the period end, including reviews that were not recommended or had been removed from our platform. In addition to the text of the review, each review includes a rating of one to five stars. We include reviews that are not recommended and that have been removed because all of them are either currently accessible on our platform or were accessible at some point in time, providing information that may be useful to users to evaluate businesses and individual reviewers. Because our automated recommendation software continually reassesses which reviews to recommend based on new information that becomes available, the “recommended” or “not recommended” status of reviews may change over time. Reviews that are not recommended or that have been removed do not factor into a business’s overall star rating. By clicking on a link on a reviewed business’s page on our website, users can access the reviews that are not 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.

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As of December 31, 2015, approximately 88.7 million reviews were available on business listing pages, including approximately 20.7 million reviews that were not recommended, and 6.5 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,
      2015       2014       2013
(in thousands)
Reviews 95,210 71,232 52,757

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 unique app devices. 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 web 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 web 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 web unique visitor.

Unique App Devices. We calculate unique app 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 unique app devices. Multiple individuals who access our mobile app from a shared device will be counted as a single unique app device.

The following table presents our traffic for the periods indicated:

  Three Months Ended December 31,
      2015       2014       2013
(in thousands)
Desktop Unique Visitors 74,607 77,628 77,713
Mobile Web Unique Visitors 65,860 57,770 42,292
Unique App Devices 20,006 14,541 10,613

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.

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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,
      2015       2014       2013
(in thousands)
Claimed Local Business Locations 2,648 2,029 1,488

Local Advertising Accounts

Local advertising accounts comprise all local business accounts from which we recognize local revenue in a given three-month period. The following table presents the number of local advertising accounts during the periods presented:

  Three Months Ended December 31,
      2015       2014       2013
(in thousands)
Local Advertising Accounts 111 84 54

Non-GAAP Financial Measures

Our consolidated financial statements are prepared in accordance with GAAP. However, we have also disclosed in this Annual Report 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 core business. 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.

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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:

Adjusted EBITDA

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; restructuring and integration costs; and our contribution to the Foundation in the quarter ended December 31, 2011. Adjusted EBITDA for the year ended December 31, 2015 was $69.1 million. The following is a reconciliation of adjusted EBITDA to net income (loss):

Year Ended December 31,
    2015

   

2014     2013     2012     2011
(in thousands)
Reconciliation of Adjusted EBITDA to GAAP Net Income (Loss):
Net income (loss) $     (32,900 ) $     36,473 $     (10,068 ) $     (19,113 ) $     (16,668 )
(Benefit) Provision for income taxes 11,962 (25,193 ) 838 122 102
Other (income) expense, net (386 ) (221 ) 407 226 395
Depreciation and amortization 29,604 17,590 11,455 7,223 4,238
Stock-based compensation 60,842 42,273 26,122 14,878 4,877
Restructuring and integration costs(1) - - 675 1,262 -
Contribution to Yelp Foundation - - - - 5,928
Adjusted EBITDA $ 69,122 $ 70,922 $ 29,429 $ 4,598 $ (1,128 )

(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; the tax effect of stock-based compensation and amortization of intangibles; and the release of valuation allowance (net of tax). Non-GAAP net income for the year ended December 31, 2015 was $28.9 million. The following is a reconciliation of non-GAAP net income to net income (loss):

Year Ended December 31,
      2015
(in thousands)
Reconciliation of Non-GAAP Net Income to GAAP Net Income (Loss):
Net income (loss) $                                (32,900 )
Stock-based compensation 60,842
Amortization of intangible assets 6,475
Tax effect of stock-based compensation and amortization of intangibles (25,853 )
Valuation allowance release (net of tax) 20,341
       Non-GAAP net income $ 28,905

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.

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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,
      2015       2014       2013
(as a percentage of net revenue)
Consolidated Statements of Operations Data:
Net revenue by product
              Local 82 % 85 % 83 %
              Transactions 8 % 1 % 2 %
              Brand advertising 6 % 9 % 12 %
              Other services 4 % 5 % 3 %
       Total net revenue      100 %      100 %      100 %
 
Costs and expenses:
       Cost of revenue (exclusive of depreciation and amortization shown separately below) 9 % 6 % 7 %
       Sales and marketing 55 % 53 % 57 %
       Product development 20 % 17 % 16 %
       General and administrative 15 % 15 % 18 %
       Depreciation and amortization 5 % 5 % 5 %
Total costs and expenses 104 % 97 % 104 %
 
Income (Loss) from operations (4 %) 3 % (4 %)
Other income (expense), net 0 % 0 % 0 %
Income (Loss) before income taxes (4 %) 3 % (4 %)
Benefit (Provision) for income taxes (2 %) 7 % (0 %)
Net income (loss) (6 %) 10 % (4 %)

Years Ended December 31, 2015, 2014 and 2013

Net Revenue

We generate revenue from our local products, transactions, other services and, through the end of 2015, brand advertising.

