Yelp
Annual Report 2014

Plain-text annual report

Table of ContentsUNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549Form 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, 2014OR☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934 For the Transition period from toCommission file number: 001-35444YELP INC.(Exact name of Registrant as specified in its charter)Delaware20-1854266(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)140 New Montgomery Street, 9th FloorSan Francisco, California 94105(Address of principal executive offices) (Zip Code)Registrant’s telephone number, including area code: (415) 908-3801Securities registered pursuant to Section 12(b) of the Act:Title of Each Class Name of Each Exchange on Which RegisteredClass A Common Stock, par value $0.000001 per shareNew York Stock Exchange LLCSecurities registered pursuant to Section 12(g) of the Act:NoneIndicate 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 ☒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 1934during 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 filingrequirements 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 Filerequired 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 wasrequired to submit and post such files). YES ☒ NO ☐Table of ContentsIndicate 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 thebest 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 thisForm 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. Seethe 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 $4,716,654,432 as ofJune 30, 2014, the last day of the registrant’s most recently completed second fiscal quarter, based upon the closing sale price of the registrant's Class Acommon stock on the New York Stock Exchange LLC reported for June 30, 2014. Excludes an aggregate of 195,660 shares of the registrant’s Class Acommon stock and an aggregate of 10,288,701 shares of the registrant’s Class B common stock held by officers, directors, affiliated stockholders and TheYelp Foundation. For purposes of determining whether a stockholder was an affiliate of the registrant at June 30, 2014, the registrant assumed that astockholder was an affiliate of the registrant if such stockholder (i) beneficially owned 10% or more of the registrant’s capital stock, as determined based onpublic 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, 2014.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 ofthe management or policies of the registrant or that such person is controlled by or under common control with the registrant.As of February 20, 2015, there were 64,890,244 shares of registrant’s Class A Common Stock, par value $0.000001 per share, issued and outstanding and9,592,748 shares of registrant’s Class B Common Stock, par value $0.000001 per share, issued and outstanding.DOCUMENTS INCORPORATED BY REFERENCEPortions of the registrant’s definitive Proxy Statement for the 2015 Annual Meeting of Stockholders to be filed with the U.S. Securities and ExchangeCommission 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 incorporatedby reference in Part III, Items 10-14 of this Annual Report on Form 10-K.Table of ContentsYELP INC. 2014 ANNUAL REPORT ON FORM 10-KTABLE OF CONTENTS PagePART I Item 1. Business.1Item 1A.Risk Factors.13Item 1B.Unresolved Staff Comments.35Item 2.Properties.35Item 3.Legal Proceedings.35Item 4.Mine Safety Disclosures.35 PART II Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases ofEquity Securities.36Item 6.Selected Financial Data.39Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations.42Item 7A.Quantitative and Qualitative Disclosures About Market Risk.57Item 8.Financial Statements and Supplementary Data.57Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.57Item 9A.Controls and Procedures.58Item 9B.Other Information.59 PART III Item 10.Directors, Executive Officers and Corporate Governance.60Item 11.Executive Compensation.60Item 12.Security Ownership of Certain Beneficial Owners and Management and Related StockholderMatters.60Item 13.Certain Relationships and Related Transactions, and Director Independence.60Item 14.Principal Accounting Fees and Services.60 PART IV Item 15.Exhibits, Financial Statement Schedules.61 SIGNATURES62 FINANCIAL STATEMENTSReport of Independent Registered Public Accounting FirmF-1Consolidated Balance SheetsF-2Consolidated Statements of OperationsF-3Consolidated Statements of Comprehensive Income (Loss)F-4Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholder’s Equity(Deficit)F-5Consolidated Statements of Cash FlowsF-6Notes to Consolidated Financial StatementsF-7____________________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.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 propertyof Yelp. Trade names, trademarks and service marks of other companies appearing in this Annual Report are the property of their respective holders.Unless the content otherwise indicates, where we refer in this Annual Report to our “mobile application” or “mobile app,” we refer to all of ourapplications for mobile-enabled devices; references to our “mobile platform” refer to both our mobile app and the versions of our website dedicated tomobile-based browsers. Similarly, references to our “website” refer to both the U.S. and international versions of our website, as well as the versions of ourwebsite dedicated to mobile-based browsers.iTable of ContentsSPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTSThis Annual Report contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize orprove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The statements contained inthis 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 oftenidentified 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. Thesestatements are based on the beliefs and assumptions of our management based on information currently available to management. Such forward-lookingstatements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materiallyfrom future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are notlimited to, those discussed in the section titled “Risk Factors” included under Part I, Item 1A below. Furthermore, such forward-looking statements speakonly 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 orcircumstances after the date of such statements.iiTable of ContentsPART IItem 1. Business.Company OverviewYelp connects people with great local businesses by bringing “word of mouth” online and providing a platform for businesses and consumers to engageand transact. With a total of approximately 71.2 million cumulative reviews of almost every type of local business in 29 countries as of December 31, 2014,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 aredeciding 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 mobileapp to find great local businesses to meet their everyday needs. Our strong brand and the quality of the content on our platform have enabled us toattract this large audience with minimal organic traffic acquisition costs. ●Engagement. Yelp provides a platform for consumers to share their everyday local business experiences, through reviews, tips, photos and videos, andengage directly with businesses, through reviews and our Message the Business feature. Our platform also provides businesses of all sizes with avariety of free and paid services that help them engage with consumers. Businesses can register a business account for free and “claim” the Yelpbusiness 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 consumers can also pay for premium services to promote themselves through targetedsearch advertising, discounted offers and further enhancements to their business page. We also offer display advertising and brand sponsorships fornational brands that want to improve their local presence. We generate revenue primarily from the sale of advertising on our website and mobile appto these businesses. During the year ended December 31, 2014, we generated net revenue of $377.5 million, representing 62% growth over 2013, a netprofit of $36.5 million and an adjusted EBITDA of $70.9 million. For information on how we define and calculate adjusted EBITDA and areconciliation of adjusted EBITDA to net profit, see “Selected Consolidated Financial and Other Data” 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. Inaddition to providing consumers with a continuous experience from discovery to completion of transactions such as ordering food through a localdelivery service and booking hotel rooms, the Yelp Platform creates an additional point of consumer engagement for local businesses.At the heart of our business are the vibrant communities of contributors across the world that contribute the content on our platform. These contributorsprovide rich, firsthand information about local businesses in the form of reviews and ratings, tips, photos and videos. Each review, tip, photo and videoexpands the breadth and depth of the content on our platform, which drives a powerful network effect: the expanded content draws in more consumers andmore prospective contributors. This increase in content and consumer traffic in turn improves 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 highestpriority.Of the approximately 71.2 million cumulative reviews our contributors had submitted through December 31, 2014, approximately 50.0 million wererecommended and available on business profile pages; approximately 16.3 million were not recommended and available on secondary pages; andapproximately 4.9 million had been removed from our platform. Although they do not factor into a business’s overall star rating, we provide access to reviewsthat are not recommended because they provide additional perspectives and information on reviewed businesses, as well as transparency of the efficacy of ourautomated recommendation software.1Table of ContentsThe 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. We highlight below the breakdown byindustry of local businesses that have received reviews on our platform and the breakdown by industry of reviews contributed to our platform throughDecember 31, 2014. Reviewed Businesses*Reviews** The charts above include information based upon all contributed reviews and include some businesses that have only received reviews that are notrecommended 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 whichindividuals visit specific businesses or engage in certain activities versus others. For example, an individual may eat at a restaurant three times in one week orgo 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.Thetop five industry categories accounted for an aggregate of 76% of our local advertising revenue for the quarter ended December 31, 2014, broken down asfollows: Home & Local Services, 26%; Restaurants, 15%; Beauty & Fitness, 13%; Health, 11%; and Shopping, 11%.2Table of ContentsOur ProductsLocal AdvertisingWe provide both free and paid business listing products to businesses of all sizes. In addition, we enable businesses to deliver targeted search advertisingto large local audiences through our website and mobile app. We recognize revenue from these products as local advertising revenue.Free Online Business Account We enable businesses to create a free online business account and claim the page for each of their businesslocations. With their free business accounts, businesses can view trends (e.g. statistics and charts of theperformance of their pages on our platform), use the Revenue Estimator tool (e.g. to quantify the revenueopportunity Yelp provides), message customers (e.g. to reply to reviews either publicly or privately), updateinformation (e.g. address, hours of operation) and offer Yelp Deals and Gift Certificates (as described below). Enhanced ProfileOur enhanced profile solution eliminates search advertising from a business’s profile page and allows the businessto incorporate a video clip or photo slide show on the page. Businesses can also promote a desired transaction oftheir choosing — such as scheduling an appointment or printing a coupon — directly on their business listingpages with our Call to Action feature. This feature takes consumers directly from a business’s listing page to thebusiness’s own website to complete the action. Branded Profile For businesses with ten or more locations, our branded profile solution offers the ability to incorporate a video clipor photo slide show, as well as a Call to Action Button, on each location’s business listing page. Search and Other AdsWe allow businesses to promote themselves as a sponsored search result on our platform and on the listing pages ofrelated businesses. We sell ads on either a per-impression or per-click basis. Online ReservationsWe provide restaurants, nightlife and certain other venues with the ability to offer online reservations directly fromtheir Yelp business listing pages through our SeatMe feature, 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 andnightlife categories.Brand AdvertisingWe offer advertising solutions for national brands that want to improve their local presence in the form of display advertisements and brand sponsorships.Our national advertisers include leading brands in the food and restaurant, automobile, financial services, logistics, consumer goods and health and fitnessindustries. We recognize revenue from these products as brand advertising revenue.Traditional Display Advertising We offer both graphic and text display advertisements on our website and mobile app. We typically sell these adson a per-impression basis. We offer businesses display advertising opportunities on our mobile app throughdisplay ads that are optimized for the mobile experience, on our home page and on individual web pages.3Table of ContentsBrand Sponsorships Our fixed-price brand sponsorships provide businesses with exclusivity over a section or advertisement placementon Yelp for a fixed period of time. Brand sponsorships are generally associated with a particular platform —desktop, mobile web or mobile app — and are short in duration.Other ServicesIn addition to our business listing and advertising products, we also offer several features and consumer-interactive tools to facilitate transactions betweenconsumers and the local businesses they find on Yelp. We recognize revenue from these sources as other services revenue.Yelp Platform The Yelp Platform allows consumers to transact directly on Yelp. Through partnerships with companies includingEat24 (which we acquired in February 2015), Booker, Hipmunk and CellarPass, consumers are currently able tocomplete food delivery transactions, book spa and salon appointments, and make hotel bookings and wineryreservations, all without leaving Yelp. Yelp DealsOur Yelp Deals product allows local business owners to create promotional discounted deals for their products andservices, which are marketed to consumers through our platform. Yelp Deals typically have a fee structure basedsolely on transaction volume with no upfront costs, and we typically earn a fee based on the discounted price ofeach deal sold. We process all customer payments and remit to the business the revenue share of any Yelp Dealpurchased. Gift CertificatesOur Gift Certificates product allows local business owners to sell full-price gift certificates directly to customersthrough their business profile pages. The business chooses the price point to offer (from $10 to $500), and thebuyer may purchase Gift Certificates denominated in such amounts. We earn a fee based on the amount of the GiftCard sold. We process all consumer payments and remit to the business the revenue share of any Gift Certificatepurchased.The following table provides a breakdown of our revenue by product for the years indicated:Year Ended December 31, 2014 2013 2012Percentage of total net revenue by product: Local advertising85%83%79% Brand advertising91215 Other services656 Total100%100%100%Our StrategyOur mission is to connect people with great local businesses. We focus on the following key strategies to grow our business, audience of consumers andadvertiser base:4Table of ContentsAccelerate Network Effect●Expand Content. We believe that as the amount of content on our platform grows, our platform will become more widely known and relevant tobroader audiences, thus attracting new consumers to use our service. Accordingly, we will continue to explore ways to expand our content and furtherenable contributors to share their local experiences through detailed reviews, photos, tips and other forms of content contribution across our platform.For example, in the fourth quarter of 2014, we acquired Restaurant Kritik, a German review website, and Cityvox, a French review website. We plan tomigrate the content from those sites to the Yelp platform in 2015, thereby increasing the depth and breadth of our European content. In 2014, we alsoentered into a strategic partnership with YP – the company formerly known as Yellow Pages – pursuant to which YP business owner profile data willappear on our platform. ●Increase Traffic. As we continue to grow our contributor and consumer footprint within Yelp communities, we expect to benefit from acceleratingnetwork effect dynamics, further driving the growth of reviews, consumers and local business activity. In the first quarter of 2014, we entered into apartnership with Yahoo! to use Yelp content to power Yahoo Search in the United States, which we believe will increase our brand recognition andenable us to reach a larger audience. In addition, we expect to redirect traffic from the Restaurant Kritik and Cityvox websites following our plannedmigration of the content from those sites in 2015. We also plan to continue to invest in the development of our mobile platform to take advantage ofthe growing number of consumers accessing Yelp through their mobile devices. ●Increase Engagement. By continuing to expand our community engagement efforts and providing a more feature-rich experience, we believe we canincrease the number of visits and searches per user. In 2014, we added a number of new features aimed at increasing user engagement, includingmobile review translations, our “Message the Business” feature, which allows consumers to contact local businesses directly, and the ability forconsumers to upload short videos. In 2014, we also introduced Community Ambassadors — a part-time position similar to Community Managers — tofoster and support contributors in certain of our smaller communities.Enhance Monetization●Attract More Businesses. As of December 31, 2014, we were recognizing revenue from approximately 93.7 thousand local businesses accounts; withapproximately 62.4 million local businesses on our platform as of that date, we believe there is significant opportunity to increase the number of localbusinesses advertising on Yelp. In particular, we believe that the continued expansion of the Yelp Platform, new business owner products andcomprehensive tools to measure the effectiveness of our products will encourage businesses to advertise on our platform. For example, in 2014, welaunched a Yelp for Business Owners app, designed to make it easier for business owners to engage consumers, and Yelp Reservations, a free tool thatallows businesses in the restaurant and nightlife categories to start taking online reservations. ●Expand Our Sales Efforts. We plan to continue to grow our sales force and explore sales partnerships so we can reach more businesses. During 2014,we continued to invest aggressively in sales resources. We believe this ongoing investment in our sales force will drive an increase in local businessesadvertising on Yelp. In addition, we will continue to explore partnerships, such as our YP partnership, for the sale of our products. ●Expand Our Portfolio of Revenue-Generating Products. We plan to continue to grow and develop advertising and e-commerce products and partnerarrangements that provide incremental value to our advertisers and business partners to encourage them to increase their advertising budgets allocatedtowards our platform. In 2014, we continued to expand the Yelp Platform to provide consumers with a continuous experience from discovery tocompletion of transactions across new verticals. For example, we added the ability for consumers to book spa and salon appointments through Booker,make hotel bookings through Hipmunk and make winery reservations through CellarPass. However, as we explore opportunities to monetize ourproducts, we remain dedicated to adhering to high standards of user experience. We will not incorporate advertising or other products or solutions thatwe believe may excessively degrade the user experience and potentially alienate users, even if they might result in increased short-term monetization. ●Expand Our Reach. We also plan to continue to innovate and introduce our content and solutions on new platforms and distribution channels such asautomobile navigation systems, web-enabled televisions and voice-enabled mobile devices. For example, in 2014, we brought Yelp content towearable devices, such as Intel’s MICA intelligent bracelet. In addition, we continue to have relationships with several companies such as MicrosoftCorporation and Apple Inc., under which we make our content and solutions available on their website and consumer devices, respectively.5Table of ContentsMarketingCommunity ManagementWe have a team of Community Managers and Community Ambassadors based across the United States and in 28 countries internationally, whose primarygoals 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 otherlocal places of interest; ●getting to know community members and helping them get to know one another as a way to foster an offline community experience that can betransferred online; ●promoting Yelp, including guest appearances on local television and radio, and at local events such as concerts and street fairs; and ●writing weekly e-mail newsletters to share information with the community about local businesses, events and activities.Through these activities, we believe our community management team helps us increase awareness of our platform and grow avid communities who arewilling to contribute content to our platform. These active contributors to our platform may be invited to attend sponsored social events, but do not receivecompensation for their contributions. This community growth drives the network effect whereby contributed reviews expand the breadth and depth of ourcontent base. This expansion draws an increasing number of consumers to access the content on our platform, thus inspiring new and existing contributors tocreate 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, Mexico, The Netherlands, New Zealand, Norway, Poland, Portugal, Singapore, Spain, Sweden,Switzerland, Turkey, the United Kingdom and the United States.Community DevelopmentThe 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 localbusinesses.We select new locations based on a number of different location-specific criteria, including, but not limited to, population size, local gross domesticproduct, pre-existing base of reviews on our platform, Internet and wireless penetration, proximity to existing markets, number of local businesses and localad market growth.Before launching in any country, we license business listing information from third-party data providers and create individual pages for each businesslocation in the entire country. During this pre-launch preparation phase, we sometimes hire temporary local employees, called “scouts,” to provide additionalrich content, such as reviews, photos and hours of operation. To bolster the integrity of the content they provide, we closely monitor their contributions to theplatform, 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.6Table of ContentsAfter launch, we focus on attracting a community of contributors, consumers and local businesses to our platform by hiring a Community Manager toraise brand awareness and foster local engagement as described above. At scale, our platform reaches a critical mass of reviews, consumers and claimed localbusiness accounts, and we begin an active sales effort with local businesses. Thereafter, our largest expense is related to sales efforts to attract local businessadvertising customers. In Yelp communities that have attained this level of development, we expect to achieve economies of scale and operating costleverage.To further illustrate the development of Yelp communities as they scale, we highlight below our review and revenue metrics for three cohorts of Yelpcommunities in the United States: the Yelp communities that we launched in 2005-2006; the Yelp communities that we launched in 2007-2008; and theYelp communities that we launched in 2009-2010.U.S. Market Cohort Number ofYelpCommunities(1) AverageCumulativeReviewsas of December 31,2014(2) Year-Over-YearGrowth inAverageCumulativeReviews(3) AverageLocalAdvertisingRevenuein Q42014(4) Year-Over-YearGrowth inAverageLocalAdvertisingRevenue(5)2005 – 2006 Cohort64,72831%$ 6,53252% 2007 – 2008 Cohort141,02634%$1,80263% 2009 – 2010 Cohort1834443%$47078%____________________(1) A Yelp community, which we previously referred to as a Yelp market, 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, 2014 (in thousands), including the reviews thatwere 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, 2014 with the average cumulativereviews as of December 31, 2013. (4)Average local advertising revenue is defined as the total local advertising revenue from businesses in the cohort for the quarter ended December 31,2014 (in thousands), divided by the number of Yelp communities in the cohort. (5)Year-over-year growth in average local advertising revenue compares local advertising revenue for the quarter ended December 31, 2014 with localadvertising revenue for the quarter ended December 31, 2013.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 manyof the largest cities in the United States. For these and other reasons, launching additional communities in the United States may not yield results similar tothose of our existing U.S. communities.AdvertisingWe have not historically spent significantly on marketing programs, but have focused instead on organic and viral growth driven by our communitydevelopment efforts as described above. However, we believe there may be significant opportunity to increase our traffic and brand awareness throughtargeted advertising programs and we began selectively testing advertising to consumers through various online and offline channels in the second half of2014. We plan to continue our selective advertising efforts in 2015. Our marketing expenses may increase if we significantly expand these efforts to attractadditional consumers.7Table of ContentsSalesWe sell our products directly through our sales force, indirectly through partners and online through our website. Our sales force consisted of 1,547employees as of December 31, 2014 and is located in San Francisco, California; Scottsdale, Arizona; New York, New York; Dublin, Ireland; and Hamburg,Germany. A new sales office in Chicago, Illinois is expected to open in the first quarter of 2015.Direct Sales. A large majority of our sales force is dedicated to selling our local advertising products. A smaller component of our sales force isresponsible for selling display advertisements and brand sponsorships to national advertisers. Local sales representatives are primarily responsible forgenerating qualified sales leads by identifying and contacting local businesses through direct engagement, direct marketing campaigns and weekly e-mailsto claimed local businesses. Although we see opportunity to deepen our relationships with existing customers, to date our sales force has focused onincreasing revenue by adding new local advertising accounts. Sales representatives are typically compensated on the basis of revenue booked over a givenperiod.