Yelp Bets Big on AI After Record Revenue Year

SAN FRANCISCO, CA – February 12, 2026 – Yelp Inc. reported a record-setting $1.46 billion in net revenue for 2025, but the celebratory financial figures are overshadowed by a bold and costly strategic pivot toward artificial intelligence. The company is aggressively investing in an AI-driven future, marked by the recent acquisition of communications platform Hatch and a new partnership with OpenAI, even as it forecasts a dip in profitability for the year ahead. This transformation aims to evolve the 22-year-old platform from a trusted source of reviews into a conversational, action-oriented tool for local discovery, a move that comes with both immense potential and significant risk.

A Mixed Financial Picture

Yelp's 2025 performance paints a picture of a company with a solid foundation but facing clear headwinds in certain areas. The 4% year-over-year increase in net revenue to $1.46 billion and a 10% rise in net income to $146 million demonstrate underlying strength. This growth was primarily fueled by its Services division, which includes home, local, and automotive services. Advertising revenue from this segment surged 8% to a record $948 million, highlighting robust demand from professionals like plumbers, contractors, and mechanics.

However, the story is different for its traditional stronghold of Restaurants, Retail & Other (RR&O) businesses. This segment saw advertising revenue decrease by 6% year-over-year to $444 million, with a steeper 12% drop in the fourth quarter alone. Company executives attributed this slide to "a challenging environment for local businesses" and "macroeconomic uncertainties" affecting consumer demand.

These pressures are also visible in key engagement metrics. Despite reaching an annual record for average revenue per location, the total number of paying advertising locations across the platform fell by 3% in 2025. Furthermore, total ad clicks declined by 7%, a trend the company linked to lower consumer demand and a conscious reduction in its own spending on paid project acquisition. While the average cost per click rose 10%, reflecting higher advertiser demand in the thriving Services categories, the decline in overall clicks and RR&O revenue signals a need for strategic evolution.

“Our 2025 results reflect both disciplined execution and the margin potential of our product-led strategy,” said David Schwarzbach, Yelp's chief financial officer, in the company’s announcement. He noted the growth in Services revenue came "amid a challenging environment for local businesses, particularly in restaurants, retail and other categories."

The AI-Powered Transformation

In response to these challenges and to seize new opportunities, Yelp is going all-in on AI. The company rolled out more than 55 new features and updates in 2025, many of them infused with artificial intelligence designed to make the platform more interactive and useful for both consumers and businesses.

For consumers, the most prominent innovation is the enhanced Yelp Assistant. This AI chatbot, powered by large language models, can now answer specific questions about businesses directly on their pages, drawing from Yelp's vast repository of 330 million cumulative reviews and photos. The feature has gained significant traction, with project requests submitted through the assistant increasing by 400% year-over-year. Other AI-driven consumer tools include generative AI summaries that provide quick overviews of businesses, and Review Insights, which aggregate user sentiment on topics like food and service to simplify decision-making.

Local businesses are also being equipped with a new suite of AI tools. Yelp is introducing AI-powered call answering services—"Yelp Host" for restaurants and "Yelp Receptionist" for other businesses—to help them manage customer inquiries, filter spam, and take messages efficiently. For advertisers, a new "Smart Selection" feature uses AI to automatically test and showcase the most effective review snippets and photos in ads, aiming to maximize return on investment. These tools represent a shift from providing simple ad space to offering integrated software solutions that help businesses operate more effectively.

“Looking ahead, we are making Yelp more conversational and action-oriented for consumers, while helping businesses grow and operate more efficiently with new AI tools,” said Jeremy Stoppelman, Yelp's co-founder and chief executive officer.

High-Stakes Acquisitions and Partnerships

Yelp’s AI ambition is being fueled by major strategic investments. The centerpiece is the planned acquisition of Hatch, an AI-powered customer communication platform, for approximately $270 million in cash. Hatch specializes in helping service-oriented businesses manage leads and communicate with customers across text, email, and voice channels, using conversational AI to increase conversion rates. With a reported 70% year-over-year growth in annual recurring revenue, Hatch provides Yelp with a proven, high-growth SaaS product and deep expertise in AI-driven business communications. The acquisition is expected to significantly accelerate Yelp's ability to offer sophisticated lead management tools, particularly in its flourishing home services category.

Complementing this acquisition is a new agreement with OpenAI, the research lab behind GPT-4. While details are sparse, the partnership is crucial for powering Yelp’s new generation of AI features. OpenAI's models are the engine behind the conversational Yelp Assistant and the AI-generated business summaries, allowing the platform to process and present its user-generated content in novel ways. This collaboration also positions Yelp to license its trusted local data to power discovery across the broader AI ecosystem, creating a potential new revenue stream.

A Cautious Outlook for a Bold Future

This aggressive investment in technology comes at a cost. Yelp’s financial outlook for 2026 reflects the significant near-term expenses of its AI transformation. The company projects relatively flat net revenue, in the range of $1.455 billion to $1.475 billion. More notably, it expects Adjusted EBITDA to fall to a range of $310 million to $330 million, a considerable drop from the $369 million achieved in 2025. This projected decline is directly attributed to the costs of integrating Hatch and the continued, intensified investment in AI product development and talent.

This strategy places Yelp in a high-stakes race against competitors like Google, which is also heavily integrating generative AI into its local search and maps products. By sacrificing short-term profitability, Yelp is betting that its deep focus on AI-powered tools for both consumers and service businesses will create a more defensible, valuable platform in the long run. The company is wagering that by helping businesses convert leads more effectively and providing users with instant, conversational answers, it can solidify its position as the essential connector between people and great local businesses, moving far beyond its origins as a simple repository of reviews.