Local. We generate local revenue from our local advertising programs, including enhanced listing pages and performance and impression-based advertising in search results and elsewhere on our website and mobile app. We also generate local revenue from our SeatMe reservation product, a monthly subscription service.

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Transactions. We generate revenue from various transactions with consumers, including through Eat24, Platform transactions and the sale of Yelp Deals and Gift Certificates. Our Eat24 business generates revenue through arrangements with restaurants, in which restaurants pay a commission percentage fee on orders placed through Eat24’s platform. We record revenue associated with Eat24’s 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 consumer’s 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 consumer’s purchase of the Gift Certificate.

Prior to the three months ended June 30, 2015, we included revenue from transactions with other services revenue; however, we have presented transactions revenue for earlier periods separately in the tables and discussion below for purposes of comparison.

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 over the second half of 2015 to focus on our core strength of local advertising.

Other Services. We generate revenue through partner arrangements and monetization of remnant advertising inventory through third-party ad networks. Our partner arrangements include allowing third-party data providers to update business listing information on behalf of businesses and resale of our local advertising products by certain partners.

The following table provides a breakdown of our net revenue for the periods indicated.

2014 to 2013 to
  2015 % 2014 %
Year Ended December 31,       Change       Change
2015       2014       2013
      (dollars in thousands)
Net revenue by product:
       Local $      448,236 $      319,137 $      192,983 40 % 65 %
       Transactions 43,854 5,247 3,879         736 % 35 %
       Brand advertising 31,012 34,482 27,960 -10 % 23 %
       Other services 26,609 18,670 8,166 43 %        129 %
              Total net revenue $ 549,711 $ 377,536 $ 232,988 46 % 62 %
 
Percentage of total net revenue by product:
       Local 82 % 85 % 83 %
       Transactions 8 % 1 % 2 %
       Brand advertising 6 % 9 % 12 %
       Other services 4 % 5 % 3 %
              Total net revenue 100 % 100 % 100 %

During 2015, 2014 and 2013, we focused on revenue growth related to our local advertiser customer base. Total net revenue increased $172.2 million, or 46%, in 2015 compared to 2014, and $144.5 million, or 62%, in 2014 compared to 2013.

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Our local revenue increased $129.1 million, or 40%, in 2015 compared to 2014, and $126.2 million, or 65%, in 2014 compared to 2013. The increase in both years was primarily due to a significant increase in the number of customers purchasing local advertising products as we expanded our sales force to reach more businesses. This growth was driven primarily by purchases of cost-per-click advertising in 2015, and by purchases of cost-per-impression advertising products in 2014. Revenue from cost-per-click advertisers increased from 24% of local revenue in 2014 to 50% in 2015. In 2015, 63% of clicks were delivered on mobile compared to 54% in 2014.

Our transactions revenue increased $38.6 million, or 736%, in 2015 compared to 2014. The increase in 2015 was primarily the result of revenue from Eat24, which we acquired in February 2015.

Our brand revenue decreased $3.5 million, or 10%, in 2015 compared to 2014, and increased $6.5 million, or 23%, in 2014 compared to 2013. The decrease in 2015 was primarily due to a decrease in the number of brand advertisers and our phase out of our brand advertising products. The increase in 2014 was primarily due to an increase in the average spend per brand advertiser, driven largely by increased advertising impressions per brand advertiser. As of the beginning of 2016, we no longer offer brand advertising products.

Our other services revenue increased $7.9 million, or 43%, in 2015 compared to 2014, and $10.5 million, or 129%, in 2014 compared to 2013. The increases in both years were primarily due to increases in revenue from added partnership arrangements and sales of remnant advertising inventory.

Cost of Revenue

Our cost of revenue consists primarily of network costs, credit card processing fees and web hosting, as well as salaries, benefits and stock-based compensation expense for our infrastructure teams related to operating our website and mobile app. It also includes costs associated with video production and creative design for brand advertising.

2014 to 2013 to
  2015 % 2014 %
Year Ended December 31,       Change       Change
2015       2014       2013
      (dollars in thousands)
Cost of revenue $      51,015 $      24,382 $      16,561 109 % 47 %
Percentage of net revenue 9 % 6 % 7 %

Cost of revenue increased $26.6 million, or 109%, in 2015 compared to 2014, and $7.8 million, or 47%, in 2014 compared to 2013. The increases in 2015 and 2014 were primarily attributable to increases of $11.8 million and $4.3 million, respectively, in outside hosting and Internet service fees, which are necessary to support the increase in visitors to our website and transactions completed on our website. Set up costs, including video production, for active local business listing pages also increased by $0.3 million and $0.4 million in 2015 and 2014, respectively, due to increased demand by local businesses for video on their business listing pages. Expenses related to creative design for brand and local advertising customers also increased by $2.2 million and $0.7 million in 2015 and 2014, respectively, and we added personnel to support our website infrastructure resulting in increases of $0.3 million and $0.4 million in 2015 and 2014, respectively. In addition, merchant fees related to credit card transactions increased by $9.1 million and $2.0 million in 2015 and 2014, respectively. The increase in 2015 was primarily due to the acquisition of Eat24 in February 2015 combined with the growth in local revenue. Cost of revenue also increased by $2.9 million in 2015 compared to 2014 as a result of third-party food delivery related costs associated with Eat24.