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 withits own advertising products to its advertiser base. The products covered by this arrangement include our enhanced profile and Call to Action products. Wecontinue to explore additional partnerships for the sale or bundling of our products.Self-Service Ads. Our online, or self-service, sales channel allows businesses to purchase local advertising solutions directly from our website. Businessescan purchase performance-based cost-per-click sponsored search advertising directly through this channel.TechnologyProduct development and innovation are core pillars of our strategy. We aim to delight our users and business partners with our products. We provide ourweb-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 ourusers with contextual, relevant and up-to-date results to their search queries. For example, a consumer desiring environmentally friendly carpetcleaners 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 specificneighborhood. ●Recommendation Software. We employ our proprietary automated recommendation software to analyze and screen all reviews submitted to ourplatform. We believe our recommendation technology is one of the key contributors to the quality and integrity of the reviews on our platform and thesuccess of our service. See “—Consumer Protection Efforts” below for additional details regarding our recommendation software. ●Mobile Solutions. As mobile device usage has grown over the past several years, we have invested significant resources into the development of acomprehensive mobile platform for consumers supporting the major smartphone operating systems available today, including iOS, Android andWindows Mobile. Over time, we have enhanced the functionality of our mobile platform, such that it provides similar and, in some areas, greaterfunctionality 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. Mobile devices accounted for approximately 65% of all searches on our platform in thequarter ended December 31, 2014, and approximately 43% of our unique visitors in the quarter ended December 31, 2014 were to our mobile website.In December 2014, we also launched a mobile app for business owners, designed to make it easier for them to engage with their customers and managetheir Yelp profiles. The Yelp for Business Owners app is currently available for iOS and Android.8Table of Contents●Advertising Technologies. We use proprietary ad targeting and delivery technologies designed to provide relevant local advertisements. Ourproprietary 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 datacenter environments in California and Virginia. We also host parts of our infrastructure through Amazon Web Services, as well as with third-partyleased server providers. Our web and mobile platforms are designed to have high availability, from the Internet connectivity providers we choose, tothe servers, databases and networking hardware that we deploy. We design our systems such that the failure of any individual component is notexpected to affect the overall availability of our platform. We also leverage other third-party Internet-based (cloud) services such as rich-contentstorage, map-related services, ad serving and bulk processing. ●Network Security. Computer viruses, malware, phishing attacks, denial-of-service and other attacks and similar disruptions from unauthorized use ofcomputer systems have become more prevalent in our industry, have occurred on our systems in the past, and we expect them to occur periodically onour systems in the future. For this reason, our platform includes a host of encryption, antivirus, firewall and patch-management technologies designedto help protect and maintain the systems located at data centers as well as other systems and computers across our business.Consumer Protection EffortsOur success depends on our ability to maintain consumer trust in our solutions and in the quality and integrity of the user content and other informationfound on our platform. We dedicate significant resources to the goal of maintaining and enhancing the quality, authenticity and integrity of the reviews onour platform, primarily through the following methods:Automated Recommendation Software. We use proprietary software to analyze the reliability and utility of each review submitted to our platform. Thesoftware applies the same objective standards to each review based on a wide range of data associated with each review and reviewer — regardless of thebusiness being reviewed. The results of this analysis can change over time as the software factors in new information, which may result in reviews that werepreviously recommended becoming not recommended, and reviews that were previously not recommended being restored to recommended status. Reviewsthat the software deems to be the most useful and reliable are published directly on business listing pages, though neither we nor the software purport toestablish whether or not any individual review is authentic. As of December 31, 2014, our software was recommending approximately 70% of the reviewssubmitted 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 ofDecember 31, 2014, 23% 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 inexchange 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 andoperations, 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 webelieve is indicative of attempts to deceive or mislead consumers. For example, we may issue a consumer alert if we encounter a business attempting topurchase favorable reviews or a large number of favorable reviews submitted from the same Internet Protocol address. Consumer alerts generally remain ineffect for 90 days, or longer if the deceptive practices continue.9Table of ContentsCoordination with Law Enforcement. We regularly cooperate with law enforcement and consumer protection agencies to investigate and identifybusinesses and individuals who may be engaged in false advertising or deceptive business practices relating to reviews. For example, in 2013, we assisted theNew York Attorney General with “Operation Clean Turf,” an undercover investigation targeting review manipulation that resulted in 19 companies agreeingto 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 actionagainst 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 ordefamatory 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 particularbusiness by clicking on a link on the business’s listing page. As of December 31, 2014, 7% of the reviews submitted to our platform had been removed.Intellectual PropertyWe rely on federal, state, common law and international rights, as well as contractual restrictions, to protect our intellectual property. We control access toour proprietary technology and algorithms by entering into confidentiality and invention assignment agreements with our employees and contractors, as wellas 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 toprotect our intellectual property. We pursue the registration of our copyrights, trademarks, service marks and domain names in the United States and incertain locations internationally. Our registration efforts have focused on gaining protection of our trademarks for Yelp and the Yelp burst logo, amongothers. 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 servicesoffered under these marks.Circumstances outside our control could pose a threat to our intellectual property rights. For example, effective intellectual property protection may notbe 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 sufficientor effective. Any significant impairment of our intellectual property rights could harm our business or our ability to compete. Protecting our intellectualproperty rights is also costly and time-consuming. Any unauthorized disclosure or use of our intellectual property could make it more expensive to dobusiness 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 requestlicense agreements, or threaten or enter into litigation based on allegations of infringement or other violations of such rights. We do not own any patents and,therefore, may be unable to deter competitors or others from pursuing patent or other intellectual property infringement claims against us. 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 ofinfringement.10Table of ContentsCompetitionThe market for information regarding local businesses and advertising is intensely competitive and rapidly changing. We compete for consumer trafficwith traditional, offline local business guides and directories as well as other online providers of local and web search. We also compete for a share of localbusinesses’ overall advertising budgets with traditional, offline media companies and other Internet marketing providers. Our competitors include thefollowing types of businesses:●Offline. Competitors include offline media companies and service providers, many of which have existing relationships with local businesses. Servicesprovided 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, Yahoo! and Bing, review and social media websites as well as various otheronline 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. Thesecompanies may use these advantages to offer products similar to ours at a lower price, develop different products to compete with our current solutions andrespond more quickly and effectively than we do to new or changing opportunities, technologies, standards or client requirements. Certain competitors couldalso 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; thebreadth, depth and timeliness of information; and the strength and recognition of our brand. We compete for local businesses’ advertising budgets on thebasis of factors including: the size of our consumer audience; the effectiveness of our advertising solutions; our pricing structure; and recognition of ourbrand.Government RegulationAs 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 ourbusiness, including laws regarding privacy and 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 aresubject to numerous federal, state and local laws around the world regarding privacy and the storing, sharing, use, processing, disclosure andprotection 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 ofadvertising from unpaid search results. ●Information Security and Data Protection. The laws in several states require companies to implement specific information security controls to protectcertain types of information. Likewise, all but a few states have laws in place requiring companies to notify users if there is a security breach thatcompromises certain categories of their information.11Table of ContentsMany of these laws and regulations are still evolving and could be interpreted in ways that harm our business. The application and interpretation of theselaws and regulations are often uncertain, particularly in the new and rapidly evolving industry in which we operate. They may be interpreted and appliedinconsistently from country to country and inconsistently with our current policies and practices. For example, regulatory frameworks for privacy issues arecurrently in flux worldwide, and are likely to remain so for the foreseeable future. Similarly, laws providing immunity to websites that publish user-generatedcontent are currently being tested by a number of claims, including actions based on invasion of privacy and other torts, unfair competition, copyright andtrademark 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 itmore difficult for consumers to use our platform, resulting in less traffic and revenue. Such changes could also make it more difficult for us to provideeffective advertising tools to businesses on our platform, resulting in fewer advertisers and less revenue.As 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 inadditional jurisdictions. Foreign data protection, privacy and other laws and regulations can be more restrictive than those in the United States. Any failureon our part to comply with these laws may subject us to significant liabilities.Our Culture and EmployeesWe 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 itcontinues 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, 2014, we had 2,711 full-time employeesglobally.Our culture extends beyond our offices and into the local communities in which people use Yelp. Our community management team’s responsibilitiesinclude supporting the sharing of experiences by consumers in the local markets that they serve and increasing brand awareness. We organize events severaltimes a year to recognize our most important contributors, facilitating face-to-face interactions, building the Yelp brand and fostering the sense of truecommunity in which we believe so strongly. We also engage with small businesses. For example, in 2010, we created the Yelp Small Business AdvisoryCouncil 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 BusinessAdministration and other partners to educate small business owners across the United States on best practices for online marketing.In addition, The Yelp Foundation, a non-profit organization established by our board of directors in November 2011, or the Foundation, directly supportsconsumers and local businesses in the communities in which we operate. In the quarter ended December 31, 2011, our board of directors approved thecontribution and issuance to the Foundation of 520,000 shares of our common stock, of which the Foundation had sold 100,000 shares as of December 31,2014. 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 activelyengaged in supporting community and small business growth. At December 31, 2014, the foundation held 420,000 shares of Class B common stock,representing less than 1% of our outstanding capital stock.Information About Segment and Geographic RevenueInformation about segment and geographic revenue is set forth in Note 16 of the Notes to Consolidated Financial Statements included elsewhere in thisAnnual Report.SeasonalityOur business is affected both by cyclicality in business activity and by seasonal fluctuations in Internet usage and advertising spending. We believe ourrapid growth has masked most of the cyclicality and seasonality of our business. As our revenue growth rate slows, we expect that the cyclicality andseasonality in our business may become more pronounced, causing our operating results to fluctuate. In particular, we expect traffic numbers to be weakest inthe fourth quarter of the year.12Table of ContentsCorporate and Available InformationWe 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 toYelp Inc. in February 2012. Our principal executive offices are located at 140 New Montgomery Street, San Francisco, California 94105, and our telephonenumber 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, our annual reports on Form 10-K, quarterly reports on Form10-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 copiesof 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, pressand earnings releases, and blogs as part of our investor relations website. Investors and others can receive notifications of new information posted on ourinvestor relations website in real time by signing up for email alerts and RSS feeds.Information contained on or accessible through our websites is not incorporated into, and does not form part of, this Annual Report or any other report ordocument we file with the SEC, and any references to our websites are intended to be inactive textual references only.Item 1A. Risk Factors.Our operations and financial results are subject to various risks and uncertainties, including those described below, which could adversely affect ourbusiness, financial condition, results of operations, cash flows and the trading price of our Class A common stock. You should carefully consider the risksand uncertainties described below before making an investment decision. Additional risks not presently known to us or that we currently believe areimmaterial may also significantly impair our business operations.Risks Related to Our Business and IndustryIf we are unable to increase traffic to our website and mobile app, or user engagement on our platform declines, our revenue, business and operatingresults may be harmed.We derive substantially all of our revenue from the sale of advertising, primarily through impression- and click-based advertising. Because traffic to ourplatform 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 furthertraffic, slower growth rates may harm our business and financial results. As a result, our ability to grow our business depends on our ability to increase trafficto 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.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 ourwebsite may not be prominent enough to drive traffic to our website, and we may not be in a position to influence the results. Although Internet searchengine results have allowed us to attract a large audience with minimal organic traffic acquisition costs to date, if they fail to drive sufficient traffic toour 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 maydecline. ●Review Concentration. Our restaurant and shopping categories together accounted for approximately 42% of the businesses that had been reviewedon our platform and approximately 58% of the cumulative reviews through December 31, 2014. If the high concentration of reviews in thesecategories generates a perception that our platform is primarily limited to these categories, traffic may not increase or may decline.13Table of Contents●Our Recommendation Software. If our automated software does not recommend helpful content or recommends unhelpful content, consumers mayreduce or stop their use of our platform. While we have designed our technology to avoid recommending content that we believe to be unreliable orotherwise unhelpful, we cannot guarantee that our efforts will be successful. ●Content Scraping. From time to time, other companies copy information from our platform, through website scraping, robots or other means, andpublish or aggregate it with other information for their own benefit. This may make them more competitive and may decrease the likelihood thatconsumers will visit our platform to find the local businesses and information they seek. Though we strive to detect and prevent this third-partyconduct, 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 caseof websites operating outside of the United States, our available remedies may be inadequate to protect us against such conduct. ●Internet Access. The adoption of any laws or regulations that adversely affect the growth, popularity or use of the Internet, including laws impactingInternet neutrality, could decrease the demand for our services. Similarly, any actions by companies that provide Internet access that degrade, disruptor increase the cost of user access to our platform could undermine our operations and result in the loss of users. ●Macroeconomic Conditions. Consumer purchases of discretionary items generally decline during recessions and other periods in which disposableincome 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.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 weachieve higher penetration rates. In particular, the number of major geographic markets, especially within the United States, we have not yet entered isdeclining; further expansion in smaller markets may not yield similar results or sustain our growth. That our traffic growth has slowed in recent quarters evenas we have expanded our international presence is a reflection of this trend. As our traffic growth rate slows, our success will become increasingly dependenton 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 orotherwise 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 distributeour 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 theadvertising we display; and ●we do not maintain our brand image or our reputation is damaged.14Table of ContentsWe rely on Internet search engines and application marketplaces to drive traffic to our platform, certain providers of which offer products and servicesthat compete directly with our solutions. If links to our website and applications are not displayed prominently, traffic to our platform could decline andour 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 ofusers 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 ourwebsite are displayed on search engine result pages. The display, including rankings, of unpaid search results can be affected by a number of factors, many ofwhich are not in our direct control, and may change frequently. For example, a search engine may change its ranking algorithms, methodologies or designlayouts. As a result, links to our website may not be prominent enough to drive traffic to our website, and we may not know how or otherwise be in a positionto influence the results. Beginning in the second quarter of 2014, for example, Google made changes to its algorithms and methodologies that may becontributing to the recent slowing of our traffic growth rate and decline in traffic in the fourth quarter of 2014. We cannot predict the long-term impact ofthese 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 decreaseour overall reliance on search results if mobile users use our mobile website rather than our mobile app. In fact, growth in mobile device usage mayexacerbate the risks associated with how and where our website is displayed in search results because mobile device screens are smaller than personalcomputer 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 applicationsmay receive unfavorable treatment compared to the promotion and placement of competing applications, such as the order in which they appear withinmarketplaces. Similarly, if problems arise in our relationships with providers of application marketplaces, our user growth could be harmed.In some instances, search engine companies and application marketplaces may change their displays or rankings in order to promote their own competingproducts 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 negativelyimpacted the search ranking of our website. Because Google in particular is the most significant source of traffic to our website, accounting for more than halfof the visits to our website from Internet searches during the three months ended December 31, 2014, our success depends on our ability to maintain aprominent presence in search results for queries regarding local businesses on Google. As a result, Google’s promotion of its own competing products orsimilar actions by Google in the future that have the effect of reducing our prominence or ranking on its search results could have a substantial negativeeffect on our business and results of operations.Consumers are increasingly using mobile devices to access online services. If our mobile platform and mobile advertising products are not compelling, orif 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 theirmobile devices and through personal computers, we have seen substantial growth in mobile usage as we have developed our mobile solutions. We anticipatethat 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 continueto 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 weare 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 ontraffic 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 waysin 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 viamobile. This may make it more difficult to develop mobile products that consumers find useful or provide them with the information they seek, and may alsonegatively affect our content if users do not continue to contribute high quality content on their mobile devices. In addition, building an engaged base ofmobile users may also be complicated by the frequency with which users change or upgrade their mobile services. In the event users choose mobile devicesthat 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 userengagement may be harmed.15Table of ContentsOur success is also dependent on the interoperability of our mobile products with a range of mobile technologies, systems, networks and standards that wedo not control, such as mobile operating systems like Android and iOS. We may not be successful in developing products that operate effectively with thesetechnologies, systems, networks and standards or in creating, maintaining and developing relationships with key participants in the mobile industry, some ofwhich may be our competitors. Any changes that degrade the functionality of our mobile products, give preferential treatment to competitive products orprevent us from delivering advertising could adversely affect mobile usage and monetization. As new mobile devices and platforms are released, it is difficultto predict the problems we may encounter in developing products for these alternative devices and platforms, and we may need to devote significantresources to the creation, support and maintenance of such products. If we experience difficulties in the future integrating our mobile app into mobiledevices, or we face increased costs to distribute our mobile app, our user growth and operating results could be harmed.In addition, if our mobile advertising products prove ineffective, our advertisers may stop or reduce their advertising with us. Although we currentlydeliver advertising on our mobile app and mobile website, the mobile advertising market remains a new and evolving market; as new devices and platformsare released, users may begin consuming content in a manner that is more difficult to monetize. Given our limited experience in monetizing our mobileproducts, we may not be able to generate meaningful revenue from our mobile products despite the expected growth in mobile usage. For example, we maybe unable to attract new advertisers if our mobile advertising products are not compelling or we fail to continue to innovate and introduce enhanced mobilesolutions. Similarly, if we incur excessive expenses in these efforts or our products are insufficiently profitable, our ability to grow revenue would benegatively affected. However, if our mobile solutions alienate our user base our business may also suffer. Accordingly, we must also balance theseconsiderations against our commitment to prioritizing the quality of user experience over short-term monetization, which we may not do effectively.If our users fail to contribute high quality content or their contributions are not valuable to other users, our traffic and revenue could be negativelyaffected.Our success in attracting users depends on our ability to provide consumers with the information they seek, which in turn depends on the quantity andquality 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 