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Sales and Marketing

Our sales and marketing expenses primarily consist of salaries, 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 acquisition marketing, community management, branding and advertising costs, as well as allocated facilities, insurance, business taxes and other supporting overhead costs. Our focus to date has been 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 incurred minimal sales and marketing expenses to acquire organic traffic to our platform. However, we launched our first television advertising campaign in 2015, and plan to continue investing in various advertising channels in 2016.

We expect our community management costs to increase as we continue to expand our communities. We expect our sales and marketing expenses to increase as we develop our communities, increase the number of local advertising accounts and continue to build our brand. 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 and to be our largest expense for the foreseeable future.

2014 to 2013 to
  2015 % 2014 %
Year Ended December 31,       Change       Change
2015       2014       2013
      (dollars in thousands)
Sales and marketing $      301,764 $      201,050 $      131,970 50 % 52 %
Percentage of net revenue 55 % 53 % 57 %

Sales and marketing expenses increased $100.7 million, or 50%, in 2015 compared 2014, and $69.1 million, or 52%, in 2014 compared to 2013. The increases in 2015 and 2014 were primarily attributable to the additional salaries, benefits, travel and other related expenses resulting from increased headcount of $57.1 million and $42.9 million, respectively, including increases in stock-based compensation expense of $6.9 million and $5.0 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 our increases in net revenue, our commission expenses increased $2.7 million and $5.2 million in 2015 and 2014, respectively. In addition, we experienced increases in facilities, insurance, business taxes and other related allocations of $17.1 million and $11.8 million in 2015 and 2014, respectively. As a result of new marketing campaigns, including those of Eat24 in 2015, domestic and international marketing and advertising costs increased by $23.8 million and $9.2 million in 2015 and 2014, 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.

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2014 to 2013 to
  2015 % 2014 %
Year Ended December 31,       Change       Change
2015       2014       2013
      (dollars in thousands)
Product development $      107,786 $      65,181 $      38,243 65 % 70 %
Percentage of net revenue 20 % 17 % 16 %

Product development expenses increased $42.6 million, or 65%, in 2015 compared to 2014, and $26.9 million, or 70%, in 2014 compared to 2013. These increases were primarily attributable to the additional salaries, benefits, travel and related expenses associated with headcount increases of $35.2 million and $24.9 million in 2015 and 2014, respectively, including increases in stock-based compensation expense of $9.5 million and $8.5 million, respectively. In addition, we experienced increases in facilities, insurance, business taxes and other related allocations of $5.8 million and $2.5 million in 2015 and 2014, respectively, as a result of the increases in headcount. In 2015, use of outside consultants increased by $1.6 million as we continued to invest in adding features and functionality to our website and mobile app. In 2014, use of outside consultants decreased by $0.5 million.

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.

2014 to 2013 to
  2015 % 2014 %
Year Ended December 31,       Change       Change
2015       2014       2013
      (dollars in thousands)
General and administrative $      80,866 $      58,274 $      42,907 39 % 36 %
Percentage of net revenue 15 % 15 % 18 %

General and administrative expenses increased $22.6 million, or 39%, in 2015 compared to 2014, and $15.4 million, or 36%, in 2014 compared to 2013. These increases were primarily attributable to the additional salaries resulting from increased headcount of $11.7 million and $8.3 million in 2015 and 2014, respectively, including increases in stock-based compensation expense of $2.6 million and $2.3 million, respectively. Additionally, we invested in our systems and support for the growth of the business through the use of outside consultants, which contributed to the increases by $4.7 million and $2.4 million in 2015 and 2014, respectively. We also experienced increases in facilities, insurance, business taxes and other related allocations of $2.3 million and $1.6 million in 2015 and 2014, respectively, and increases in bad debt expense of $3.9 million and $3.1 million, respectively.

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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.

2014 to 2013 to
  2015 % 2014 %
Year Ended December 31,       Change       Change
2015       2014       2013
      (dollars in thousands)
Depreciation and amortization $      29,604 $      17,590 $      11,455 68 % 54 %
Percentage of net revenue 5 % 5 % 5 %

Depreciation and amortization expenses increased $12.0 million, or 68%, in 2015 compared to 2014, and $6.1 million, or 54%, in 2014 compared to 2013. 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 $8.0 million and $5.9 million in 2015 and 2014, respectively. In addition, amortization related to our intangibles increased by $4.0 million and $0.2 million in 2015 and 2014, respectively, with the increase in 2015 primarily due to the intangibles acquired in the Eat24 acquisition.

Restructuring and Integration

Year Ended December 31,
        2015       2014       2013
(in thousands)
Restructuring and integration $      $      $      675

In 2015 and 2014, we incurred zero restructuring and integration costs compared to $0.7 million in 2013.

In 2013, following the acquisition of Qype GmbH in October 2012, we announced our plan to reduce the size of the Qype workforce. This action was taken in order to reduce our cost structure, enhance operating efficiencies and strengthen our business to achieve long-term profitable growth. We incurred restructuring charges of $0.7 million in 2013 as a result of this plan. The restructuring was completed during 2013.

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Other Income (Expense), Net

Other income (expense), net consists primarily of the interest income earned on our cash, cash equivalents and marketable securities, gains and losses on the disposal of assets and foreign exchange gains and losses.

      Year Ended December 31,
2015       2014       2013
(in thousands)
Net interest income $      622 $      375 $      62
Transaction losses on foreign exchange (687 ) (121 ) (251 )
Other non-operating income (loss), net 451 (33 ) (218 )
       Total other income (expense), net $ 386 $ 221 $ (407 )

In 2015, other income (expense), 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.

In 2014, other income (expense), net increased by $0.6 million, driven primarily by an increase in interest income related to marketable securities. In addition, there was a decrease in foreign exchange losses due to favorable foreign currency exchange rates during 2014.

Benefit (Provision) for Income Taxes

Benefit (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, and the realization of net operating loss carryforwards.

Year Ended December 31,
      2015       2014       2013
(in thousands)
Benefit (Provision) for income taxes $      (11,962 ) $      25,193 $      (838 )

In 2015, we recognized tax expense of $12.0 million that primarily consisted of U.S. federal, state and local income tax benefits on a year-to-date pre-tax loss, as well as discrete benefits related to disqualifying dispositions of incentive stock options and shares purchased under our 2012 Employee Stock Purchase Plan, or ESPP, offset by the recording of a valuation allowance on certain U.S. federal, state and local 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. Income tax expense decreased $26.0 million in 2014 compared to 2013 primarily due to the release of the valuation allowance previously recorded against certain deferred tax assets.

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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, 2015. 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, Mar 31,
   2015    2015    2015    2015    2014    2014    2014    2014
(dollars in thousands, except per share data)
Consolidated Statements of
Operations Data:
Net revenue by product
       Local 125,852 115,932 107,882 98,570 93,125 85,132 75,685 65,195
       Transactions 13,971 11,973 11,304 6,606 1,417 1,338 1,228 1,264
       Brand advertising 7,104 8,978 8,303 6,627 8,653 9,318 9,055 7,455
       Other services 6,804 6,676 6,424 6,705 6,692 6,667 2,819 2,493
Total net revenue   153,731   143,559   133,913   118,508   109,887  102,455    88,787    76,407
 
Costs and expenses:
Cost of revenue (exclusive of depreciation
and amortization shown separately below)(1) 15,000 14,259 13,057 8,699 7,286 6,174 5,845 5,077
Sales and marketing(1) 87,535 82,949 68,014 63,266 53,580 54,551 47,798 45,121
Product development(1) 28,970 28,511 26,345 23,960 19,076 17,397 14,726 13,982
General and administrative(1) 20,659 20,990 19,280 19,937 16,662 15,185 13,257 13,170
Depreciation and amortization 7,980 7,562 7,167 6,895 5,291 4,604 4,034 3,661
Total costs and expenses 160,144 154,271 133,863 122,757 101,895 97,911 85,660 81,011
 
Income (Loss) from operations (6,413 ) (10,712 ) 50 (4,249 ) 7,992 4,544 3,127 (4,604 )
Other income (expense), net 40 (545 ) 329 562 38 200 (15 ) (2 )
 
Income (Loss) before income taxes (6,373 ) (11,257 ) 379 (3,687 ) 8,030 4,744 3,112 (4,606 )
Benefit (Provision) for income taxes (15,856 ) 3,175 (1,684 ) 2,403 24,698 (1,107 ) (369 ) 1,971
Net income (loss) attributable to
common stockholders (Class A and B) (22,229 ) (8,082 ) (1,305 ) (1,284 ) 32,728 3,637 2,743 (2,635 )
 
Net income (loss) per share attributable
to common stockholders (Class A and B):
Basic (0.29 ) (0.11 ) (0.02 ) (0.02 ) 0.45 0.05 0.04 (0.04 )
Diluted (0.29 ) (0.11 ) (0.02 ) (0.02 ) 0.42 0.05 0.04 (0.04 )
 
Weighted-average shares used to compute net income (loss)
per share attributable to common stockholders (Class A and B):
Basic 75,372 75,019 74,631 73,684 72,645 72,195 71,714 71,171
Diluted 75,372 75,019 74,631 73,684 77,211 77,296 77,056 71,171

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(1) Includes non-cash stock-based compensation expense as follows:

Stock-based compensation                                        
       Cost of revenue 336 435 222 124 207 253 119 150
       Sales and marketing 5,803 5,568 5,654 4,937 4,038 3,911 3,737 3,397
       Product development 6,314 5,947 6,065 5,105 4,508 3,807 3,447 3,042
       General and administrative 3,519 3,733 3,575 3,505 3,063 2,947 2,780 2,867
Total stock-based compensation      15,972      15,683      15,516      13,671      11,816      10,918      10,083      9,456

Quarter Ended
Dec 31, Sep 30, Jun 30, Mar 31, Dec 31, Sep 30, Jun 30, Mar 31,
      2015     2015     2015     2015     2014       2014     2014     2014
(dollars in thousands, except per share data)
Consolidated Statements of Operations Data:
Net revenue by product
Local 82 % 81 % 81 % 83 % 85 % 83 % 85 % 85 %
Transactions 9 % 8 % 8 % 5 % 1 % 1 % 1 % 2 %
Brand advertising 5 % 6 % 6 % 6 % 8 % 9 % 10 % 10 %
Other services 4 % 5 % 5 % 6 % 6 % 7 % 4 % 3 %
Total net revenue      100 %      100 %      100 %      100 %      100 %      100 % 100 %      100 %
 
Costs and expenses:
 
       Cost of revenue (exclusive of depreciation and 10 % 10 % 10 % 7 % 7 % 6 % 7 % 7 %
              amortization shown separately below)
Sales and marketing 57 % 58 % 51 % 53 % 49 % 53 % 54 % 59 %
Product development 19 % 20 % 20 % 20 % 17 % 17 % 17 % 18 %
General and administrative 13 % 15 % 14 % 17 % 15 % 15 % 15 % 17 %
Depreciation and amortization 5 % 5 % 5 % 6 % 5 % 4 % 5 % 5 %
Total costs and expenses 104 % 108 % 100 % 104 % 93 % 96 % 96 % 106 %
 
Income (Loss) from operations (4 %) (8 %) 0 % (4 %) 7 % 4 % 4 % (6 %)
Other income (expense), net 0 % (0 %) 0 % 0 % 0 % 0 % (0 %) (0 %)
Income (Loss) before income taxes (4 %) (8 %) 0 % (3 %) 7 % 5 % 4 % (6 %)
Benefit (Provision) for income taxes (10 %) 2 % (1 %) 2 % 22 % (1 %) (0 %) 3 %
Net income (loss) (14 %) (6 %) (1 %) (1 %) 30 % 4 % 3 % (3 %)

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Quarter Ended
Dec 31, Sep 30, Jun 30, Mar 31, Dec 31, Sep 30, Jun 30, Mar 31,
      2015       2015       2015       2015       2014       2014       2014       2014
(dollars in thousands, except per share data)
Other Financial and Operational Data(1) :
Reviews 95,210 89,635 83,102 77,346 71,232 66,592 61,342 56,905
Desktop Unique Visitors 74,607 78,901 79,175 79,543 77,628 80,468 81,884 82,211
Mobile Web Unique Visitors 65,860 69,117 64,715 62,923 57,770 58,949 55,877 50,249
Unique App Devices 20,006 20,121 18,097 16,039 14,541 14,491 12,009 10,941
Claimed Local Business Locations 2,648 2,503 2,349 2,193 2,029 1,886 1,751 1,623
Local Advertising Accounts 111 104 97 90 84 77 69 63
Adjusted EBITDA 17,539 12,533 22,733 16,317 25,099 20,066 17,244 8,513

(1)  For information on how we define these operational and other metrics, see “—Key Metrics.”
 
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,
    2015     2015     2015     2015     2014     2014     2014     2014
(dollars in thousands, except per share data)
Reconciliation of adjusted EBITDA to net income (loss):
Net income (loss) (22,229 ) (8,082 ) (1,305 ) (1,284 ) 32,728 3,637 2,743 (2,635 )
(Benefit) Provisions for income taxes 15,856 (3,175 ) 1,684 (2,403 ) (24,698 ) 1,107 369 (1,971 )
Other (income) expense, net (40 ) 545 (329 ) (562 ) (38 ) (200 ) 15 2
Depreciation and amortization 7,980 7,562 7,167 6,895 5,291 4,604 4,034 3,661
Stock-based compensation 15,972 15,683 15,516 13,671 11,816 10,918 10,083 9,456
Adjusted EBITDA     17,539     12,533     22,733     16,317     25,099     20,066     17,244     8,513

Liquidity and Capital Resources

As of December 31, 2015, we had cash and cash equivalents of $171.6 million. Cash and cash equivalents consist of both cash and money market funds. Our cash held internationally as of December 31, 2015 was $5.1 million. We did not have any outstanding bank loans or credit facilities in place as of December 31, 2015. 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 our ESPP.

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.