morewidely known and relevant to broader audiences, thereby attracting new consumers to our service. However, if we are unable to provide consumers with theinformation 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 trafficdeclines, our advertisers may stop or reduce the amount of advertising on our platform and our business could be harmed. Our ability to provide consumerswith 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 mayoccur again in the future; and ●as users increasingly contribute content through our mobile platform, because content contributed through mobile devices tends to be shorter thandesktop contributions.Similarly, if our platform does not provide current information about local businesses or users do not perceive reviews on our platform as relevant, ourbrand 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.16Table of ContentsIf 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 prospectiveadvertisers alike that our advertising products offer a material benefit and can generate a competitive return relative to other alternatives. Our ability to do sodepends on factors including:●Acceptance of Online Advertising. We believe that the continued growth and acceptance of our online advertising products will depend on theperceived effectiveness and the acceptance of online advertising models generally, which is outside of our control. Many advertisers still have limitedexperience with online advertising and, as a result, may continue to devote significant portions of their advertising budgets to traditional, offlineadvertising media, such as newspapers or print yellow pages directories. ●Competitiveness of Our Products. We must deliver ads in an effective manner and provide accurate analytics and measurement solutions thatdemonstrate the value of our advertising products compared to those of our competitors. Similarly, if the pricing of our advertising products does notcompare favorably to those of our competitors, advertisers may reduce their advertising with us or choose not to advertise with us at all. ●Traffic Quality. The success of our advertising program depends on delivering positive results to our advertising customers. Low-quality or invalidtraffic, such as robots, spiders and the mechanical automation of clicking, may be detrimental to our relationships with advertisers and could adverselyaffect our advertising pricing and revenue. If we fail to detect and prevent click fraud or other invalid clicks on ads, the affected advertisers mayexperience or perceive a reduced return on their investments, which could lead to dissatisfaction with our products, refusals to pay, refund demands orwithdrawal of future business. ●Perception of Our Platform. Our ability to compete effectively for advertiser budgets depends on our reputation and perceptions regarding ourplatform. For example, we may face challenges expanding our advertiser base in businesses outside the restaurant and shopping categories ifbusinesses believe that consumers perceive the utility of our platform to be limited to finding businesses in these categories. The ratings and reviewsthat businesses receive from our users may also affect their advertising decisions. Favorable ratings and reviews, on the one hand, could be perceivedas obviating the need to advertise. Unfavorable ratings and reviews, on the other, could discourage businesses from advertising to an audience thatthey 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 respectto online advertising products. We rely heavily on small and medium-sized businesses, which often have limited advertising budgets and may bedisproportionately 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 onthe 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 operationsand spending levels. Small and medium-sized local businesses in particular have historically experienced high failure rates. As a result, we may experienceattrition in our advertisers in the ordinary course of business resulting from several factors, including losses to competitors, declining advertising budgets,closures and bankruptcies. To grow our business, we must continually add new advertisers to replace advertisers who choose not to renew their advertising, orwho 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 expand our operations effectively, including in international markets where we have limited operating experience and may be subject toincreased risks, our revenue and business will be harmed.We intend to expand our operations into new markets, both domestically and abroad. Our expansion into new markets places us in competitiveenvironments with which we are unfamiliar and involves various challenges, such as expanding our sales force and community management personnel toreach those new markets, and encountering different and potentially lower levels of user engagement or advertiser demand in some or all of these markets.Our current and future expansion plans will require significant resources and management attention, and the returns on such investments may not be achievedfor several years, or at all.17Table of ContentsBecause we have already entered many of the largest markets in the United States and further expansion in smaller markets may not yield similar results,our continued growth depends on our ability to expand effectively in international markets. 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 the markets we have targeted forinternational expansion do not develop as we expect, or if we fail to address the needs of those markets, our business will be harmed. Expandinginternationally may also subject us to risks that we have not faced before or that increase our exposure to risks that we currently face, including risksassociated with:●operating a rapidly growing business in an environment of multiple languages, cultures, customs, legal systems, regulatory systems and commercialinfrastructures; ●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; ●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 lesscontent 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 areculturally 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 foreignjurisdictions 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 andotherwise 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 andadvertiser demands and competitive pressures. In some circumstances, we may determine to do so through the acquisition of complementary businesses ortechnologies rather than through internal development. For example, in February 2015, we acquired Eat24 to obtain an online food ordering solution. Wehave limited experience as a company in the complex process of acquiring other businesses and technologies. The pursuit of potential future acquisitionsmay divert the attention of management and cause us to incur expenses in identifying, investigating and pursuing acquisitions, whether or not they areconsummated.18Table of ContentsAcquisitions that are consummated could result in dilutive issuances of equity securities or the incurrence of debt, which could adversely affect ourresults of operations or our ability to maintain profitability. The incurrence of debt in particular could result in increased fixed obligations or includecovenants or other restrictions that would impede our ability to manage our operations. In addition, any acquisitions we announce could be viewednegatively by users, businesses or investors. We may also discover liabilities or deficiencies associated with the companies or assets we acquire that we didnot identify in advance, which may result in significant unanticipated costs. The effectiveness of our due diligence review and our ability to evaluate theresults of such due diligence are dependent upon the accuracy and completeness of statements and disclosures made by the companies we acquire or theirrepresentatives, as well as the limited amount of time in which acquisitions are executed. We may also fail to accurately forecast the financial impact of anacquisition 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 maycreate 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 managingmultiple integrations concurrently. Our ability to integrate complex acquisitions is unproven, particularly with respect to companies that have significantoperations or that develop products with which we do not have prior experience. For example, Eat24 is larger and more complex than previous companies wehave acquired. In addition, Eat24 operates a business that is new to us, and we do not currently have significant experience or structure in place to supportthis business. We plan to invest resources to support this and any future acquisitions, which will result in ongoing operating expenses and may divertresources and management attention from other areas of our business. We cannot assure you that these investments will be successful. Even if we are able tointegrate the operations of any acquired company successfully, these integrations may not result in the realization of the full benefits of synergies, costsavings, innovation and operational efficiencies that may be possible from the combination of the businesses, or we may not achieve these benefits within areasonable 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 couldharm 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 and administrative software solutions. We also rely on partners for varioustransactions available through the Yelp Platform, including Booker for spa and salon appointments, Locu for menu data and Hipmunk for hotel bookings,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. Wemay also have competing interests and obligations with respect to our partners in particular, which may make it difficult to maintain, grow or maximize thebenefit for each partnership. Our focus on integrating additional partners to expand the Yelp Platform may exacerbate this risk.19Table of ContentsIf our relationships with our partners and providers deteriorate, we could suffer increased costs and delays in our ability to provide consumers andadvertisers with content or similar services. We have had, and may in the future have, disagreements or disputes with our partners about our respectivecontractual obligations, which could result in legal proceedings or negatively affect our brand and reputation. In addition, we exercise limited control overour third-party partners and vendors, which makes us vulnerable to any errors, interruptions or delays in their operations. If these third parties experience anyservice disruptions, financial distress or other business disruption, or difficulties meeting our requirements or standards, it could make it difficult for us tooperate some aspects of our business. Similarly, upon expiration or termination of any of our agreements with third-party providers, we may not be able toreplace 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 anothercould 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 newtechnologies and market entrants, competition is likely to intensify in the future. We compete for consumer traffic with traditional, offline local businessguides and directories, Internet search engines, such as Google and Bing, review and social media websites and various other online service providers. Thesecompetitors may include regional review websites that may have strong positions in particular countries. We also compete with these companies for thecontent 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 inInternet and mobile usage generally, making the market for online advertising intensely competitive. We compete for a share of local businesses’ overalladvertising budgets with traditional, offline media companies and service providers, as well as Internet marketing providers. Many of these companies haveestablished marketing relationships with local businesses, and certain of our online competitors have substantial proprietary advertising inventory and webtraffic 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 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 makingaccess 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 offerproducts similar to ours at a lower price, develop different products to compete with our current solutions and respond more quickly and effectively than wedo 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 mayleverage their relationships based on other products or services to gain additional share of advertising budgets.20Table of ContentsTo compete effectively, we must continue to invest significant resources in product development to enhance user experience and engagement, as well assales and marketing to expand our base of advertisers. However, there can be no assurance that we will be able to compete successfully for users andadvertisers against existing or new competitors, and failure to do so could result in loss of existing users, reduced revenue, increased marketing expenses ordiminished brand strength, any of which could harm our business.Our business depends on a strong brand, and any failure to maintain, protect and enhance our brand would hurt our ability to retain and expand our baseof 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 enhancingthe “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 doso will depend largely on our ability to maintain consumer trust in our solutions and in the quality and integrity of the user content and other informationfound on our platform, which we may not do successfully. We dedicate significant resources to these goals, primarily through our automated recommendationsoftware, sting operations targeting the buying and selling of reviews, our consumer alerts program, coordination with consumer protection agencies and lawenforcement, and, in certain egregious cases, taking legal action against business we believe to be engaged in deceptive activities. We also endeavor toremove content from our platform that violates our terms of service.Despite these efforts, we cannot guarantee that each of the 71.2 million reviews on our platform that have been recommended and that have not beenremoved as of December 31, 2014 is useful or reliable, or that consumers will trust the integrity of our content. For example, if our recommendation softwaredoes not recommend helpful content or recommends unhelpful content, consumers and businesses alike may stop or reduce their use of our platform andproducts. Some consumers and businesses have alternately expressed concern that our technology either recommends too many reviews, therebyrecommending some reviews that may not be legitimate, or too few reviews, thereby not recommending some reviews that may be legitimate. If consumers donot believe our recommended reviews to be useful and reliable, they may seek other services to obtain the information for which they are looking, and maynot 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 frequencywith 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 influencedby our advertising relationships or are otherwise biased. Although we take steps to prevent this from occurring by, for example, identifying CommunityManagers as Yelp employees on their account profile pages and explaining their role on our platform, the designation does not appear on the page for eachreview contributed by the Community Manager and we may not be successful in our efforts to maintain consumer trust. Similarly, the actions of our partnersmay 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 oraffiliated with us, it could harm our reputation and our business could suffer. 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 ourreputation.21Table of ContentsIn addition, negative publicity about our company, including our technology, sales practices, personnel, customer service, litigation or political activitiescould diminish confidence in our brand and the use of our products. Certain media outlets have previously reported allegations that we manipulate ourreviews, rankings and ratings in favor of our advertisers and against non-advertisers. In order to demonstrate that our automated recommendation softwareapplies in a nondiscriminatory manner to both advertisers and non-advertisers, we allow users to access reviews that are both recommended and notrecommended by our software. We have also allowed businesses to comment publicly on reviews so that they can provide a response. Nevertheless, ourreputation and brand, the traffic to our website and mobile app and our business may suffer if negative publicity about our company persists or if usersotherwise perceive that our content is manipulated or biased. Allegations and complaints regarding our business practices, and any resulting negativepublicity, may also result in increased regulatory scrutiny of our company. In addition to requiring management time and attention, any regulatory inquiry orinvestigation 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 applicationsto 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 theirrights. 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 certainjurisdictions. Doing so could harm our brand recognition and adversely affect our business. If we fail to maintain and enhance our brand successfully, or if weincur excessive expenses in this effort, our business and financial results may be adversely affected.If we fail to manage our growth effectively, our brand, results of operations and business could be harmed.We have experienced rapid growth in our headcount and operations, including through our acquisitions of other businesses, such as SeatMe in 2013 andEat24 in February 2015, which places substantial demands on management and our operational infrastructure. Most of our employees have been with us forfewer than two years; to manage the expected growth of our operations, we will need to continue to increase the productivity of our current employees andhire, train and manage new employees. In particular, we intend to continue to make substantial investments in our engineering, sales and marketing andcommunity management organizations. As a result, we must effectively integrate, develop and motivate a large number of new employees, includingemployees in international markets and from any acquired businesses, while maintaining the beneficial aspects of our company culture.To manage this growth, we may need to improve our operational, financial and management systems and processes, which may require significant capitalexpenditures 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 causeus 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 resultsof operations in the short term. Our approach of putting consumers first may negatively impact our relationship with existing or prospective advertisers. Forexample, 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 remainon our platform, even if the business disputes its accuracy. Certain advertisers may therefore perceive us as an impediment to their success as a result ofnegative reviews and ratings. This practice could result in a loss of advertisers, which in turn could harm our results of operations. However, we believe thatthis 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 thisapproach has served the long-term interests of our company and our stockholders and will continue to do so in the future.22Table of ContentsWe rely on the performance of highly skilled personnel, and if we are unable to attract, retain and motivate well-qualified employees, our business couldbe 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. The loss of any of our senior management or key employees could materiallyadversely affect our ability to execute our business plan, and we may not be able to find adequate replacements. All of our officers and other U.S. employeesare at-will employees, which means they may terminate their employment relationship with us at any time, and their knowledge of our business and industrywould be extremely difficult to replace.Our future depends on our continuing ability to attract, develop, motivate and retain highly qualified and skilled employees. Qualified individuals are inhigh demand, and we may incur significant costs to attract them before we can validate their productivity. The significant increase in the price of our Class Acommon stock since we became a public company in 2012 may make it more difficult or costly in the future to use equity compensation to motivate,incentivize and retain our employees. If we do not succeed in attracting well-qualified employees or retaining and motivating existing employees, ourbusiness could be harmed.Risks Related to Our TechnologyOur business is dependent on the uninterrupted and proper operation of our technology and network infrastructure. Any significant disruption in ourservice 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 experiencein the future, service disruptions, outages and other performance problems. Such performance problems may be due to a variety of factors, includinginfrastructure changes, human or software errors and capacity constraints due to an overwhelming number of users accessing our platform simultaneously. Ourproducts and services are highly technical and complex, and may contain errors or vulnerabilities that could result in unanticipated downtime for ourplatform 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 usersattempting to access our platform. We may encounter such difficulties more frequently as we acquire companies and incorporate their technologies into ourservice. It may also become increasingly difficult to maintain and improve the availability of our platform, especially during peak usage times, as oursolutions 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 isunavailable 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 whichthey 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 advertisersand increase the frequency with which they user our platform. We expect to continue to make significant investments to maintain and improve theavailability 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 intechnology, our business and operating results may be harmed.23Table of ContentsOur 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 andtelecommunications equipment are located in the San Francisco Bay Area, a region known for seismic activity. In addition, acts of terrorism, which may betargeted at metropolitan areas that have higher population densities than rural areas, could cause disruptions in our or our local business advertisers’businesses or the economy as a whole. We may not have sufficient protection or recovery plans in certain circumstances, such as natural disasters affectingthe San Francisco Bay Area, and our business interruption insurance may be insufficient to compensate us for losses that may occur. Our disaster recoveryprogram contemplates transitioning our platform and data to a backup center in the event of a catastrophe. Although this program is functional, if our primarydata center shuts down, there will be a period of time that our services will remain shut down while the transition to the back-up data center takes place.During this time, our platform may be unavailable in whole or in part to our users.If our security measures are compromised, or if our platform is subject to attacks that degrade or deny the ability of users to access our content, users maycurtail 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 exposeus 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 moreprevalent 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 aparticularly compelling target for such attacks as a result of our brand recognition. User and business owner accounts and profile 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 thebusiness profile pages for each of their business locations. Although we take steps to confirm that the person setting up the account is affiliated with thebusiness, our verification systems could fail to confirm that such person is an authorized representative of the business, or mistakenly allow an unauthorizedperson to claim the business’s profile page. In addition, we face risks associated with security breaches affecting our third-party partners and serviceproviders. 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 tointerruptions, delays or website shutdowns, causing loss of critical data or the unauthorized disclosure or use of personally identifiable or other confidentialinformation. Even if we experience no significant shutdown or no critical data is lost, obtained or misused in connection with an attack, the occurrence ofsuch 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 newusers. Although we have developed systems and processes that are designed to protect our data and prevent data loss and other security breaches, thetechniques used to obtain unauthorized access, disable or degrade service or sabotage systems change frequently, often are not recognized until launchedagainst a target and may originate from less regulated and more remote areas around the world. As a result, these preventative measures may not be adequateand 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 orpotential advertisers to cancel their contracts or subject us to third-party lawsuits or other liabilities. For example, we work with third-party vendors to processcredit card payments by users and businesses, and are subject to payment card association operating rules. If our security measures fail to protect paymentinformation adequately as a result of employee error, malfeasance or otherwise, or we fail to comply with the applicable operating rules, we could be liable tothe users and businesses for their losses, as well as the vendors under our agreements with them, and be subject to fines and higher transaction fees. Inaddition, government authorities could also initiate legal or regulatory actions against us in connection with such incidents, which could cause us to incursignificant expense and liability or result in orders or consent decrees forcing us to modify our business practices.24Table of ContentsSome 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 partiesclaiming ownership of, or demanding release of, the open source software or derivative works that we developed using such software (which could includeour proprietary source code), or otherwise seeking to enforce the terms of the applicable open source license. These claims could result in litigation and couldrequire 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 ofcertain open source software can lead to greater risks than use of third-party commercial software because open source licensors generally do not providewarranties 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 negativeeffect on our business and operating results.Failure to protect or enforce our intellectual property rights could harm our business and results of operations.We regard the protection of our trade secrets, copyrights, trademarks and domain names as critical to our success. In particular, we must maintain, protectand enhance the “Yelp” brand. We pursue the registration of our domain names, trademarks and service marks in the United States and in certain jurisdictionsabroad. We strive to protect our intellectual property rights by relying on federal, state and common law rights, as well as contractual restrictions. Wetypically enter into confidentiality and invention assignment agreements with our employees and contractors, as well as confidentiality agreements withparties with whom we conduct business in order to limit access to, and disclosure and use of, our proprietary information. However, these contractualarrangements and the other steps we have taken to protect our intellectual property may not prevent the misappropriation or disclosure of our proprietaryinformation nor 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 ongoingregistration requirements and expenses and the costs of defending our rights. We are seeking to protect our intellectual property, including trademarks anddomain names, in an increasing number of jurisdictions, a process that is expensive and may not be successful, but have not done so in every location inwhich we operate. Litigation may become necessary to enforce our intellectual property rights, protect our respective trade secrets or determine the validityand scope of proprietary rights claimed by others. For example, we may incur significant costs in enforcing our trademarks against those who attempt toimitate our “Yelp” brand. Any litigation of this nature, regardless of outcome or merit, could result in substantial costs and diversion of management andtechnical 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 thatinfringe 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 dueto 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, whichcould cause us substantial harm or cause us to incur significant expense in order to purchase rights to the domain name in question. In addition, ourcompetitors and others could attempt to capitalize on our brand recognition by using domain names similar to ours. Domain names similar to ours have beenregistered 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 mayrequire litigation, which could result in substantial costs and diversion of management’s attention.25Table of ContentsRisks Related to Our Financial Statements and Tax StructureWe 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 willnot be successful. We also expect our operating results to fluctuate on a quarterly and annual basis, which increases the difficulty in predicting our futureperformance.