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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,
      2015       2014       2013
(in thousands)
Consolidated Statements of Cash Flows Data:
Purchases of property and equipment        (31,127 ) $      (29,054 ) $      (16,243 )
Depreciation and amortization 29,604 17,590 11,455
Cash provided by operating activities 57,362 57,932 21,432
Cash used in investing activities (158,682 ) (228,674 ) (18,827 )
Cash provided by financing activities 26,442 29,549 291,720

Operating Activities. 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 local 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 Eat24 restaurant payable, 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 local 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.

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We generated $21.4 million of cash from operating activities in the year ended December 31, 2013, primarily resulting from our net loss of $10.1 million, offset by non-cash stock-based compensation expense of $26.7 million, non-cash depreciation and amortization expense of $11.5 million, an increase in excess tax benefit from the exercise of stock-based award activity of $0.4 million, which is reclassified as a financing activity, and non-cash provision for doubtful accounts of $3.3 million. In addition, significant changes in our operating assets and liabilities resulted from the following:

increase in accounts receivable of $12.8 million due to an increase in billings for local advertising plans and brand advertising campaigns, as well as timing of payments from these customers;
 

increase in accounts payable, accrued expenses and other liabilities of $5.0 million relating to the growth in the business and, more specifically, the increase in accrued vacation and employee-related expenses, deferred rent for new facilities, as well as timing of invoices and payments to vendors; and
 

increase in prepaids and other assets of $1.6 million relating to the increase in value added tax due from taxing authorities, an increase in deferred tax assets, prepaid business data and prepaid rent for our facilities.

Investing Activities. Our primary investing activities in the year ended December 31, 2015 consisted of an acquisition, purchases of marketable securities, purchases of property and equipment to support the ongoing build out of our 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 and equipment, as well as leasehold improvements, 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 to continue to invest in property and equipment, leaseholds and the development of software in 2016.

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.

We used $18.8 million in investing activities during the year ended December 31, 2013, including $2.1 million net of cash received related to the acquisition of SeatMe. In addition, we used $16.2 million for purchases of property, equipment and software and incurred expenditures of $4.9 million for capitalized website and software development costs. Cash used in investing was offset by $1.2 million of cash released from escrow related to the Qype acquisition, recorded as a measurement period adjustment to the initial fair value of the acquired assets and liabilities. Cash used in investing was also offset by a decrease in the required amount of letters of credit in connection with the lease for our San Francisco headquarters, which resulted in a decrease of $3.2 million in restricted cash.

Financing Activities. 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.

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We generated $291.7 million of cash from financing activities during the year ended December 31, 2013. We received $276.5 million in proceeds from our follow-on offering, net of $12.4 million in total offering expenses, including underwriter commission and discounts associated with the transaction. We also generated $13.5 million in net proceeds from the issuance of common stock related to the exercise of stock options, an increase of $0.4 million in excess tax benefits from the exercise of stock options and $2.0 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 2015, 2014 or 2013.

Contractual Obligations

We lease various office facilities, including our corporate headquarters in San Francisco, California, under operating lease agreements that expire from 2016 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, 2015, 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, 2015, the following table summarizes our future minimum payments under non-cancelable operating leases 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 $    336,578 $ 34,542 $ 127,735 $ 81,571 $ 92,730
    Leasehold improvement obligations   $ 4,767   $ 4,767   $   $   $

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, 2015, our total liability for uncertain tax positions was $0.6 million of the total unrecognized benefit of $5.0 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.

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, 2015, our future minimum rental receipts to be received under non-cancelable subleases was $10.2 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, 2015 would not have a material impact on our cash and cash equivalents portfolio.

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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 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, either alone or in combination with a hypothetical 10% strengthening/(weakening) of the U.S. dollar against the Euro, 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.

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 SEC’s 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 company’s 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, 2015. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2015, our disclosure controls and procedures were effective at the reasonable assurance level.

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Management’s 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 Control—Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. The scope of management’s assessment of the effectiveness of our internal control over financial reporting included all of our consolidated operations except for the operations of Eat24, which we acquired on February 9, 2015. This exclusion is in accordance with the SEC’s general guidance that an assessment of a recently acquired business may be omitted from the scope of our evaluation in the year of acquisition. Eat24 accounted for less than one percent of the total assets and less than eight percent of total revenues of the Company’s consolidated financial statements as of and for the year ended December 31, 2015. Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2015. 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, 2015, 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, 2015 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.

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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, 2015, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. As described in Management’s Annual Report on Internal Control Over Financial Reporting, management excluded from its assessment the internal control over financial reporting of Eat24, which was acquired in February 2015 and whose financial statements constitute less than 1% of the total assets and about 7% of total revenue of the consolidated financial statement amounts as of and for the year ended December 31, 2015. Accordingly, our audit did not include the internal control over financial reporting at Eat24. 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 Management’s 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, 2015, 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, 2015 of the Company and our report dated February 24, 2016 expressed an unqualified opinion on those financial statements.