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 maynot be indicative of our future operating results, making it difficult to assess our future prospects. You should consider our business and prospects in light ofthe risks and difficulties we may encounter in this rapidly evolving industry, which we may not be able to address successfully. These risks and difficultiesinclude 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 asappropriately 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 localbusinesses; ●expand successfully in existing markets, enter new markets and manage our international expansion; ●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 thedeployment 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.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 willbe harmed. We may not be able to address successfully these risks and difficulties or others, including those described elsewhere in these risk factors. Failureto address these risks and difficulties adequately could harm our business and cause our operating results to suffer.26Table of ContentsWe 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 futureperformance.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. Thisvolatility increases the difficulty in predicting our future performance and means comparing our operating results on a period-to-period basis may not bemeaningful. 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 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 advertisingspending by local businesses; and ●the effects of natural or man-made catastrophic events.We have incurred significant operating losses in the past, and we may not be able to generate sufficient revenue to maintain profitability. Our recentgrowth 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, 2014, we had an accumulated deficit of approximately $34.0million. Although our revenues have grown rapidly in the last several years, increasing from $12.1 million in 2008 to $377.5 million in 2014, we expect thatour revenue growth rate will decline as a result of a variety of factors, including the maturation of our business and the gradual decline in the number of majorgeographic markets, especially within the United States, to which we have not already expanded. As a result, you should not rely on revenue growth of anyprior quarterly or annual period as an indication of our future performance. In addition, historically, our costs have increased each year and we expect ourcosts to increase in future periods as we continue to expend substantial financial resources on:●sales and marketing; ●domestic and international expansion efforts; ●product and feature development; ●our technology infrastructure; ●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 andmay 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, wemay continue to incur significant losses in the future and may not be able to maintain profitability.27Table of ContentsBecause we recognize most of the revenue from our advertising products over the term of an agreement, a significant downturn in our business may not beimmediately 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 aresult, a significant portion of the revenue we report in each quarter is generated from agreements entered into during previous quarters. Consequently, adecline in new or renewed agreements in any one quarter may not significantly impact our revenue in that quarter but will negatively affect our revenue infuture quarters. In addition, we may be unable to adjust our fixed costs in response to reduced revenue. Accordingly, the effect of significant declines inadvertising sales may not be reflected in our short-term results of operations.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 companieswe acquire in the future may be allocated to acquired goodwill and other intangible assets. Under GAAP, we review our intangible assets for impairment whenevents or changes in circumstances indicate the carrying value of our goodwill and other intangible assets may not be recoverable. Goodwill is required to betested for impairment at least annually. Factors that may be considered include declines in our stock price, market capitalization and future cash flowprojections. If our acquisitions do not yield expected returns, our stock price declines or any other adverse change in market conditions occurs, a change tothe estimation of fair value could result. Any such change could result in an impairment charge to our goodwill and intangible assets, particularly if suchchange impacts on 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 needto develop new features and products, enhance our existing services, improve our operating infrastructure and acquire complementary businesses andtechnologies. As a result, we may need to engage in equity or debt financings to secure additional funds. If we raise additional funds through future issuancesof 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 toour capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursuebusiness opportunities, including potential acquisitions. We may not be able to obtain additional financing on terms favorable to us, if at all. If we are unableto 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 tobusiness challenges could be significantly impaired, and our business may be harmed.The intended tax benefits of our corporate structure and intercompany arrangements depend on the application of the tax laws of various jurisdictionsand on how we operate our business.Our corporate structure and intercompany arrangements, including the manner in which we develop and use our intellectual property and the transferpricing of intercompany transactions, are intended to reduce our worldwide effective tax rate. For example, our corporate structure includes legal entitieslocated in jurisdictions with income tax rates lower than the U.S. statutory tax rate. Our intercompany arrangements allocate income to such entities inaccordance with arm’s-length principles and commensurate with functions performed, risks assumed and ownership of valuable corporate assets. We believethat 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 taxrate.28Table of ContentsHowever, significant judgment is required in evaluating our tax positions and determining our provision for income taxes. During the ordinary course ofbusiness, there are many transactions and calculations for which the ultimate tax determination is uncertain. For example, our effective tax rates could beadversely affected by earnings being lower than anticipated in countries where we have lower statutory rates and higher than anticipated in countries wherewe 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 tointerpretation and depends on our ability to operate our business in a manner consistent with our corporate structure and intercompany arrangements. Thetaxing 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 couldincrease our worldwide effective tax rate and harm our financial position and results of operations. As we operate in numerous taxing jurisdictions, theapplication of tax laws can also be subject to diverging and sometimes conflicting interpretations by tax authorities of these jurisdictions. It is notuncommon for taxing authorities in different countries to have conflicting views, for instance, with respect to, among other things, the manner in which thearm’s length standard is applied for transfer pricing purposes, or with respect to the valuation of intellectual property.Changes in tax laws or tax rulings 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 corporatestructure and intercompany arrangements have been implemented in a manner we believe is in compliance with current prevailing tax laws. However, the taxbenefits that we intend to eventually derive could be undermined due to changing tax laws. In particular, the current U.S. administration and key members ofCongress 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 toU.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 theUnited 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, manycountries in the European Union, as well as a number of other countries and organizations such as the Organization for Economic Cooperation andDevelopment, are actively considering changes to existing tax laws that, if enacted, could increase our tax obligations in many countries where we dobusiness. Due to the expanding scale of our international business activities, any changes in the taxation of such activities may increase our worldwideeffective tax rate and harm our financial position and results of operations.We rely on data from third parties to calculate certain of our key metrics. Real or perceived inaccuracies in such metrics may harm our reputation andnegatively affect our business.Certain of our key metrics — the number of our unique visitors and mobile unique visitors — are calculated relying on data from third parties. Whilethese numbers are based on what we believe to be reasonable calculations for the applicable periods of measurement, there are inherent challenges inmeasuring usage across our large user base around the world. For example, because these metrics are based on users with unique cookies, an individual whoaccesses our website from multiple devices with different cookies may be counted as multiple unique visitors, and multiple individuals who access ourwebsite 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 and mobileunique visitors may not accurately reflect the number of people actually using our platform. In addition, our measures of traffic and other key metrics maydiffer 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 theiraccuracy. If our users, advertisers, partners and stockholders do not perceive our metrics to be accurate representations, or if we discover material inaccuraciesin our metrics, our reputation may be harmed.29Table of ContentsRisks Related to Regulatory Compliance and Legal MattersWe 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 andcould 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, variousbusinesses 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 ourbusiness also exposes us to claims relating to the information that we publish on our platform, including claims for defamation, libel, negligence andcopyright or trademark infringement, among others. Businesses have in the past claimed, and may in the future claim, that we are responsible for thedefamatory reviews posted by our users. We expect claims like these to continue, and potentially increase in proportion to the amount of content on ourplatform. 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 substantialdamages 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 productsand 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 fromtechnology companies. From time to time, we receive notice letters from patent holders alleging that certain of our products and services infringe their patentrights, and we are presently involved in numerous patent lawsuits. Each of our ongoing patent lawsuits involves plaintiffs targeting multiple defendants inthe same or similar suits. We do not own any patents, and may be unable to deter competitors or others from pursuing intellectual property infringementclaims against us.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 thenumber 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 theclaims are without merit, the costs associated with defending against them may be substantial in terms of time, money and management distraction. Inparticular, 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. Thedevelopment of alternative non-infringing technology or practices could require significant effort and expense or may not be feasible. Even if claims do notresult in litigation or are resolved in our favor without significant cash settlements, such matters, and the time and resources necessary to resolve them, couldharm our business, results of operations and reputation.30Table of ContentsOur business is subject to complex and evolving U.S. and foreign regulations and other legal obligations related to privacy, data protection and othermatters. 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, dataretention, distribution of user-generated content and consumer protection, among others. For example, because we receive, store and process personalinformation and other user data, including credit card information, we are subject to numerous federal, state and local laws around the world regardingprivacy and the storing, sharing, use, processing, disclosure and protection of personal information and other user data. We are also subject to a variety oflaws, 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 weoperate. 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 arecurrently being tested by a number of claims, including actions based on invasion of privacy and other torts, unfair competition, copyright and trademarkinfringement 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 topredict 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 arecurrently subject. For example, the risk related to liability for third-party actions may be greater in certain jurisdictions outside the United States where ourprotection 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 industrystandards to which we adhere, our privacy policies and our privacy-related obligations to third parties (including, in certain instances, voluntary third-partycertification bodies such as TRUSTe). Similarly, our business could be adversely affected if new legislation or regulations are adopted that require us tochange our current practices or the design of our platform, products or features. For example, regulatory frameworks for privacy issues are currently in fluxworldwide, and are likely to remain so for the foreseeable future due to increased public scrutiny of the practices of companies offering online services withrespect to personal information of their users. The U.S. government, including the White House, the Federal Trade Commission, the Department of Commerceand many state governments are reviewing the need for greater regulation of the collection, processing, storage and use of information about consumerbehavior on the Internet, including regulation aimed at restricting certain targeted advertising practices. The European Commission is also in the process ofpromulgating a new general data protection regulation, which may result in significantly greater compliance burdens for companies such as us with users andoperations in Europe. Changes like these could increase our administrative costs and make it more difficult for consumers to use our platform, resulting inless traffic and revenue. Such changes could also make it more difficult for us to provide effective advertising tools to businesses on our platform, resulting infewer 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, lawsor regulations or their interpretations change or new legislation or regulations are enacted, or if the third parties with whom we share user information fail tocomply with such guidelines, laws, regulations or their contractual obligations to us, we may be forced to implement new measures to reduce our legalexposure. This may require us to expend substantial resources, delay development of new products or discontinue certain products or features, which wouldnegatively impact our business. For example, if we fail to comply with our privacy-related obligations to users or third parties, or any compromise of securitythat results in the unauthorized release or transfer of personally identifiable information or other user data, we may be compelled to provide additionaldisclosures to our users, obtain additional consents from our users before collecting or using their information or implement new safeguards to help our usersmanage our use of their information, among other changes. We may also face litigation, governmental enforcement actions or negative publicity, whichcould 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 fromgovernment agencies regarding our business practices. Although the internal resources expended and expenses incurred in connection with such inquiriesand their resolutions have not been material to date, any resulting negative publicity could adversely affect our reputation and brand. Responding to andresolving any future litigation, investigations, settlements or other regulatory actions may require significant time and resources, and could diminishconfidence in and the use of our products.31Table of ContentsDomestic and foreign laws may be interpreted and enforced in ways that impose new obligations on us with respect to Yelp Deals, which may harm ourbusiness 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, amongother 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 CreditCARD 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 asthe 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 includelaws and regulations pertaining to unclaimed and abandoned property, partial redemption, refunds, revenue-sharing restrictions on certain trade groups andprofessions, 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 orforeign laws regulating money transmitters or aimed at preventing money laundering or terrorist financing, including the Bank Secrecy Act, the USAPATRIOT 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 coulddecrease, our costs could increase and our business could otherwise be harmed. In addition, the costs and expenses associated with defending any actionsrelated 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 qualifiedboard 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 listingrequirements of the New York Stock Exchange and other applicable securities rules and regulations. Compliance with these rules and regulations hasincreased, and will likely continue to increase, our legal and financial compliance costs, make some activities more difficult, time-consuming or costly, andplace significant strain on our personnel, systems and resources. In addition, changing laws, regulations and standards relating to corporate governance andpublic disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more timeconsuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, theirapplication in practice may evolve over time. This could result in continuing uncertainty regarding compliance matters, higher administrative expenses and adiversion of management’s time and attention. Further, if our compliance efforts differ from the activities intended by regulatory or governing bodies due toambiguities related to practice, regulatory authorities may initiate legal proceedings against us and our business may be harmed. Being a public companythat 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 inthe future be required to accept reduced coverage or incur substantially higher costs to obtain or retain adequate coverage. These factors could also make itmore difficult for us to attract and retain qualified members of our board of directors and qualified executive officers.32Table of ContentsRisks Related to Ownership of Our Class A Common StockThe dual class structure of our common stock has the effect of concentrating voting control with those stockholders who held our stock prior to our initialpublic offering, including our founders, directors, executive officers and employees and their affiliates, and limiting our other stockholders’ ability toinfluence 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 commonstock collectively will continue to control a majority of the combined voting power of our common stock even when the shares of Class B common stockrepresent 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 allmatters submitted to our stockholders for approval even though their stock holdings represent less than 50% of the outstanding shares of our common stock.As of December 31, 2014, stockholders who held shares of Class B common stock, including our founders, directors, executive officers, employees and theiraffiliates, together beneficially owned shares representing approximately 61% of the voting power of our outstanding capital stock. Future transfers byholders of Class B common stock will generally result in those shares converting to Class A common stock, which will have the effect, over time, ofincreasing 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 will limit our other stockholders’ ability to influence corporate matters for the foreseeable future and,as a result, the market price of our Class A common stock could be adversely affected.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 inresponse to various factors, some of which are beyond our control. During 2014, our Class A common stock’s daily closing price ranged from $50.04 to$98.04. In addition the factors discussed in this “Risk Factors” section and elsewhere in this Annual Report, factors that may cause volatility in our shareprice 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 suchforecasts), changing in 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.33Table of ContentsFurthermore, the stock markets have recently experienced extreme price and volume fluctuations that have affected and continue to affect the marketprices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of thosecompanies. In the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. Forexample, in August 2014, we and certain of our officers were sued in two similar putative class action lawsuits alleging violations of the federal securitieslaws 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 couldharm 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 dependon appreciation in the price of our Class A common stock.We have never declared or paid any cash dividends on our common stock and do not intend to pay any cash dividends in the foreseeable future. Weanticipate that we will retain all of our future earnings for use in the development of our business and for general corporate purposes. Any determination topay 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 afterprice 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 us more difficult, limit attempts by ourstockholders 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 ourmanagement. 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 ChiefExecutive Officer; ●establish an advance notice procedure for stockholder proposals to be brought before an annual meeting, including proposed nominations of personsfor 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 andcertain provisions of our certificate of incorporation; and ●reflect two classes of common stock, as discussed above.34Table of ContentsThese provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult forstockholders to replace members of our board of directors, which is responsible for appointment the members of our management. In addition, because we areincorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which generally prohibits a Delawarecorporation from engaging in any of a broad range of business combinations with any “interested” stockholder for a period of three years following the dateon 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 andsignificant stockholders, or the perception that these sales might occur, could depress the market price of our Class A common stock and could impair ourability to raise capital through the sale of additional equity securities. As of December 31, 2014, we had 63,062,071 shares of Class A common stock and9,858,511 shares of Class B common stock outstanding. Although a public market exists for our Class A common stock only, shares of our Class B commonstock 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 certainexceptions).