/s/ DELOITTE & TOUCHE LLP

San Francisco, California

February 24, 2016

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Item 9B. Other Information.

None.

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. 1—Election of Directors,” “Information Regarding the Board of Directors and Corporate Governance” and “Executive Officers” in the definitive proxy statement for our 2016 Annual Meeting of Stockholders, or the 2016 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 2016 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 2016 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 2016 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 2016 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 2016 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 2016 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. 2—Ratification of Selection of Independent Registered Public Accounting Firm” in our 2016 Proxy Statement.

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PART IV

Item 15. Exhibits, Financial Statement Schedules.

(a) 

The following documents are filed as part of this Annual Report:

 
1.       Financial Statements. Our consolidated financial statements and the Report of Independent Registered Public Accounting Firm are included herein on the pages indicated:
       
Report of Independent Registered Public Accounting Firm F-1
 
Consolidated Balance Sheets F-2
 
Consolidated Statements of Operations F-3
 
Consolidated Statements of Comprehensive Income (Loss) F-4
 
Consolidated Statements of Stockholders’ Equity   F-5
 
Consolidated Statements of Cash Flows F-7
 
Notes to Consolidated Financial Statements F-8
 
2. Financial Statement Schedules. None. All financial statement schedules are omitted because they are not applicable, not required under the instructions, or the requested information is included in the consolidated financial statements or notes thereto.
 
3. Exhibits. A list of exhibits filed with this report or incorporated herein by reference is found in the Exhibit Index immediately following the signature page of this Annual Report.

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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: February 24, 2016

YELP INC.
  
/S/ Rob Krolik
Rob Krolik
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 Rob Krolik 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   February 24, 2016
JEREMY STOPPELMAN (Principal Executive Officer)
  
/s/ Geoff Donaker Chief Operating Officer and Director February 24, 2016
GEOFF DONAKER
  
/s/ Rob Krolik Chief Financial Officer February 24, 2016
ROB KROLIK (Principal Financial and Accounting Officer)
  
/s/ Diane Irvine Chairperson February 24, 2016
DIANE IRVINE
  
/s/ Fred Anderson Director February 24, 2016
FRED ANDERSON
  
/s/ Peter Fenton Director February 24, 2016
PETER FENTON
  
/s/ Robert Gibbs Director February 24, 2016
ROBERT GIBBS
  
/s/ Jeremy Levine Director February 24, 2016
JEREMY LEVINE
  
/s/ Mariam Naficy Director February 24, 2016
MARIAM NAFICY



Table of Contents

EXHIBIT INDEX

Incorporated by Reference Filed
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 Amended and Restated Certificate of Incorporation of Yelp Inc. 8-K 001-35444 3.1 3/9/2012
3.2 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 and 3.2.
4.2 Form of Class A Common Stock Certificate. S-1/A 333-178030 4.1 2/3/2012
4.3 Form of Class B Common Stock Certificate. S-1/A 333-178030 4.2 2/3/2012
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* 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
10.6* Offer Letter, by and between Yelp Inc. and Jeremy Stoppelman, dated February 3, 2012. S-1/A 333-178030 10.15 2/3/2012
10.7* 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
10.8* 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
10.9* 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
10.10* 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
10.11 Galleria Corporate Center Lease between Yelp Inc. and JEMB Scottsdale LLC, dated January 20, 2010; First Amendment to Lease, dated January 4, 2011; Second Amendment to Lease, dated August 8, 2011. S-1/A 333-178030 10.13 2/3/2012



Table of Contents

Incorporated by Reference Filed
Herewith
Exhibit
Number
       Exhibit Description        Form        File No.        Exhibit        Filing Date       
10.12 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
10.13* 2012 Equity Incentive Plan, as amended. 8-K 001-35444 10.1 6/11/2013
10.14* 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
10.15* 2012 Employee Stock Purchase Plan. S-1/A 333-178030 10.18 2/3/2012
10.16* Executive Severance Benefit Plan. S-1/A 333-178030 10.19 2/3/2012
10.17 Office Lease, dated May 9, 2012, by and between Yelp Inc. and Stockbridge 138 New Montgomery LLC. 8-K 001-35444 10.1 5/10/2012
10.18* Compensation Information for Registrant’s Executive Officers. 8-K 001-35444 1/14/2015
10.19* Letter Agreement, dated May 22, 2014, by and between Joseph Nachman and Yelp Inc. 8-K 001-35444 99.1 5/28/2014
10.21 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
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.



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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, 2015 and 2014, and the related consolidated statements of operations, comprehensive income (loss), consolidated statement of stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2015. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these 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, 2015 and 2014, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2015, 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, 2015, 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 February 24, 2016 expressed an unqualified opinion on the Company’s internal control over financial reporting.