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 officespace 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; and New York, New York; and currently our international offices are located 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 additionalspace in the future, we believe that it would be readily available on commercially reasonable terms.Item 3. Legal Proceedings.In February and March 2010, we were sued in two putative class actions on behalf of local businesses asserting various causes of action based on claimsthat we manipulated the ratings and reviews on our platform to coerce local businesses to buy our advertising products. These cases were subsequentlyconsolidated in an action asserting claims for violation of the California Business and Professions Code, extortion and attempted extortion based on theconduct they allege and seeking monetary relief in an unspecified amount and injunctive relief. In October 2011, the court dismissed this consolidated actionwith prejudice. The plaintiffs appealed to the U.S. Court of Appeals for the Ninth Circuit, which affirmed the dismissal of the consolidated action. Theplaintiffs submitted a petition to the Ninth Circuit for a rehearing, which was denied on October 28, 2014.In August 2014, two putative class action lawsuits alleging violations of federal securities laws were filed in the U.S. District Court for the NorthernDistrict of California, naming as defendants us and certain of our officers. The lawsuits allege violations of the Exchange Act by us and our officers forallegedly making materially false and misleading statements regarding our business and operations between October 29, 2013 and April 3, 2014. These caseswere subsequently consolidated and, in January 2015, plaintiffs filed a consolidated complaint seeking unspecified monetary damages and other relief. OnFebruary 6, 2015, we and the other named defendants filed a motion to dismiss the consolidated complaint, and the court is currently scheduled to have ahearing on the motion on April 16, 2015.In addition, we are subject to legal proceedings arising in the ordinary course of business. Although the results of litigation and claims cannot bepredicted 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.35Table of ContentsPART IIItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.Market InformationOur Class A common stock, par value $0.000001 per share, has been listed on the New York Stock Exchange LLC, or NYSE, under the symbol “YELP”since March 2, 2012. Prior to that date, there was no public trading market for our Class A common stock. There is no public trading market for our Class Bcommon stock. The following table sets forth on a per share basis the high and low intraday sales prices of our Class A common stock, as reported by theNYSE for the periods indicated:20142013 High Low High LowFirst Quarter$ 101.75$ 66.47$ 25.46$ 19.13Second Quarter$81.40 $49.11 $36.14 $22.48Third Quarter$86.88$64.70$71.50$33.93Fourth Quarter$73.41$49.17$75.37$56.65On February 20, 2015, the last reported sale price of our Class A common stock was $47.79.StockholdersAs of the close of business on February 20, 2015, there were 53 stockholders of record of our Class A common stock and 23 stockholders of record of ourClass B common stock. The actual number of holders of our common stock is greater than this number of record holders, and includes stockholders who arebeneficial owners, but whose shares are held in street name by brokers and other nominees. This number of holders of record also does not includestockholders whose shares may be held in trust by other entities.Dividend PolicyWe have never declared or paid, and do not anticipate declaring or paying, any cash dividends on our capital stock. Any future determination as to thedeclaration and payment of dividends, if any, will be at the discretion of our board of directors and will depend on then-existing conditions, including ourfinancial condition, operating results, contractual restrictions, capital requirements, business prospects and other factors that our board of directors may deemrelevant.Performance GraphWe have presented below the cumulative total return to our stockholders during the period from March 2, 2012 (the date our Class A common stockcommenced trading on the NYSE) through December 31, 2014 in comparison to the NYSE Composite Index and NYSE Arca Tech 100 Index. All valuesassume a $100 initial investment and data for the NYSE Composite Index and NYSE Arca Tech 100 Index assume reinvestment of dividends. Thecomparisons are based on historical data and are not indicative of, nor intended to forecast, the future performance of our Class A common stock.36Table of ContentsIndex 3/2/12 3/31/12 6/30/12 9/30/12 12/31/12 3/31/13 6/30/13 9/30/13 12/31/13 3/31/14 6/30/14 9/30/14 12/31/14Yelp Inc.100179.27151.53180.33125.67158.07231.80441.20459.67512.87511.20455.00364.87NYSE Composite 100101.18 96.52102.91105.63112.28112.35118.62128.22 129.79135.36131.95 133.63 Index NYSE Arca Tech100104.5397.23103.22103.53114.19115.53125.95138.98145.78149.17151.22158.73 100 IndexThe information under “Performance Graph” is not deemed to be “soliciting material” or “filed” with the SEC or subject to Regulation 14A or 14C, or tothe 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 ExchangeAct, whether made before or after the date of this Annual Report and irrespective of any general incorporation language in those filings.Use of Proceeds from Public Offering of Common StockOn March 2, 2012, we closed our initial public offering, in which we sold 8,172,500 shares of Class A common stock at a price to the public of $15.00 pershare. The aggregate offering price for shares sold in the offering was approximately $122.6 million. The offer and sale of all of the shares in the initial publicoffering were registered under the Securities Act pursuant to a registration statement on Form S-1 (File No. 333-178030), which was declared effective by theSEC on February 16, 2012. Goldman, Sachs & Co. acted as the lead bookrunning manager and representative of the underwriters for the initial publicoffering. Citigroup Global Markets Inc. and Jefferies & Company, Inc. acted as joint bookrunning managers and Allen & Company LLC and Oppenheimer &Co. Inc. acted as co-managers for the initial public offering.Our use of proceeds to date has been as described in our final prospectus, or the Prospectus, filed with the SEC pursuant to Rule 424(b) under theSecurities Act on March 2, 2012, and has included the majority of the approximately $116.8 million cash portion of the aggregate purchase price of ouracquisitions to date.Issuer Purchases of Equity SecuritiesThe table below provides information with respect to repurchases of shares of our Class B common stock. No shares of our Class A common stock wererepurchased during this period.37Table of ContentsTotalMaximumNumber ofNumber ofSharesShares thatPurchased asMay YetPart ofBeTotalWeightedPubliclyPurchasedNumber ofAverageAnnouncedUnder the SharesPrice PaidPlans orPlans orPeriod Purchased per Share Programs ProgramsOctober 1 – October 31, 2014— —— —November 1 – November 30, 2014(1)4,892$57.88 ——December 1 – December 31, 2014————Total4,892$57.88——____________________(1) Represents shares withheld to satisfy tax withholding obligations in connection with the vesting of employee restricted stock awards under our 2012 Equity Incentive Plan, as amended.38Table of ContentsItem 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’sDiscussion and Analysis of Financial Condition and Results of Operations,” and our audited consolidated financial statements and the accompanying notesincluded elsewhere in this Annual Report. The consolidated statements of operations data for the years ended December 31, 2014, 2013 and 2012 and theconsolidated balance sheet data as of December 31, 2014 and 2013 are derived from the audited consolidated financial statements that are includedelsewhere in this Annual Report. We have included, in our opinion, all adjustments, consisting only of normal recurring adjustments, that we considernecessary for a fair presentation of the financial information set forth in those statements. The consolidated statements of operations data for the years endedDecember 31, 2011 and 2010, as well as the consolidated balance sheet data as of December 31, 2012, 2011 and 2010, are derived from audited consolidatedfinancial statements that are not included in this Annual Report. Our historical results are not necessarily indicative of the results to be expected in anyperiod in the future.Consolidated Statements of Operations Data:Year Ended December 31, 2014 2013 2012 2011 2010(in thousands, except per share amounts)Net revenue$377,536$232,988$137,567$83,285$47,731Costs and expenses: Cost of revenue (exclusive of depreciation and amortization shown separately below)(1)24,38216,5619,9285,9313,137 Sales and marketing(1)201,050131,97085,91554,53933,919 Product development(1)65,18138,24320,47311,5866,560 General and administrative(1)58,27442,90731,53117,234 11,287 Depreciation and amortization(1)17,59011,4557,2234,2382,334 Restructuring and integration(1)—675 1,262—— Contribution to The Yelp Foundation ———5,928—Total costs and expenses366,477 241,811 156,332 99,456 57,237Income (loss) from operations11,059(8,823) (18,765) (16,171)(9,506)Other income (expense), net221(407)(226)(395)15 Income (loss) before income taxes 11,280(9,230)(18,991)(16,566)(9,491)Benefit (provision) for income taxes25,193(838)(122)(102)(75)Net income (loss)36,473(10,068)(19,113)(16,668)(9,566)Accretion of redeemable convertible preferred stock——(32)(189)(175)Net income (loss) attributable to common stockholders (Class A and B)$36,473$(10,068)$(19,145)$(16,857)$(9,741)Net income (loss) per share attributable to common stockholders (Class A and B): Basic$0.51$(0.15)$(0.35)$(1.10)$(0.71) Diluted$0.48$(0.15)$(0.35)$(1.10)$(0.71)Weighted-average shares used to compute net income (loss) per share attributable to common stockholders (Class A and B): Basic71,93665,66554,14915,29113,774 Diluted76,71265,66554,14915,29113,774(1) Stock-based compensation included in the statements of operations data above was as follows:Year Ended December 31, 2014 2013 2012 2011 2010(in thousands)Cost of revenue$729$421$122$50$26Sales and marketing15,08310,1314,9171,607 662Product development 14,804 6,270 1,705 721 260General and administrative11,657 9,300 8,134 2,499483Restructuring and integration—555———Total stock-based compensation$42,273$26,677$14,878$4,877$1,431 Consolidated Balance Sheet Data:As of December 31,20142013201220112010(in thousands)Cash and cash equivalents$247,312$389,764$95,124$21,736$27,074Property, equipment and software, net62,76130,66614,7999,8815,256Working capital386,785391,84491,21818,99628,741Total assets629,650515,977187,69643,82141,015Redeemable convertible preferred stock———55,43555,246Total stockholders’ equity (deficit)588,150486,483165,662(24,347)(20,889)39Table of ContentsOther Financial and Operational Data:Year Ended December 31, 2014 2013 2012 2011 2010(in thousands)Reviews(1) 71,23252,75735,959 24,81715,115Unique Visitors(2)135,399120,00586,30865,79639,356Mobile Unique Visitors(3)72,31152,90533,15017,5042,811Claimed Local Business Locations(4) 2,029 1,488994606 307Active Local Business Accounts(5)9467402411Local Advertising Accounts(6)84 54 31 19 11 Adjusted EBITDA(7)$70,922$29,429$4,598$(1,128) $(5,741)Non-GAAP Net Income(8)$ 52,997$ 18,314$ (3,875)$ (11,765)$ (8,112)____________________(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. Wedefine 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 regardingreviews 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 monthly unique visitors for the last three months of the period. We define monthly unique visitors as the total number of unique visitors who have visited our websiteat least once in a given month, and we average the number of monthly unique visitors in each month of the three-month period to calculate average monthly unique visitors. For more information, see“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics—Unique Visitors.”(3)Represents the average number of mobile unique visitors for the last three months of the period. We define mobile unique visitors as the sum of (i) the average monthly unique visitors who have visitedour mobile website during that period (measured as described above) and (ii) unique mobile devices using our mobile app on a monthly average basis over that period. For more information, see“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Metrics—Mobile Unique Visitors.”(4)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 addressfor which a business representative visits our website and claims the free business listing page for the business located at that address. For more information, see “Management’s Discussion andAnalysis of Financial Condition and Results of Operations—Key Metrics—Claimed Local Business Locations.”(5)Represents the number of active local business accounts from which we recognized revenue during the last three months of the period. For more information, see “Management’s Discussion andAnalysis of Financial Condition and Results of Operations—Key Metrics—Active Local Business Accounts.”(6)Represents the number of local business accounts from which we recognized local advertising revenue during the last three months of the period. We began reporting this metric in the quarter endedDecember 31, 2014 and intend to provide this metric instead of active local business accounts in future periods. For more information, see “Management’s Discussion and Analysis of FinancialCondition and Results of Operations—Key Metrics—Local Advertising Accounts.”(7)We define adjusted EBITDA as net income (loss), adjusted to exclude: provision (benefit) for income taxes, other income (expense), net, interest income, depreciation and amortization, stock-basedcompensation expense, restructuring and integration costs and contribution to the Yelp Foundation. See “—Non-GAAP Financial Measures” for more information and for a reconciliation of adjustedEBITDA to net income (loss), the most directly comparable financial measure calculated and presented in accordance with GAAP.(8)We define non-GAAP net income (loss) as net income (loss), adjusted to exclude: stock-based compensation expense, amortization of intangibles, and the release of valuation allowance. See “—Non-GAAP Financial Measures” for more information and for a reconciliation of non-GAAP net income (loss) to net income (loss), the most directly comparable financial measure calculated and presentedin accordance with GAAP.Non-GAAP Financial MeasuresTo provide investors with additional information regarding our financial results, we have disclosed in the table above and elsewhere in this AnnualReport adjusted EBITDA and non-GAAP net income (loss), which are non-GAAP financial measures. We have provided a reconciliation below of bothadjusted EBITDA and non-GAAP net income (loss) to net income (loss), the most directly comparable GAAP financial measure in each case.We have included adjusted EBITDA and non-GAAP net income (loss) because they are key measures used by our management and board of directors tounderstand and evaluate our operating performance and trends, to prepare and approve our annual budget and to develop short- and long-term operationalplans. In particular, the exclusion of certain expenses in calculating adjusted EBITDA and non-GAAP net income (loss) can provide a useful measure forperiod-to-period comparisons of our core business. Accordingly, we believe that adjusted EBITDA and non-GAAP net income (loss) provide usefulinformation to investors and others in understanding and evaluating our operating results in the same manner as our management and board of directors.40Table of ContentsAdjusted EBITDA and non-GAAP net income (loss) have limitations as analytical tools, and you should not consider them in isolation or as substitutesfor analysis of our results as reported under GAAP. 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, andadjusted EBITDA and non-GAAP net income (loss) do not reflect cash capital expenditure requirements for such replacements or for new capitalexpenditure requirements;●adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;●adjusted EBITDA and non-GAAP net income (loss) 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;●adjusted EBITDA does not consider any dilutive impact of our contribution to the Yelp Foundation;●adjusted EBITDA does not take into account any restructuring or integration costs associated with our acquisition of Qype; and●other companies, including companies in our industry, may calculate adjusted EBITDA and non-GAAP net income (loss) differently, which reducestheir usefulness as comparative measures.Because of these limitations, you should consider adjusted EBITDA and non-GAAP net income (loss) 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 (loss) to net income (loss) for each of the periods indicated:Adjusted EBITDAYear Ended December 31, 2014 2013 2012 2011 2010(in thousands)Reconciliation of Adjusted EBITDA:Net income (loss)$ 36,473$ (10,068)$ (19,113)$ (16,668)$ (9,566)(Benefit) provision for income taxes(25,193)838 12210275Other (income) expense, net (221)407 226395 (15)Depreciation and amortization17,590 11,4557,223 4,2382,334Stock-based compensation42,27326,122 14,878 4,8771,431Restructuring and integration (1) —6751,262——Contribution to The Yelp Foundation———5,928—Adjusted EBITDA$70,922$29,429$4,598$(1,128)$(5,741)____________________(1) Restructuring and integration includes $0.6 million in stock-based compensation expense for the year ended December 31, 2013.Non-GAAP Net Income (Loss)Year Ended December 31, 2014 2013 2012 2011 2010(in thousands)Reconciliation of Non-GAAP Net Income (Loss):Net income (loss)$36,473 $(10,068)$(19,113)$(16,668)$(9,566)Stock-based compensation 42,273 26,122 14,878 4,877 1,431Amortization of intangible assets2,448 2,260 3602623Valuation allowance release(28,197)————Non-GAAP net income (loss)$ 52,997$ 18,314$ (3,875)$ (11,765)$ (8,112)41Table of ContentsItem 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 consolidatedfinancial statements and related notes appearing elsewhere in this Annual Report. This discussion contains forward-looking statements that reflect ourplans, estimates and beliefs, and involve risks and uncertainties. Our actual results and the timing of certain events could differ materially from thoseanticipated in these forward-looking statements as a result of several factors, including those discussed in the section titled “Risk Factors” included underPart I, Item 1A and elsewhere in this Annual Report. See “Special Note Regarding Forward-Looking Statements” in this Annual Report.OverviewYelp connects people with great local businesses by bringing “word of mouth” online and providing a platform for businesses and consumers to engageand transact. Our platform provides value to consumers and businesses alike by connecting consumers with great local businesses at the critical momentwhen they are deciding where to spend their money. Each day, millions of consumers use our platform to find and interact with local businesses, which inturn use our free and paid services to help them engage with consumers. The Yelp Platform, which allows consumers and businesses to transact directly onYelp, provides consumers with a continuous experience from discovery to completion of transactions and local businesses with an additional point ofconsumer engagement.We derive substantially all of our revenue from the sale of advertising products. In the year ended December 31, 2014, our net revenue was $377.5million, which represented an increase of 62% from the year ended December 31, 2013, and we generated a net profit of $36.5 million and adjusted EBITDAof $70.9 million. In the year ended December 31, 2013, our net revenue was $233.0 million, which represented an increase of 69% from the year endedDecember 31, 2012, and we generated a net loss of $10.1 million and adjusted EBITDA of $29.4 million.Our success is primarily the result of significant investment in our communities, employees, content, brand and technology. We believe that continuedinvestment in our business provides our largest opportunity for future growth and plan to continue to invest for long-term growth in our key strategies:●Accelerate Network Effect. We plan to invest in marketing and product development aimed at both attracting more, and increasing the usage andcontributions of, consumers as we look to leverage our brand and benefit from accelerating network dynamics in Yelp communities. We believe thatexpanding our content will also attract new consumers as well as increase the number of visits and searches per user, and so will continue to expandour community engagement efforts and explore new ways to enable contributors to share content. For example, we plan to continue to invest in thedevelopment of our mobile platform to take advantage of the growing number of consumers accessing Yelp through their mobile devices.●Enhance Monetization. While our core local advertising business in the United States has a significant and growing base of revenue, we haveinvested, and will continue to invest, in several initiatives to enhance our monetization opportunities. One such initiative has been, and will continueto be, to aggressively grow our sales force in order to reach more businesses. We will also continue expanding the Yelp Platform, business owner toolsand other partnerships to encourage businesses to advertise on our platform.We expect to invest approximately $25 million in capital expenditures in 2015 to support the growth of our business. We expect to use the majority ofthis amount to increase our office space, upgrade our technology and infrastructure to improve the ability of our platform to handle the projected increase inusage, and enable the release of new features and solutions. As a result of this investment philosophy, we expect that our operating expenses will continue toincrease for the foreseeable future.Factors Affecting Our PerformanceTraffic and User Engagement. Changes in consumer traffic, as well as the quality and quantity of contributed content, will affect our revenue andfinancial 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 thecontent 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 werely 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 notin our direct control. Changes in a search engine‘s ranking algorithms, methodologies or design layouts may result in links to our website not beingprominent enough to drive traffic to our website. For example, in the second quarter of 2014, Google made changes to its algorithms and methodologies thatmay be contributing to the recent slowing of our traffic growth rate and decline in traffic in the fourth quarter of 2014. We cannot predict the long-termimpact of these changes.42Table of ContentsWe also anticipate that our traffic growth will continue to slow over time, and potentially decrease in certain periods, due to the gradual decline in thenumber of major geographic markets, especially within the United States, to which we have not already expanded. Further expansion in smaller markets maynot yield similar results or sustain our growth. As our traffic growth rate slows, our success will become increasingly dependent on our ability to increaselevels of user engagement on our platform. This dependence may increase as the portion of our revenue derived from performance-based advertisingincreases. If user engagement decreases, our advertisers may stop or reduce the amount of advertising on our platform and our results of operations would beharmed. In addition, we also expect the cyclicality and seasonality in our business to become more pronounced as our growth rate slows, including weakertraffic numbers in the fourth quarter of the year.Increasing Mobile Usage. Although we believe use of our mobile platform is complementary to use of our website on personal computers, we anticipatethat growth in traffic to our mobile platform will drive our growth for the foreseeable future and traffic through personal computers may continue to decline.Although we currently deliver advertising on our mobile platform, the mobile advertising market remains a new and evolving market. Given our limitedexperience in monetizing mobile products and commitment to prioritizing the quality of user experience over short-term monetization, we may not be able togenerate meaningful revenue from our mobile products despite the expected growth in mobile usage. If consumers continue to access our mobile platform assubstitute for access through personal computers, and if our mobile advertising solutions prove ineffective or insufficiently profitable, this trend couldadversely 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 purchaseour advertising solutions. Our largest sales and marketing expenses consist of the costs associated with acquiring local business advertisers. We spent amajority of our sales and marketing expense for 2014 on initiatives related to local business advertiser acquisition and expect to continue to expendsignificant 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 make it more difficult to forecast local advertising revenue accurately. In addition, our advertisers typically do nothave 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 numberof factors that are outside of our control, including their ability to continue their operations and spending levels. The small and medium-sized businesses onwhich we heavily rely often have limited advertising budgets and may be disproportionately affected by economic downturns. As a result, a worseningeconomic outlook would likely cause businesses to decrease investments in advertising, which would adversely affect our revenue.Investment in Growth. We have invested aggressively in the growth of our platform and intend to continue to invest to support this growth as we expandour platform, grow our communities and local business base, hire additional employees and further develop our technology. We also plan to invest in productdevelopment as we continue to innovate and introduce new advertising and e-commerce products, explore new platforms and distribution channels anddevelop partner arrangements that provide incremental value to our advertisers and business partners to encourage them to increase their advertising budgetsallocated towards our platform. We expect that these investments will increase our operating expenses, and that any increase in revenue resulting fromproduct innovations will likely trail the increase in expenses. For example, although we have not historically spent significantly on marketing programs, webegan testing advertising to consumers through various online and offline channels in the second half of 2014 and plan to continue to do so in 2015; furtherexpansion of these programs could significantly increase our marketing expenses.Community Development. Our long-term growth depends on our ability to successfully develop new and existing Yelp communities. It can take years forour platform to achieve a critical mass of consumers and reviews to drive meaningful traction of our advertising solutions and begin to generate revenue in aparticular community. As a result, we may continue to generate losses in new communities for an extended period, and different communities can be expectedto 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 overtime. Local advertising revenue for the oldest cohort of Yelp communities in the United States, which launched in 2005-2006, grew at 52% in 2014compared to 2013. This is lower than the growth rate of local advertising revenue for the 2007-2008 cohort, which grew 63% over the same period, and the2009-2010 cohort, which grew 78% over the same period. We believe this is indicative of continued revenue growth, but slowing revenue growth for moremature communities.43Table of ContentsAcquisitions. As part of our business strategy, we may determine to expand our product offerings and grow our business through the acquisition ofcomplementary businesses or technologies. For example, in October 2014, we acquired Restaurant Kritik and Cityvox to accelerate our internationalexpansion. In addition, in February 2015, we acquired Eat24Hours.com, Inc., a leading web and app-based food ordering service, to drive daily engagementin our restaurant vertical and provide the opportunity to expand Eat24’s services to all the restaurants listed on our platform. Our acquisitions will affect ourfuture financial results due to factors such as the amortization of acquired intangible assets and may also result in potential charges such as restructuring costsor impairment expense.Key MetricsWe regularly review a number of metrics, including the following key metrics, to evaluate our business, measure our performance, identify trends in ourbusiness, prepare financial projections and make strategic decisions.ReviewsNumber of reviews represents the cumulative number of reviews submitted to Yelp since inception, as of the period end, including reviews that are notrecommended or that have been removed from our platform. In addition to the text of the review, each review includes a rating of one to five stars. We includereviews that are not recommended and that have been removed because all of them are either currently accessible on our platform or were accessible at somepoint in time, providing information that may be useful for users to evaluate businesses and individual reviewers. Because our automated recommendationsoftware continually reassesses which reviews to recommend based on new information, the “recommended” or “not recommended” status of reviews maychange over time. Reviews that are not recommended or that have been removed do not factor in to a business’s overall star rating. By clicking on a link on areviewed 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 otherinformation about reviews that were removed for violation of our terms of service.As of December 31, 2014, approximately 66.3 million reviews were available on business profile pages, including approximately 16.3 million reviewsthat were not recommended, after accounting for 4.9 million reviews that had been removed from our platform, either by us for violation of our terms ofservice or by the users who contributed them. The following table presents the number of cumulative reviews as of the dates presented:As of December 31, 2014 2013 2012(in thousands)Reviews 71,23252,75735,959Unique VisitorsUnique visitors represent the average number of monthly unique visitors over a given three-month period. We define monthly unique visitors as the totalnumber of unique visitors who have visited our website at least once in a given month, and we average the number of monthly unique visitors in each monthof a given three-month period to calculate average monthly unique visitors. We calculate unique visitors as the number of “users” measured by GoogleAnalytics, a product from Google Inc. that provides digital marketing intelligence, based on the use of unique cookie identifiers. Unique visitors do notinclude users who access our platform solely through our mobile app. Because the number of unique visitors is based on users with unique cookies, anindividual who accesses our website from multiple devices with different cookies may be counted as multiple unique visitors, and multiple individuals whoaccess our website from a shared device with a single cookie may be counted as a single unique visitor.44Table of ContentsThe following table presents the average monthly number of unique visitors during the periods presented:Three months ended December 31, 2014 2013 2012(in thousands)Unique Visitors 135,399 120,00586,308Of the average monthly unique visitors in the quarter ended December 31, 2014, approximately 77.6 million accessed our website through personalcomputers, compared to 77.7 million and 62.3 million in the quarters ended December 31, 2013 and 2012, respectively. We anticipate that growth in use ofour mobile platform will be the driver of our growth for the foreseeable future and that usage through personal computers may continue to decline worldwide.Mobile Unique VisitorsWe define mobile unique visitors for a given three-month period to be the sum of (i) the average monthly unique visitors who have visited our mobilewebsite during that period (measured as described above) and (ii) unique mobile devices using our mobile app on a monthly average basis over that period.Under this method of calculation, an individual who accesses both our mobile website and our mobile app, or accesses either our mobile website or ourmobile app from multiple mobile devices, will be counted as multiple mobile unique visitors. Multiple individuals who access either our mobile website ormobile app from a shared device will be counted as a single mobile unique visitor. The following table presents the average monthly number of mobileunique visitors during the periods presented:Three months ended December 31, 2014 2013 2012(in thousands)Mobile Unique Visitors 72,311 52,90533,150Claimed Local Business LocationsThe number of claimed local business locations represents the cumulative number of business locations that have been claimed on Yelp worldwide since2008, as of a given date. We define a claimed local business location as each business address for which a business representative visits our website andclaims the free business listing page for the business located at that address. The following table presents the number of cumulative claimed local businesslocations as of the dates presented.As of December 31, 2014 2013 2012(in thousands)Claimed Local Business Locations 2,029 1,488994Active Local Business Accounts and Local Advertising AccountsThe number of active local business accounts represents the number of local business accounts from which we recognized revenue in a given three-monthperiod. We treat business accounts that have the same payment and/or user information as a single business account. The following table presents the numberof active local business accounts in the three-month periods presented:Three months ended December 31, 2014 2013 2012(in thousands)Active Local Business Accounts 94 6740Local advertising accounts comprise all local business accounts from which we recognize revenue in a given three-month period, excluding localbusiness accounts from which we recognize Yelp Deals revenue only. We began reporting this metric in the quarter ended December 31, 2014, and intend toprovide this metric instead of active local business accounts in future periods, because we believe it more accurately reflects our core advertising businessthan active local business accounts. The following table presents the number of local advertising accounts in the three-month periods presented:Three months ended December 31, 2014 2013 2012(in thousands)Local Advertising Accounts 84 5431Adjusted EBITDA and Non-GAAP Net Income (Loss) 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 toThe Yelp Foundation in the quarter ended December 31, 2011. Non-GAAP net income (loss) is a non-GAAP financial measure that we calculate as net income(loss), adjusted to exclude: stock-based compensation expense, amortization of intangibles and the release of valuation allowance.We believe that adjusted EBITDA and non-GAAP net income (loss) provide useful information to investors in understanding and evaluating ouroperating results in the same manner as our management and our board of directors. This non-GAAP information is not necessarily comparable to non-GAAPinformation of other companies. Non-GAAP information should not be viewed as a substitute for, or superior to, net income (loss) prepared in accordancewith GAAP as a measure of our profitability or liquidity. Users of this financial information should consider the types of events and transactions for whichadjustments have been made. For more information about adjusted EBITDA and a reconciliation of adjusted EBITDA to net income (loss), see “SelectedConsolidated Financial and Other Data—Non-GAAP Financial Measures.” For more information about non-GAAP net income (loss) and a reconciliation ofnon-GAAP net income (loss)to net income (loss), see “Selected Consolidated Financial and Other Data—Non-GAAP Financial Measures.”45Table of ContentsResults of OperationsThe following tables set forth our results of operations for the periods presented as a percentage of net revenue for those periods (certain items may notfoot due to rounding). The period-to-period comparison of financial results is not necessarily indicative of future results.Year Ended December 31, 2014 2013 2012 (as a percentage of net revenue)Consolidated Statements of Operations Data:Net revenue by product Local advertising85%83%79% Brand advertising91215 Other services656Total net revenue 100% 100% 100% Costs and expenses: Cost of revenue (exclusive of depreciation and amortization shown separately below)6%7%7% Sales and marketing535762 Product development171615 General and administrative151823 Depreciation and amortization555 Restructuring and integration——1Total costs and expenses97104113 Income (loss) from operations3(4)(14)Other income (expense), net———Income (loss) before income taxes3(4)(14)Benefit (provision) for income taxes7——Net income (loss)10%(4)%(14)%46Table of ContentsYears Ended December 31, 2014, 2013 and 2012Net RevenueWe generate revenue from local advertising, brand advertising and other services. The following table provides a breakdown of our net revenue for theperiods indicated.2013 to2012 to2014 %2013 %Year Ended December 31, ChangeChange 2014 2013 2012 (dollars in thousands) Net revenue by product: Local advertising$319,137$192,983$109,15965%77% Brand advertising34,48227,96020,5792336 Other services23,91712,0457,8299954 Total net revenue$ 377,536$ 232,988$ 137,56762%69% Percentage of total net revenue by product: Local advertising85%83%79% Brand advertising91215 Other services656 Total net revenue100%100%100%During 2014, 2013 and 2012, we focused on revenue growth related to our local advertiser customer base as well as the development of relationships withbrand advertising agencies. Total net revenue increased $144.5 million, or 62%, in 2014 compared to 2013, and $95.4 million, or 69%, in 2013 compared to2012.Local Advertising. We generate revenue from local advertising programs, including enhanced profile pages and performance and impression-basedadvertising in search results and elsewhere on our website and mobile app. Our local advertising revenue increased $126.2 million, or 65%, in 2014compared to 2013, and $83.8 million, or 77%, in 2013 compared to 2012. The increase in both years was primarily due to a significant increase in the numberof customers purchasing local advertising plans as we expanded our sales force to reach more local businesses.Brand Advertising. We generate revenue from brand advertising through the sale of advertising solutions for national brands that want to improve theirlocal presence in the form of display advertisements and brand sponsorships. Our national advertisers include leading brands in the automobile, financialservices, logistics, consumer goods and health and fitness industries. Our brand advertising revenue increased $6.5 million, or 23%, in 2014 compared to2013, and $7.4 million, or 36%, in 2013 compared to 2012. The increase in both years was primarily due to an increase in the average spend per brandadvertiser, driven largely by increased advertising impressions per brand advertiser.Other Services. We generate other revenue through partner arrangements, the sale of Yelp Deals and Gift Certificates, and monetization of remnantadvertising inventory through third-party ad networks. Our revenue-sharing partner arrangements provide consumers with the ability to complete fooddelivery transactions and make online reservations through third parties directly on Yelp. Our fixed-fee partner arrangements include allowing third-partydata providers to update business listing information on behalf of businesses. Yelp Deals allow merchants to promote themselves and offer discounted goodsand 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 thesetransactions, 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-pricedgift certificates directly to consumers through their business profile pages. We earn a fee based on the amount of the Gift Certificate sold, which we record ona net basis and include in revenue upon a consumer’s purchase of the Gift Certificate.Our other services revenue increased $11.9 million, or 99%, in 2014 compared to 2013, and $4.2 million, or 54%, in 2013 compared to 2012. Theincrease in both years was primarily due to an increase in revenue from added partnership arrangements, as well as the sale of Yelp Deals and remnantadvertising inventory.47Table of ContentsCost of RevenueOur cost of revenue consists primarily of network costs, credit card processing fees and web hosting, as well as salaries, benefits and stock-basedcompensation for our infrastructure teams related to operating our website. It also includes video production expenses and creative design for brandadvertising.2013 to2012 to2014 %2013 %Year Ended December 31, ChangeChange 2014 2013 2012 (dollars in thousands) Cost of revenue$ 24,382$ 16,561$ 9,92847%67%Percentage of net revenue6%7%7%Cost of revenue increased $7.8 million, or 47%, in 2014 compared to 2013, and $6.6 million, or 67%, in 2013 compared to 2012. The increases in 2014and 2013 were primarily attributable to increases of $4.3 million and $1.7 million, respectively, in outside hosting and Internet service fees, which arenecessary to support the increase in visitors to our website and transactions completed on our website. In addition, set up costs, including video production,for active local business pages increased by $0.4 million and $1.3 million in 2014 and 2013, respectively, due to increased demand by local businesses forvideo on their business pages. Expenses related to creative design for brand and local advertising customers also increased by $0.7 million and $0.2 millionin 2014 and 2013, respectively. In addition, merchant fees related to credit card transactions for local advertising increased $2.0 million and $1.8 million in2014 and 2013, respectively, and we added personnel to support our website infrastructure resulting in increases of $0.4 million and $1.6 million in 2014 and2013, respectively.Sales and MarketingOur sales and marketing expenses primarily consist of salaries, benefits, stock-based compensation expense, travel expense and incentive compensationexpense for our sales and marketing employees. In addition, sales and marketing expenses include business acquisition marketing, community management,branding and advertising costs, as well as allocated facilities and other supporting overhead costs. Our focus to date has been on organic and viral growthdriven by the community development efforts of our community management team, which is responsible for growing and fostering local communities, aswell as coordinating events to raise awareness of our brand. As a result, we have incurred minimal sales and marketing expenses to acquire organic traffic toour platform. However, we have begun selectively testing advertising to consumers through various channels and plan to continue to do so in 2015.We expect our community management costs to increase as we continue to expand to new markets and within existing markets. We expect our sales andmarketing expenses to increase as we expand our domestic and international footprint, increase the number of local advertising accounts and continue tobuild our brand. The substantial majority of these expenses will be related to hiring sales employees and Community Managers. We expect sales andmarketing expenses to increase and to be our largest expense for the foreseeable future.2013 to2012 to2014 %2013 %Year Ended December 31, ChangeChange 2014 2013 2012 (dollars in thousands) Sales and marketing$ 201,050$ 131,970$ 85,91552%54%Percentage of net revenue53%57%62%Sales and marketing expenses increased $69.1 million, or 52%, in 2014 compared to 2013, and $46.1 million, or 54%, in 2013 compared to 2012. Theincreases in 2014 and 2013 were primarily attributable to increases in headcount and related expenses of $42.9 million and $30.2 million, respectively,including increases in stock-based compensation expense of $5.0 million and $5.2 million, respectively, as we expanded our sales organization to takeadvantage of the market opportunity created by increased recognition of the value of our platform and increased use of our free online business accounts. Inaddition, we experienced increases in facilities and related allocations of $11.8 million and $6.4 million in 2014 and 2013, respectively. As a result of newmarketing campaigns, domestic and international marketing and advertising costs increased by $9.2 million and $0.1 million in 2014 and 2013, respectively.As a result of our increase in net revenue for 2014 compared to 2013, and 2013 compared to 2012, our commission expenses increased $5.2 million and $9.4million in 2014 and 2013, respectively.48Table of ContentsProduct DevelopmentOur product development expenses primarily consist of salaries, benefits and stock-based compensation expense for our engineers, product managementand information technology personnel. Product development expenses also include outside services and consulting, allocated facilities and other supportingoverhead costs. We believe that continued investment in features, software development tools and code modification is important to attaining our strategicobjectives and, as a result, we expect product development expense to increase for the foreseeable future.2013 to2012 to2014 %2013 %Year Ended December 31, ChangeChange 2014 2013 2012 (dollars in thousands) Product development$ 65,181$ 38,243$ 20,47370%87%Percentage of net revenue17%16%15%Product development expenses increased $26.9 million, or 70%, in 2014 compared to 2013, and $17.8 million, or 87%, in 2013 compared to 2012. Theseincreases were primarily attributable to increases in headcount and related expenses of $24.9 million and $15.3 million in 2014 and 2013, respectively,including increases in stock-based compensation expense of $8.5 million and $4.6 million, respectively. In addition, we experienced increases in facilitiesand related expenses of $2.5 million and $1.3 million in 2014 and 2013, respectively, as a result of the increases in headcount. In 2014, use of outsideconsultants decreased by $0.5 million. In 2013, use of outside consultants increased by $1.2 million as we continued to invest in adding features andfunctionality to our website and mobile app.General and AdministrativeOur general and administrative expenses primarily consist of salaries, benefits and stock-based compensation for our executive, finance, user operations,legal, human resources and other administrative employees. Our general and administrative expenses also include outside consulting, legal and accountingservices, as well as facilities and other supporting overhead costs not allocated to other departments. We expect our general and administrative expenses toincrease for the foreseeable future as we continue to expand our business.2013 to2012 to2014 %2013 %Year Ended December 31, ChangeChange 2014 2013 2012 (dollars in thousands) General and administrative$ 58,274$ 42,907$ 31,53136%36%Percentage of net revenue15%18%23%General and administrative expenses increased $15.4 million, or 36%, in 2014 compared to 2013, and $11.4 million, or 36%, in 2013 compared to 2012.The increases in 2014 and 2013 were primarily attributable to increases in headcount and related expenses of $8.3 million and $6.5 million, respectively,including increases in stock-based compensation expense of $2.3 million and $1.2 million, respectively. Additionally, we invested in our systems andsupport for the growth of the business through the use of outside consultants, which contributed to the increases by $2.4 million in both years. We alsoexperienced increases in facilities and related expenses of $1.6 million and $1.7 million in 2014 and 2013, respectively, and increases in bad debt expense of$3.1 million and $1.3 million in 2014 and 2013, respectively. In 2013, the increase was offset by a decrease in legal costs of $0.5 million due to courtdecisions in prior litigation claims.49Table of ContentsDepreciation and AmortizationDepreciation and amortization expenses primarily consist of depreciation on computer equipment, software, leasehold improvements, capitalized websiteand software development costs and amortization of purchased intangibles. We expect depreciation and amortization expenses to increase for the foreseeablefuture as we continue to expand our technology infrastructure.2013 to2012 to2014 %2013 %Year Ended December 31, ChangeChange 2014 2013 2012 (dollars in thousands) Depreciation and amortization$ 17,590$ 11,455$ 7,22354%59%Percentage of net revenue5%5%5%Depreciation and amortization expense increased $6.1 million, or 54%, in 2014 compared to 2013, and $4.2 million, or 59%, in 2013 compared to 2012.These increases were primarily the result of our investments in expanding our technology infrastructure and capital assets to support our increase inheadcount across the organization. Depreciation and amortization related to our fixed assets and capitalized website and software development costsincreased $5.9 million and $2.3 million in 2014 and 2013, respectively. In addition, amortization related to our intangibles increased by $0.2 million and$1.9 million in 2014 and 2013, respectively, primarily due to the intangibles acquired in acquisitions in such years.Restructuring and IntegrationYear Ended December 31, 2014 2013 2012 (in thousands)Restructuring and integration $ — $ 675$ 1,262In 2014, we incurred zero restructuring and integration costs compared to $0.7 million in 2013 and $1.3 million in 2012.In 2012, following the acquisition of Qype, we announced our plan to reduce the size of the Qype workforce and to terminate several of Qype’s leases. In2013, we announced our plan to further reduce the size of the Qype workforce. These actions were made in order to reduce our cost structure, enhanceoperating efficiencies and strengthen our business to achieve long-term profitable growth. We incurred restructuring charges of $0.7 million in 2013 and $1.3million in 2012 as a result of these plans. The restructuring was completed during 2013.Other Income (Expense), NetOther income (expense), net consists primarily of the interest income earned on our cash and cash equivalents and marketable securities, gains and losseson the disposal of assets, and foreign exchange gains and losses.Year Ended December 31, 2014 2013 2012 (in thousands)Interest income $ 727$ 62$ 51Transaction gains (losses) on foreign exchange (121)(251)(259)Other non-operating loss, net(385)(218)(18) Total other income (expense), net$221$(407)$(226)50Table of ContentsIn 2014, other income (expense), net increased by $0.6 million, driven primarily by an increase in interest income related to marketable securities. Inaddition, there was a decrease in foreign exchange losses due to favorable foreign currency exchange rates during 2014.In 2013, other income (expense), net decreased $0.2 million compared to 2012. The decrease was largely driven by a loss on the disposal of assets.Benefit (Provision) for Income TaxesBenefit (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 reportingpurposes and the amounts used for income tax purposes, and the realization of net operating loss carryforwards.Year Ended December 31, 2014 2013 2012 (in thousands)Benefit (provision) for income taxes $ 25,193 $ (838)$ (122)Income tax expense decreased $26.0 million in 2014 compared to 2013 primarily due to the release of the valuation allowance previously recordedagainst certain deferred tax assets. Income tax expense increased $0.7 million in 2013 compared to 2012 as a result of taxes due in foreign jurisdictions andstate taxes.Quarterly Results of Operations and Other DataThe following tables set forth our unaudited quarterly consolidated statements of operations data and our consolidated statements of operations data as apercentage of net revenue for each of the eight quarters in the period ended December 31, 2014 (for which certain items may not foot due to rounding). Wealso present other financial and operational data and a reconciliation of net income (loss) to adjusted EBITDA. We have prepared this quarterly data on aconsistent basis with the audited consolidated financial statements included in this Annual Report. In the opinion of management, the quarterly financialinformation reflects all necessary adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of this data. This informationshould be read in conjunction with the audited financial statements and related notes included elsewhere in this Annual Report. The results of historicalperiods are not necessarily indicative of the results of operations for any future period.Quarter EndedDec 31,Sep 30,Jun 30, Mar 31,Dec 31, Sep 30,Jun 30,Mar 31, 2014 2014 2014 2014 2013 2013 2013 2013(dollars in thousands, except per share data)Consolidated Statements of Operations Data:Net revenue by product Local advertising$93,125$85,132$75,685$65,195$58,052$51,167$44,797$38,967 Brand advertising8,6539,3189,0557,4559,2446,9107,0484,758 Other services8,1098,0054,0473,7573,3553,1043,1782,408Total net revenue109,887102,45588,78776,40770,65161,18155,02346,133 Costs and expenses:Cost of revenue (exclusive of depreciation and amortization shown separately below)(1)7,2866,1745,8455,0774,9264,2774,0183,340Sales and marketing(1)53,58054,55147,79845,12138,84734,12630,80328,194Product development(1)19,07617,39714,72613,98211,80211,2087,9977,236General and administrative(1)16,66215,18513,25713,17013,46010,53510,1488,764Depreciation and amortization5,2914,6044,0343,6613,5242,8162,6372,478Restructuring and integration(1)———————675Total costs and expenses101,89597,91185,66081,01172,55962,96255,60350,687 Income (loss) from operations7,9924,5443,127(4,604)(1,908)(1,781)(580)(4,554)Other income (expense), net38200(15)(2)(109)(31)(66)(201) Income (loss) before income taxes8,0304,7443,112(4,606)(2,017)(1,812)(646)(4,755)Benefit (provision) for income taxes24,698(1,107)(369)1,971(52)(510)(232)(44)Net income (loss) attributable to common stockholders (Class A and B)$32,728$3,637$2,743$(2,635)$(2,069)$(2,322)$(878)$(4,799) Net income (loss) per share attributable to common stockholders (Class A and B):Basic$0.45$0.05$0.04$(0.04)$(0.03)$(0.04)$(0.01)$(0.08)Diluted$0.42$0.05$0.04$(0.04)$(0.03)$(0.04)$(0.01)$(0.08) Weighted-average shares used to compute net income (loss) per share attributable to common stockholders (Class A and B):Basic72,64572,19571,71471,17168,84765,53064,57663,733Diluted77,21177,29677,05671,17168,84765,53064,57663,733 (1) Includes non-cash stock-based compensation expense as follows: Stock-based compensation Cost of revenue$207$253$119$150$140$104$105$72 Sales and marketing4,0383,9113,7373,3973,2012,6602,2821,988 Product development4,5083,8073,4473,0422,7051,7091,040816 General and administrative3,0632,9472,7802,8672,7432,5422,2861,729 Restructuring and integration———————555Total stock-based compensation$11,816$10,918$10,083$9,456$8,789$7,015$5,713$5,16051Table of ContentsQuarter EndedDec 31,Sep 30,Jun 30,Mar 31,Dec 31,Sep 30,Jun 30,Mar 31, 2014 2014 2014 2014 2013 2013 2013 2013(as a percentage of net revenue)Consolidated