/s/ DELOITTE & TOUCHE LLP

San Francisco, California
February 24, 2016

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Yelp Inc.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

December 31, December 31,
      2015       2014
Assets
Current assets:
      Cash and cash equivalents $          171,613 $          247,312
      Short-term marketable securities 199,214 118,498
      Accounts receivable (net of allowance for doubtful accounts of $3,208 and $1,627
            at December 31, 2015 and December 31, 2014, respectively) 52,755 35,593
      Prepaid expenses and other current assets 19,700 19,355
Total current assets 443,282 420,758
 
Long-term marketable securities 38,612
Property, equipment and software, net 80,467 62,761
Goodwill 172,197 67,307
Intangibles, net 39,294 5,786
Restricted cash 16,486 17,943
Other assets 3,701 16,483
Total assets $ 755,427 $ 629,650
 
Liabilities and Stockholders’ Equity
Current liabilities:
      Accounts payable $ 3,388 $ 1,398
      Accrued liabilities 43,458 29,581
      Deferred revenue 2,931 2,994
Total current liabilities 49,777 33,973
Long-term liabilities 12,030 7,527
Total liabilities 61,807 41,500
Commitments and contingencies (Note 11)
 
Stockholders’ equity:
Common stock, $0.000001 par value — 500,000,000 shares authorized;
      75,982,802 and 72,920,582 shares issued and outstanding at
      December 31, 2015 and December 31, 2014, respectively
Additional paid-in capital 774,022 627,742
Accumulated other comprehensive loss (13,519 ) (5,609 )
      Accumulated deficit (66,883 ) (33,983 )
 
            Total stockholders’ equity 693,620 588,150
 
Total liabilities and stockholders’ equity $ 755,427 $ 629,650

See notes to consolidated financial statements.

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Yelp Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

Year Ended December 31,
      2015       2014       2013
Net revenue $       549,711 $     377,536 $     232,988
Costs and expenses:
       Cost of revenue (exclusive of depreciation and amortization 51,015 24,382 16,561
       shown separately below)
       Sales and marketing 301,764 201,050 131,970
       Product development 107,786 65,181 38,243
       General and administrative 80,866 58,274 42,907
       Depreciation and amortization 29,604 17,590 11,455
       Restructuring and integration 675
              Total costs and expenses 571,035 366,477 241,811
 
Income (Loss) from operations (21,324 ) 11,059 (8,823 )
Other income (expense), net 386 221 (407 )
Income (Loss) before income taxes (20,938 ) 11,280 (9,230 )
Benefit (Provision) for income taxes (11,962 ) 25,193 (838 )
Net income (loss) attributable to common stockholders (Class A and B) $ (32,900 ) $ 36,473 $ (10,068 )
 
Net income (loss) per share attributable to common stockholders (Class A and B)
       Basic $ (0.44 ) $ 0.51 $ (0.15 )
       Diluted $ (0.44 ) $ 0.48 $ (0.15 )
 
Weighted-average shares used to compute net income (loss) per share
attributable to common stockholders (Class A and B)
       Basic 74,683 71,936 65,665
       Diluted 74,683 76,712 65,665

See notes to consolidated financial statements.

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Yelp Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands, except per share data)

Year Ended December 31,
      2015       2014       2013
Net income (loss) $       (32,900 ) $       36,473 $       (10,068 )
 
Other comprehensive income (loss):
       Foreign currency translation adjustments $ (7,910 ) $ (8,795 ) $ 2,381
Other comprehensive income (loss) $ (7,910 ) $ (8,795 ) $ 2,381
Comprehensive income (loss) $ (40,810 ) $ 27,678 $ (7,687 )

See notes to consolidated financial statements.

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Yelp Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2013, 2014 AND 2015
(In thousands, except shares)

Accumulated
Other
Additional Comprehensive Total
Common Stock  Paid-In Income Accumulated Stockholders'
      Shares       Amount       Capital       (Loss)       Deficit       Equity
Balance—December 31, 2012   63,505,269        225,245                       805            (60,388 )            165,662
 
Issuance of common stock upon
      exercises of employee stock
      options 2,648,121 13,554 13,554
Issuance of common stock upon
      release of restricted stock units
      (RSUs)
98,033
Issuance of common stock for
      employee stock purchase plan 81,900 1,960 1,960
Stock-based compensation 27,170 27,170
Issuance of common stock in
      connection with follow-on public
      offering, net of offering costs 4,312,500 276,527 276,527
Repurchase of common stock from
      employees (15,850 ) (674 ) (674 )
Issuance of common stock
      in connection with acquisition of
      SeatMe, Inc. 244,520 9,666 9,666
Tax benefit from share-based
      award activity 305 305
Foreign currency translation
      adjustment 2,381 2,381
Net loss (10,068 ) (10,068 )
 
Balance—December 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 RSUs 90,656
Issuance of common stock for
      employee stock purchase plan 279,538 8,869 8,869
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
Tax benefit from share-based
      award activity 1,754 1,754
Foreign currency translation
      adjustment (8,795 ) (8,795 )
Net income