Statements of Operations Data:Net revenue by product Local advertising85%83%85%85%82%84%81%85% Brand advertising89101013111310 Other services78555565Total net revenue 100% 100% 100% 100% 100% 100% 100% 100% Costs and expenses: Cost of revenue (exclusive of depreciation and amortization shown separately below)76777777 Sales and marketing4953545955565661 Product development1717171817181516 General and administrative1515151719171819 Depreciation and amortization54555555 Restructuring and integration———————1Total costs and expenses939696106103103101109 Income (loss) from operations744(6)(3)(3)(1)(10)Other income (expense), net————————Income (loss) before income taxes754(6)(3)(3)(1)(10)Benefit (provision) for income taxes22(1)—3—(1)——Net income (loss)30%4%3%(3)%(3)%(4)%(1)%(10)%52Table of ContentsQuarter EndedDec 31,Sep 30,Jun 30,Mar 31,Dec 31,Sep 30,Jun 30,Mar 31, 2014 2014 2014 2014 2013 2013 2013 2013(in thousands)Other Financial and Operational Data(1): Reviews71,23266,59261,34256,90552,75747,32242,52639,103Unique Visitors135,399139,418137,761132,460120,005117,447108,058102,065Mobile Unique Visitors72,31173,44067,88661,19052,90550,45545,06440,168Claimed Local Business Locations2,0291,8861,7511,6231,4881,3441,2221,103Active Local Business Accounts948680746757 5145Local Advertising Accounts 84 77 69 63 54 46 40 35Adjusted EBITDA$ 25,099$ 20,066$ 17,244$ 8,513$ 10,405$ 8,050$ 7,770$ 3,204Non-GAAP Net Income (Loss)$18,897$15,198$13,455$7,447$7,340$5,278$5,358$338____________________(1) For information on how we define these operational and other metrics, see “—Key Metrics. ”The following table presents a reconciliation of adjusted EBITDA to net income (loss).Quarter EndedDec 31,Sep 30,Jun 30,Mar 31,Dec 31,Sep 30,Jun 30,Mar 31, 2014 2014 2014 2014 2013 2013 2013 2013(in thousands)Reconciliation of adjusted EBITDA: Net income (loss)$ 32,728$ 3,637$ 2,743$ (2,635)$ (2,069)$ (2,322)$ (878)$ (4,799)(Benefit) provision for income taxes(24,698)1,107369(1,971)5251023244Other (income) expense, net(38)(200)1521093166201Depreciation and amortization5,2914,6044,0343,6613,5242,8162,6372,478Stock-based compensation11,81610,91810,0839,4568,7897,0155,7134,605Restructuring and integration———————675Adjusted EBITDA$25,099$20,066$17,244$8,513$10,405$8,050$7,770$3,204The following table presents a reconciliation of non-GAAP net income (loss) to net income (loss).Quarter Ended Dec 31,Sep 30,Jun 30,Mar 31,Dec 31,Sep 30,Jun 30,Mar 31, 2014 2014 2014 2014 2013 2013 2013 2013 (in thousands)Reconciliation of adjusted non- GAAP net income (loss):Net income (loss)$ 32,728$ 3,637$ 2,743$ (2,635)$ (2,069)$ (2,322)$ (878)$ (4,799)Stock-based compensation11,81610,91810,0839,4568,7897,0155,7134,605Amortization of intangible assets550643629626620585523532Valuation allowance release(26,197)———————Non-GAAP net income (loss)$18,897$15,198$13,455$7,447$7,340$5,278$5,358$338Liquidity and Capital ResourcesAs of December 31, 2014, we had cash and cash equivalents of $247.3 million. Cash and cash equivalents consist of both cash and money market funds.Our cash held internationally as of December 31, 2014 was $8.4 million. We did not have any outstanding bank loans or credit facilities in place as ofDecember 31, 2014. Our investment portfolio is comprised of highly-rated marketable securities, and our investment policy limits the amount of creditexposure 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 ofminimizing the potential risk of principal loss. To date, we have been able to finance our operations and our acquisitions through proceeds from private andpublic financings, including our initial public offering in March 2012, our follow-on offering in October 2013, cash generated from operations and, to alesser extent, cash provided by the exercise of employee stock options and purchases under our 2012 Employee Stock Purchase Plan, or ESPP. Our future capital requirements and the adequacy of available funds will depend on many factors, including those set forth under “Risk Factors” in thisAnnual Report. We believe that our existing cash and cash equivalents, together with any cash generated from operations, will be sufficient to meet ourworking 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 mayrequire or otherwise seek additional funds in the next 12 months to respond to business challenges, including the need to develop new features and productsor enhance existing services, improve our operating infrastructure or acquire complementary businesses and technologies, and, accordingly, we may need toengage in equity or debt financings to secure additional funds.53Table of ContentsAmounts deposited with third-party financial institutions exceed the Federal Deposit Insurance Corporation and Securities Investor ProtectionCorporation insurance limits, as applicable. These cash and cash equivalents could be impacted if the underlying financial institutions fail or are subjected toother 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 canprovide no assurances that access to our invested cash and cash equivalents will not be impacted by adverse conditions in the financial markets.Cash FlowsThe following table summarizes our cash flows for the periods presented:Year Ended December 31, 2014 2013 2012 (in thousands)Consolidated Statements of Cash Flows Data:Purchases of property and equipment$ 29,054$ 16,243$ 7,524Depreciation and amortization17,59011,4557,223Cash provided by (used in) operating activities57,93221,432(99)Cash used in investing activities(228,674)(18,827)(40,592)Cash provided by financing activities29,549291,720114,173Operating Activities. We generated $57.9 million of cash in operating activities in the year ended December 31, 2014, primarily resulting from our netincome of $36.5 million, which included non-cash depreciation and amortization of $17.6 million, non-cash stock-based compensation of $42.3 million,non-cash provision for doubtful accounts of $7.2 million and $28.2 million increase related to our release of valuation allowance previously recorded againstcertain 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 asthe 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 accruedvacation 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 fromothers.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 of $26.7 million, non-cash depreciation and amortization of $11.5 million, an increase in excess tax benefitfrom 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 astiming 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, theincrease 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 taxassets, prepaid business data and prepaid rent for our facilities.54Table of ContentsWe used $0.1 million of cash from operating activities during the year ended December 31, 2012, primarily resulting from our net loss of $19.1 million,non-cash stock-based compensation of $14.9 million, provision for doubtful accounts of $1.9 million and non-cash depreciation and amortization of $7.2million. In addition, significant changes in our operating assets and liabilities resulted from the following:●increase in accounts receivable of $4.1 million due to an increase in billings for local advertising plans and brand advertising campaigns, as well astiming of payments from these customers; ●increase in prepaids and other assets of $2.6 million relating to the increase in value added tax due from taxing authorities, prepaid business data andprepaid rent for our facilities; and ●increase in accounts payable, accrued expenses, and other liabilities of $2.0 million relating to the growth in the business and, more specifically, theincrease in accrued bonus and commissions, increase in accrued vacation and employee related expenses, and deferred rent for new facilities.Investing Activities. Our primary investing activities in the year ended December 31, 2014 consisted of purchases of marketable securities, acquisitions, aswell as the continued purchases of property and equipment to support the build out of our data centers, leasehold improvements for our headquarters in SanFrancisco and other locations, the purchase of technology hardware to support our growth in headcount and software to support website and mobile appdevelopment, website operations and our corporate infrastructure. Purchases of property and equipment, as well as leasehold improvements, may vary fromperiod to period due to the timing of the expansion of our offices, operations and website and internal-use software and development. We expect to continueto invest in property and equipment, leaseholds and the development of software in 2015.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 toacquisitions during the year. Other cash used in investing activities primarily related to purchases of marketable securities of $210.5 million, as well as anincrease in expenditures related to website and internally developed software of $11.3 million, purchases of perpetual data licenses of $1.7 million andpurchases of property, equipment, software and leasehold improvements of $29.1 million to support the growth in our business and an increase in restrictedcash 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 maturitiesof 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 theacquisition of SeatMe. In addition, we used $16.2 million for purchases of property, equipment and software and incurred expenditures of $4.9 million forcapitalized website and software development costs. Cash used in investing was offset by $1.2 million of cash released from escrow related to the Qypeacquisition, recorded as a measurement period adjustment to the initial fair value of the acquired assets and liabilities. Cash used in investing was also offsetby 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 $3.2million in restricted cash.We used $40.6 million in investing activities during the year ended December 31, 2012, including $24.1 million net of cash received for the acquisitionof Qype. In addition, we used $7.5 million for purchases of property, equipment and software and incurred expenditures of $2.9 million for capitalizedwebsite and software development costs. We also entered into new lease agreements for office space in San Francisco and London. In connection with entryinto such leases, we were obligated to deliver letters of credit in the aggregate amount of $6.0 million, which resulted in an increase of $6.0 million inrestricted cash.55Table of ContentsFinancing Activities. 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.We generated $291.7 million of cash from financing activities during the year ended December 31, 2013. We received $276.5 million in proceeds fromour follow-on offering, net of $12.4 million in total offering expenses, including underwriter commission and discounts associated with the transaction. Wealso 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 excesstax benefits from the exercise of stock options and $2.0 million in net proceeds from the sale of stock under our ESPP.We generated $114.2 million of cash from financing activities during the year ended December 31, 2012. We received $111.8 million in proceeds fromour initial public offering, or IPO, net of $10.8 million in offering expenses, including underwriter commission and discounts associated with the transaction.With the exception of the IPO, our financing activities during the year ended December 31, 2012 consisted primarily of net proceeds from the issuance ofcommon stock related to the exercise of stock options.Off Balance Sheet ArrangementsWe did not have any off balance sheet arrangements in 2014, 2013 or 2012.Contractual ObligationsWe lease various office facilities, including our corporate headquarters in San Francisco, California, under operating lease agreements that expire from2015 to 2026. The terms of the lease agreements provide for rental payments on a graduated basis. We recognize rent expense on a straight-line basis over thelease periods. We do not have any debt or material capital lease obligations, and all of our property, equipment and software have been purchased with cash.As of December 31, 2014, we had no material long-term purchase obligations outstanding with any vendors or third parties. As of December 31, 2014, thefollowing table summarizes our future minimum payments under non-cancelable operating leases for equipment and office facilities:Payments Due by Period Total Less Than 1 Year 1 – 3 Years 3 – 5 Years More Than 5 Years(in thousands)Operating lease obligations$ 343,409$ 25,617$ 109,050$ 75,849$ 132,893The contractual commitment amounts in the table above are associated with agreements that are enforceable and legally binding. Obligations undercontracts that we can cancel without a significant penalty are not included in the table above. As of December 31, 2014, our total liability for uncertain taxpositions was $3.3 million. We are not reasonably able to estimate the timing of future cash flow related to this liability. As a result, this amount is notincluded in the contractual obligations table above.56Table of ContentsItem 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 risksinclude primarily interest rate, foreign exchange risks and inflation.Interest Rate FluctuationThe 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 equivalentshave a relatively short maturity, their fair value is relatively insensitive to interest rate changes. We believe a hypothetical 10% increase in the interest ratesas of December 31, 2014 would not have a material impact on our cash and cash equivalents portfolio.Our marketable securities are comprised of fixed-rate debt securities issued by U.S. corporations, U.S. government agencies and the U.S. Treasury; as such,their fair value may be affected by fluctuations in interest rates in the broader economy. As we have both the ability and intent to hold these securities tomaturity, such fluctuations would have no impact on our results of operations.Foreign Currency Exchange RiskWe have foreign currency risks related to our revenue and operating expenses denominated in currencies other than the U.S. dollar, principally the Britishpound sterling and the Euro. The volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy. Although we haveexperienced and will continue to experience fluctuations in net income (loss) as a result of transaction gains (losses), net related to revaluing certain cashbalances, trade accounts receivable balances and intercompany balances that are denominated in currencies other than the U.S. dollar, we believe ahypothetical 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 salesand expenses increase as a proportion of our overall sales and expenses, our operating results may be more greatly affected by fluctuations in the exchangerates of the currencies in which we do business. At this time we do not, but we may in the future, enter into derivatives or other financial instruments in anattempt to hedge our foreign currency exchange risk. It is difficult to predict the impact hedging activities would have on our results of operations.Inflation RiskWe 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 subjectto 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 harmour 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.57Table of ContentsItem 9A. Controls and Procedures.Evaluation of Disclosure Controls and ProceduresWe 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 thatinformation required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized andreported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls andprocedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act isaccumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allowtimely decisions regarding required disclosure.Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosurecontrols and procedures as of December 31, 2014. Based on the evaluation of our disclosure controls and procedures as of December 31, 2014, our ChiefExecutive Officer and our Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonableassurance level.Management’s Annual Report on Internal Control Over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in ExchangeAct Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, ourmanagement evaluated the effectiveness of our internal control over financial reporting based on the framework set forth in “Internal Control—IntegratedFramework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. The scope of management’s assessment of theeffectiveness of our internal control over financial reporting included all of our consolidated operations except for the operations of Restaurant Kritik andCityvox, which we acquired on October 24, 2014 and October 28, 2014, respectively. This exclusion is in accordance with the SEC’s general guidance thatan assessment of a recently acquired business may be omitted from the scope of our evaluation in the year of acquisition. Each of Restaurant Kritik andCityvox account for less than one percent of the total assets and less than one percent of total revenues of the consolidated financial statements of theCompany as of and for the fiscal year ended December 31, 2014. Based on this evaluation, our management concluded that our internal control over financialreporting was effective as of December 31, 2014. 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 AnnualReport and, as part of the audit, has issued a report on the effectiveness of our internal control over financial reporting as of December 31, 2014, which isincluded below.Changes in Internal Control Over Financial ReportingThere 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, 2014 that has materially affected, or is reasonably likely to materiallyaffect, our internal control over financial reporting.58Table of ContentsInherent Limitations on Effectiveness of ControlsOur management, including our Chief Executive Officer and our Chief Financial Officer, believes that our disclosure controls and procedures and internalcontrol 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 errorsand all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of thecontrol 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 beconsidered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that allcontrol issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision making can befaulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of somepersons, by the collusion of two or more people or by management override of controls. The design of any system of controls also is based in part uponcertain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under allpotential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies orprocedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not bedetected.REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders of Yelp Inc.San Francisco, CaliforniaWe have audited the internal control over financial reporting of Yelp Inc. and subsidiaries (the "Company") as of December 31, 2014, based on criteriaestablished in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Asdescribed in Management’s Annual Report on Internal Control Over Financial Reporting, management excluded from its assessment the internal control overfinancial reporting of Restaurant-Kritik and Cityvox, which were both acquired in October 2014 and whose financial statements constitute less than 1% ofthe total assets and less than 1% of total revenue of the consolidated financial statement amounts as of and for the year ended December 31, 2014.Accordingly, our audit did not include the internal control over financial reporting at Restaurant-Kritik and Cityvox. The Company's management isresponsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financialreporting, included in the accompanying Management's Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express anopinion 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 requirethat we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in allmaterial respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weaknessexists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures aswe 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 andprincipal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel toprovide reasonable assurance regarding their liability of financial reporting and the preparation of financial statements for external purposes in accordancewith generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertainto 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 acceptedaccounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management anddirectors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition ofthe 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 ofcontrols, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of theeffectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because ofchanges 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, 2014,based on thecriteria 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 financialstatements as of and for the year ended December 31, 2014 of the Company and our report dated February 27, 2015 expressed an unqualified opinion onthose financial statements./s/ DELOITTE & TOUCHE LLPSan Francisco, California February 27, 2015Item 9B. Other Information.None.59Table of ContentsPART IIIItem 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 certaincorporate governance matters is incorporated by reference to the information set forth under the captions “Proposal No. 1—Election of Directors,”“Information Regarding Board of Directors and Corporate Governance” and “Executive Officers” in the definitive proxy statement for our 2015 AnnualMeeting of Stockholders, or the 2015 Proxy Statement. Information required by this item regarding compliance with Section 16(a) of the Exchange Act isincorporated by reference to the information set forth under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” in our 2015 ProxyStatement.We have adopted a written code of business conduct and ethics that applies to all of our employees, officers and directors, including our principalexecutive officer, principal financial officer and principal accounting officer. The code of business conduct and ethics is available on our corporate website atwww.yelp-ir.com under the section entitled “Corporate Governance”. If we make any substantive amendments to our code of business conduct and ethics orgrant 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 willdisclose 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 2015 ProxyStatement.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 theinformation set forth under the caption “Security Ownership of Certain Beneficial Owners and Management” in our 2015 Proxy Statement. Informationrequired by this item regarding securities authorized for issuance under our equity compensation plans is incorporated by reference to the information setforth under the caption “Equity Compensation Plan Information” in our 2015 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 underthe captions “Transactions with Related Persons” in our 2015 Proxy Statement. Information required by this item regarding director independence isincorporated by reference to the information set forth under the caption “Information Regarding the Board of Directors and Corporate Governance” in our2015 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 thecaption “Proposal No. 2—Ratification of Selection of Independent Registered Public Accounting Firm” in our 2015 Proxy Statement.60Table of ContentsPART IVItem 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 includedherein on the pages indicated: Report of Independent Registered Public Accounting Firm F-1 Consolidated Balance SheetsF-2 Consolidated Statements of OperationsF-3 Consolidated Statements of Comprehensive Income (Loss)F-4 Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ EquityF-5 (Deficit) Consolidated Statements of Cash FlowsF-6 Notes to Consolidated Financial StatementsF-7 2.Financial Statement Schedules. None. All financial statement schedules are omitted because they are not applicable, not required under theinstructions, 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 thesignature page of this Annual Report.61Table of ContentsSIGNATURESPursuant 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 itsbehalf by the undersigned, thereunto duly authorized.Date: February 27, 2015YELP INC. /s/ Rob KrolikRob KrolikChief Financial Officer(Principal Financial and Accounting Officer)POWER OF ATTORNEYKNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Rob Krolik and LaurenceWilson, 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 inany 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 documentsin connection therewith, with the U.S. Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full powerand 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 shemight 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 ofthe registrant and in the capacities and on the dates indicated.Signature Title Date /s/ Jeremy StoppelmanChief Executive Officer and DirectorFebruary 27, 2015JEREMY STOPPELMAN(Principal Executive Officer) /s/ Geoff DonakerChief Operating Officer and DirectorFebruary 27, 2015GEOFF DONAKER /s/ Rob KrolikChief Financial OfficerFebruary 27, 2015ROB KROLIK(Principal Financial and Accounting Officer) /s/ Max LevchinChairmanFebruary 27, 2015MAX LEVCHIN /s/ Fred AndersonDirectorFebruary 27, 2015FRED ANDERSON /s/ Peter FentonDirectorFebruary 27, 2015PETER FENTON /s/ Robert GibbsDirectorFebruary 27, 2015ROBERT GIBBS /s/ Diane IrvineDirectorFebruary 27, 2015DIANE IRVINE /s/ Jeremy LevineDirectorFebruary 27, 2015JEREMY LEVINE /s/ Mariam NaficyDirectorFebruary 27, 2015MARIAM NAFICY62Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders of Yelp Inc.San Francisco, CaliforniaWe have audited the accompanying consolidated balance sheets of Yelp Inc. and subsidiaries (the “Company”) as of December 31, 2014 and 2013, andthe related consolidated statements of operations, comprehensive income (loss), redeemable convertible preferred stock and stockholders’ equity (deficit),and cash flows for each of the three years in the period ended December 31, 2014. These consolidated financial statements are the responsibility of theCompany’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 requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion.In our opinion, such financial statements present fairly, in all material respects, the consolidated financial position of Yelp Inc. and subsidiaries as ofDecember 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014, inconformity 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 internalcontrol over financial reporting as of December 31, 2014, based on the criteria established in Internal Control— Integrated Framework (2013) issued by theCommittee of Sponsoring Organizations of the Treadway Commission and our report dated February 27, 2015 expressed an unqualified opinion on theCompany's internal control over financial reporting./s/ DELOITTE & TOUCHE LLPSan Francisco, California February 27, 2015F-1Table of ContentsYelp Inc. CONSOLIDATED BALANCE SHEETS(In thousands, except share data)December 31, 2014 2013 AssetsCurrent assets: Cash and cash equivalents$ 247,312$ 389,764 Short-term marketable securities118,498— Accounts receivable (net of allowance for doubtful accounts of $1,627 and $810 at December 31, 2014 and 2013, respectively)35,59321,317 Prepaid expenses and other current assets19,3555,752 Total current assets420,758416,833 Long-term marketable securities38,612 —Property, equipment and software, net62,76130,666Goodwill67,30759,690Intangibles, net5,7865,235Restricted cash17,9433,247Other assets16,483306Total Assets$629,650$515,977 Liabilities and Stockholder’s EquityCurrent liabilities: Accounts payable$1,398 $3,364 Accrued liabilities 29,58119,004 Deferred revenue2,9942,621 Total current liabilities33,97324,989Long-term liabilities7,5274,505 Total liabilities41,50029,494 Commitments and contingencies (Note 11) Stockholders’ Equity Common stock, $0.000001 par value—500,000,000 shares authorized; 72,920,582 and 70,874,493 shares issued and outstanding at December 31, 2014 and 2013, respectively—— Additional paid-in capital627,742553,753 Accumulated other comprehensive income(5,609)3,186 Accumulated deficit(33,983)(70,456) Total stockholders’ equity588,150486,483 Total liabilities and stockholders’ equity$629,650$515,977See notes to consolidated financial statements.F-2Table of ContentsYelp Inc. CONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except per share data)Year Ended December 31,20142013 2012 Net revenue$ 377,536 $ 232,988 $ 137,567Costs and expenses: Cost of revenue (exclusive of depreciation and amortization shown separately below)24,38216,5619,928 Sales and marketing201,050131,97085,915 Product development65,18138,24320,473 General and administrative58,27442,90731,531 Depreciation and amortization17,59011,4557,223 Restructuring and integration—6751,262 Total costs and expenses366,477241,811156,332 Income (Loss) from operations11,059(8,823)(18,765)Other income (expense), net221(407)(226)Income (Loss) before income taxes11,280(9,230)(18,991)Benefit (Provision) for income taxes25,193(838)(122)Net income (loss)36,473(10,068)(19,113)Accretion of redeemable convertible preferred stock——(32)Net income (loss) attributable to common stockholders (Class A and B)$36,473$(10,068)$(19,145) Net income (loss) per share attributable to common stockholders (Class A and B) Basic$0.51$(0.15)$(0.35) Diluted$0.48$(0.15)$(0.35) Weighted-average shares used to compute net income (loss) per share attributable to common stockholders (Class A and B) Basic71,93665,66554,149 Diluted76,71265,66554,149See notes to consolidated financial statements.F-3Table of ContentsYelp Inc. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)(In thousands)Year Ended December 31,201420132012Net income (loss)$ 36,473 $ (10,068) $ (19,113) Other comprehensive income (loss): Foreign currency translation adjustments(8,795) 2,381534 Other comprehensive income (loss)(8,795)2,381534 Comprehensive income (loss)$ 27,678$ (7,687)$(18,579)See notes to consolidated financial statements.F-4Table of ContentsYelp Inc. CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY(DEFICIT)FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014(In thousands, except shares)RedeemableAccumulatedConvertibleAdditionalOtherTotal Preferred StockCommon StockPaid-InComprehensiveAccumulatedStockholders’SharesAmountSharesAmount CapitalIncome (Loss)DeficitEquity (Deficit)Balance—December 31, 2011 143,267,115 $ 55,435 16,956,409 $ — $ 16,625 $ 271 $ (41,243) $ (24,347) Issuance of common stock upon exercises of employee stock options——1,606,612—3,736——3,736Issuance of restricted stock——1,250—————Stock-based compensation————15,147——15,147 Accretion of redeemable convertible preferred stock—32————(32)(32)Conversion of preferred stock to common stock in connection with initial public offering(143,267,115)(55,467)35,816,772—55,466——55,466Issuance of common stock in connection with initial public offering, net of offering costs.——8,172,500—111,350——111,350Repurchase of common stock from employees——(17,193)(333)——(333)Issuance of common stock in connection with acquisition of Qype GmbH——968,919—23,254——23,254Foreign currency translation adjustment—————534 —534Net loss——————(19,113)(19,113) 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——13,554Issuance 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——1,960Stock-based compensation————27,170——27,170Issuance of common stock in connection with follow-on public offering, net of offering costs——4,312,500—276,527——276,527Repurchase of common stock from employees——(15,850)—(674)——(674)Issuance of common stock in connection with acquisition of SeatMe, Inc.——244,520—9,666——9,666Excess tax benefit from share-based award activity————305——305Foreign currency translation adjustment—————2,381—2,381Net loss——————(10,068)(10,068) Balance—December 31, 2013——70,874,493—$553,7533,186(70,456)486,483 Issuance of common stock upon exercises of employee stock options——1,679,654—20,164——20,164Issuance of common stock upon release of restricted stock units (RSUs)——90,656————Issuance of common stock for employee stock purchase plan——279,538—8,869——8,869Stock-based compensation————44,520——44,520Repurchase of common stock from employees——(18,628)—(1,318)——(1,318)Issuance of common stock in connection with acquisition of SeatMe, Inc.——14,869—————Excess tax benefit from share-based award activity————1,754——1,754Foreign currency translation adjustment—————(8,795)—(8,795)Net income—————36,47336,473 Balance—December 31, 2014——$ 72,920,582$—$627,742$(5,609)$(33,983)$588,150See notes to consolidated financial statements.F-5Table of ContentsYelp Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands)Year Ended December 31,201420132012OPERATING ACTIVITIES: Net income (loss)$ 36,473 $ (10,068) $ (19,113) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization17,59011,4557,223 Provision for doubtful accounts and sales returns7,2383,3041,913 Stock-based compensation42,27326,67714,878 Release of valuation allowance(28,197)—— (Gain) loss on disposal of assets and web-site development costs415964 Premium amortization, net, on securities held-to-maturity349—— Excess tax benefit from share-based award activity(1,834)(353)— Changes in operating assets and liabilities: Accounts receivable(21,291)(12,843)(4,118) Prepaid expenses and other assets(4,011)(1,572)(2,552) Accounts payable, accrued expenses and other liabilities8,9274,9712,049 Deferred revenue411(298)(443) Net cash provided by (used in) operating activities 57,93221,432 (99) INVESTING ACTIVITIES: Acquisitions, net of cash received(14,340)(2,057)(24,125) Purchases of property, equipment, and software(29,054)(16,243)(7,524) Capitalized website and software development costs(11,349) (4,856)(2,930) Change in restricted cash(14,764)3,176(6,013) Purchases of intangibles(1,724)—— Proceeds from sale of property and equipment14—— Goodwill measurement period adjustment—1,153— Purchases of marketable securities(210,459)—— Maturities of marketable securities53,002—— Net cash used in investing activities(228,674)(18,827)(40,592) FINANCING ACTIVITIES: Proceeds from initial public offering, net of underwriter fees——114,006 Proceeds from follow-on offering, net of offering costs—276,527— Payments for deferred offering costs——(2,200) Proceeds from issuance of common stock from share-based awards20,16413,5543,675 Proceeds from issuance of common stock for Employee Stock Purchase Plan8,8691,960— Repurchase of common stock(1,318)(674)— Excess tax benefit from share-based award activity1,834353— Repayment of acquired debt——(1,308) Net cash provided by financing activities29,549291,720114,173 EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS(1,259)315(94)CHANGE IN CASH AND CASH EQUIVALENTS(142,452)294,64073,388CASH AND CASH EQUIVALENTS—Beginning of period389,76495,12421,736 CASH AND CASH EQUIVALENTS—End of period$247,312$389,764$95,124 SUPPLEMENTAL DISCLOSURES OF OTHER CASH FLOW INFORMATION: Cash paid for income taxes$1,972$291$110SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES: Purchases of property and equipment recorded in accounts payable and accruals$6,374$2,685$549 Capitalized website and software development costs recorded in accounts payable and accruals$169$17$4 Contingent consideration related to acquisitions$835$—$— Accretion of redeemable convertible preferred stock$—$—$32 Vesting of early exercised options$—$—$61See notes to consolidated financial statements.F-6Table of ContentsYelp Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2014, 2013 AND 20121. ORGANIZATION AND DESCRIPTION OF BUSINESSYelp Inc. was incorporated in Delaware on September 3, 2004. Except where specifically noted or the context otherwise requires, the use of terms such asthe “Company” and “Yelp” in these Notes to Consolidated Financial Statements refers to Yelp Inc. and its subsidiaries.Yelp connects people with great local businesses by bringing “word of mouth” online and providing a platform for businesses and consumers to engageand transact. Yelp’s platform is transforming the way people discover local businesses; every day, millions of consumers visit its website or use its mobile appto find great local businesses to meet their everyday needs. Businesses of all sizes use the Yelp platform to engage with consumers at the critical momentwhen they are deciding where to spend their money.The Company consists of Yelp Inc. and 18 wholly-owned entities. Yelp UK Ltd was incorporated on December 1, 2008, Yelp Canada Inc. wasincorporated on February 24, 2009, Yelp Ireland Limited was incorporated on May 31, 2010, Yelp Deutschland GmbH was incorporated on June 7, 2010,Yelp Ireland Holding Company Limited was incorporated on June 16, 2010, Yelp France SAS was incorporated on July 8, 2010, Yelp Italia S.r.l. wasincorporated on June 27, 2011, Yelp Australia Pty. Ltd was incorporated on August 9, 2011, Yelp Spain, S.L. was incorporated on May 4, 2012, YelpSingapore PTE Ltd was incorporated on June 15, 2012, Yelp Brazil Serviços de Marketing Ltda. was incorporated on May 29, 2013, and Yelp Japan, G.K.was incorporated on September 20, 2013. Qype GmbH, Qype Ltd., Qype SARL and Qype SL (collectively, “Qype”) were acquired on October 23, 2012,SeatMe, Inc. was acquired on July 24, 2013 and Cityvox SAS (“Cityvox”) was acquired on October 27, 2014 (see Note 5). The financial results of thesesubsidiaries are included within the consolidated financial statements of the Company presented herein.Basis of Presentation—The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in theUnited States of America (“GAAP”). All intercompany balances and transactions have been eliminated in consolidation.Certain Significant Risks and Uncertainties—The Company operates in a dynamic industry and, accordingly, can be affected by a variety of factors. Forexample, the Company’s management believes that changes in any of the following areas could have a significant negative effect on the Company in termsof its future financial position, results of operations or cash flows: rates of revenue growth; traffic to the Company’s websites and mobile applications and thenumber of reviews and advertisers they attract; reliance on search engines and the placement and prominence in results rankings; the quality and reliability ofreviews; scaling and adaptation of existing technology and network infrastructure; management of the Company’s growth; new markets and internationalexpansion; protection of the Company’s brand, reputation and intellectual property; competition in the Company’s market; qualified employees and keypersonnel; intellectual property infringement and other claims; and changes in government regulation affecting the Company’s business, among other things.2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESUse of Estimates—The preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to makeestimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of theconsolidated financial statements and the reported amounts of income and expenses during the reporting period. These estimates are based on informationavailable as of the date of the consolidated financial statements; therefore, actual results could differ from management’s estimates.F-7Table of ContentsForeign Currency Translation—The consolidated financial statements of the Company’s foreign subsidiaries are measured using the local currency asthe functional currency. Assets and liabilities of foreign subsidiaries are translated at exchange rates in effect as of the balance sheet date. Revenues andexpenses are translated at average exchanges rates in effect during the year. Translation adjustments are recorded within accumulated other comprehensiveloss, a separate component of stockholders’ equity (deficit).Cash and Cash Equivalents—The Company considers all highly liquid investments, such as treasury bills, commercial paper, certificates of deposit andmoney market instruments with maturities of three months or less at the time of acquisition to be cash equivalents. Cash and cash equivalents primarilyconsist of amounts held in interest-bearing money market funds that were readily convertible to cash. The fair value of cash and cash equivalentsapproximates their carrying value.Marketable Securities—The Company determines the classification of its marketable securities at the time of purchase and re-evaluates thesedeterminations at each balance sheet date. Debt securities are classified as held-to-maturity when the Company has the positive intent and ability to hold thesecurities to maturity. Held-to-maturity securities are stated at amortized cost and are periodically assessed for other-than-temporary impairment. Amortizedcost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity, and is included in interest income. Held-to-maturitysecurities with less than one year to maturity are included in short-term marketable securities. All other held-to-maturity securities are classified as long-term.Concentrations of Credit Risk—Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of cash andcash equivalents and accounts receivable. The Company places its cash and cash equivalents with major financial institutions, which management assesses tobe of high credit quality, in order to limit the exposure of each investment.Credit risk with respect to accounts receivable is dispersed due to the large number of customers. In addition, the Company’s credit risk is mitigated bythe relatively short collection period. Collateral is not required for accounts receivable. The Company maintains an allowance for doubtful accountsreceivable balances. The allowance is based upon historical loss patterns, the number of days that billings are past due and an evaluation of the potential riskof loss associated with delinquent accounts. When new information becomes available to indicate that the estimate provided as the allowance was incorrect,an adjustment, which is considered a change in estimate, is made. The fair value of accounts receivable approximates their carrying value.As of December 31, 2014 and 2013, there were no customers that accounted for more than 10% of total accounts receivable.The following table presents the changes in the allowance for doubtful accounts (in thousands):Year Ended December 31,201420132012Allowance for doubtful accounts: Balance, beginning of period$ 810$ 384 $ 210 Add: bad debt expense6,369 3,2101,913 Less: write-offs, net of recoveries(5,552)(2,784)(1,739)Balance, end of period$1,627$810$384Property, Equipment and Software—Property, equipment and software are stated at cost less accumulated depreciation and amortization. Depreciationis computed using the straight-line method over the estimated useful lives of the assets, which are approximately three to five years. Leasehold improvementsare amortized over the lease term.Website and Internal-Use Software Development Costs—Costs related to website and internal-use software are primarily related to the Company’swebsite, including support systems. The Company capitalizes its costs to develop software when preliminary development efforts are successfully completed,management has authorized and committed project funding and it is probable that the project will be completed and the software will be used as intended.Such costs are amortized on a straight-line basis over the estimated useful life of the related asset, which approximates three years. Costs incurred prior tomeeting these criteria, together with costs incurred for training and maintenance, are expensed as incurred. Costs incurred for enhancements that are expectedto result in additional material functionality are capitalized and amortized over the estimated useful life of the upgrades.F-8Table of ContentsThe Company capitalized $13.9 million, $5.4 million and $3.2 million in website and internal-use software costs during the years ended December 31,2014, 2013 and 2012, respectively, which are included in property, equipment and software, net on the consolidated balance sheets. Amortization expenserelated to website and internal-use software was $4.6 million, $2.6 million and $1.9 million for the years ended December 31, 2014, 2013 and 2012,respectively.The Company wrote off an immaterial amount, $0.1 million and $0.2 million of website and internal-use software costs during the years ended December31, 2014, 2013 and 2012, respectively. The retirements were related to obsolete projects no longer supported by the Company. The loss on disposition of theprojects has been included in depreciation and amortization expense in the Company’s consolidated statements of operations.Business Combinations—The Company accounts for acquisitions of entities that include inputs and processes and have the ability to create outputs asbusiness combinations. The Company allocates the purchase price of the acquisition to the tangible assets, liabilities and identifiable intangible assetsacquired based on their estimated fair values. The excess of the purchase price over those fair values is recorded as goodwill. Acquisition-related expensesand integration costs are expensed as incurred. During the measurement period, the Company records adjustments to the assets acquired and liabilitiesassumed with the corresponding offset to goodwill. After the measurement period, which could be up to one year after the transaction date, subsequentadjustments are recorded to the Company’s consolidated statements of operations.Goodwill—Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and intangible assetsacquired. The carrying amount of goodwill is reviewed at least annually or more frequently if events or changes in circumstances indicate that the carryingvalue of goodwill may not be recoverable. We have the option to first assess qualitative factors to determine whether it is more likely than not that the fairvalue of our single reporting operating unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwillimpairment under the authoritative guidance issued by the Financial Accounting Standards Board (“FASB”). If we determine that it is more likely than notthat its fair value is less than its carrying amount, or opt to not perform a qualitative assessment, then the two-step goodwill impairment test will beperformed. The first step, identifying a potential impairment, compares the fair value of the reporting unit with its carrying amount. If the carrying amountexceeds its fair value, the second step will be performed; otherwise, no further step is required. The second step, measuring the impairment loss, compares theimplied fair value of the goodwill with the carrying amount of the goodwill. Any excess of the goodwill carrying amount over the applied fair value isrecognized as an impairment loss, and the carrying value of goodwill is written down to fair value. No impairment charges have been recorded to date.Intangible Assets—Intangible assets include acquired intangible assets identified through business combinations, which are carried at fair value lessaccumulated amortization, and purchased intangible assets, which are carried at cost less accumulated amortization. Amortization is recorded over theestimated useful lives of the assets, generally 24 to 84 months. The Company reviews amortizable intangible assets to be held and used for impairmentwhenever events or changes in circumstance indicate that the carrying value of the assets may not be recoverable. Determination of recoverability is based onthe lowest level of identifiable estimated undiscounted cash flows resulting from the use of the asset and its eventual disposition. Measurement of anyimpairment loss is based on the excess of the carrying value of the asset over its fair value. No impairment charges have been recorded to date.Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of—The Company evaluates its long-lived assets for impairment wheneverevents or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used ismeasured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets areconsidered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value ofthe assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.F-9Table of ContentsRevenue Recognition—The Company generates revenue from local advertising, brand advertising and other services. The Company recognizes revenuewhen all of the following conditions are met: there is persuasive evidence of an arrangement, service has been provided to the customer, collection of the feesis reasonably assured and the amount of fees to be paid by the customer are fixed or determinable. Payments received in advance of services being renderedare recorded as deferred revenue and recognized over the requisite service period.Local Advertising—Local advertising revenue is generated primarily through fixed monthly fee advertising plans with local businesses for advertisingplacements on the Company’s website and mobile app. Revenue is recognized ratably over the service period, net of customer discounts. The arrangementsare evidenced by written and/or electronic acceptance of the Company’s agreement that stipulates the volume of advertising to be delivered and the pricing.Brand Advertising—The Company generates brand advertising revenue through the sale of display advertisements (both graphic and text) on its website,including advertisements from leading national brands in the food and restaurant, automobile, financial services, logistics, consumer goods and health andfitness industries. The Company recognizes revenue from the sale of impression-based advertisements on its online network in the period in which theadvertisements (“impressions”) are delivered, net of customer discounts. The Company also has brand revenue from fixed-price brand sponsorships that arerecognized ratably over the service period. The arrangements are evidenced by insertion orders or contracts that stipulate the types of advertising to bedelivered and the pricing.Other Services—Other service revenue includes the sale of vouchers through the Company’s “Yelp Deals” and “Gift Certificates,” revenue-sharing partnerarrangements, partner reseller arrangements and the monetization of remnant advertising inventory through third-party ad networks. Yelp Deals allowmerchants to promote themselves and offer discounted goods and services on a real-time basis to consumers directly on the Company’s website and mobileapp and, until the quarter ended December 31, 2011, via email. The Company earns a fee on Yelp Deals for acting as an agent in these transactions, which arerecorded on a net basis and included in revenue upon sale of the deal. The Company records a sales allowance for potential Yelp Deal refunds based on theCompany’s estimate of future refunds. Gift Certificates allow merchants to sell full-priced gift certificates directly to customers through their business profilepage. The Company earns a fee based on the amount of the Gift Certificate sold, which it records on a net basis and include in revenue upon a consumer’spurchase of the Gift Certificate. Revenue-sharing partner arrangements provide consumers with the ability to complete food delivery transactions and makeonline reservations through third parties directly on Yelp. The Company also generates revenue through fixed-fee reseller agreements that allow partners tosell Yelp Branded Profiles to their clients and transaction-based arrangements allowing third-party data providers to update business listing information onbehalf of businesses.Multiple-Element Arrangements. The Company enters into arrangements with customers to sell advertising packages that include different mediaplacements or ad services that are delivered at the same time, or within close proximity of one another.The Company allocates arrangement consideration in multiple-deliverable revenue arrangements at the inception of an arrangement to all deliverables orthose packages in which all components of the package are delivered at the same time, based on the relative selling price method in accordance with theselling price hierarchy, which includes: (1) vendor-specific objective evidence (“VSOE”) if available; (2) third-party evidence (“TPE”) if VSOE is notavailable; and (3) best estimate of selling price (“BESP”) if neither VSOE nor TPE is available.VSOE. The Company determines VSOE based on its historical pricing and discounting practices for the specific product or service when sold separately.In determining VSOE, the Company requires that a substantial majority of the standalone selling prices for these services fall within a reasonably narrowpricing range. The Company has not historically sold a large volume of transactions on a standalone basis. As a result, the Company has not been able toestablish VSOE for any of its advertising products.F-10Table of ContentsTPE. When VSOE cannot be established for deliverables in multiple element arrangements, the Company applies judgment with respect to whether it canestablish a selling price based on TPE. TPE is determined based on competitor prices for similar deliverables when sold separately. Generally, the Company’sgo-to-market strategy differs from that of its peers and its offerings contain a significant level of differentiation such that the comparable pricing of servicescannot be obtained. Furthermore, the Company is unable to reliably determine what similar competitor services’ selling prices are on a standalone basis. As aresult, the Company has not been able to establish selling price based on TPE.BESP. When it is unable to establish selling price using VSOE or TPE, the Company uses BESP in its allocation of arrangement consideration. Theobjective of BESP is to determine the price at which the Company would transact a sale if the service were sold on a standalone basis. BESP is generally usedto allocate the selling price to deliverables in the Company’s multiple element arrangements. The Company determines BESP for deliverables by consideringmultiple factors including, but not limited to, prices it charges for similar offerings, market conditions, competitive landscape and pricing practices. TheCompany limits the amount of allocable arrangement consideration to amounts that are fixed or determinable and that are not contingent on futureperformance or future deliverables. The Company will regularly review BESP. Changes in assumptions or judgments or changes to the elements in thearrangement could cause a material increase or decrease in the amount of revenue that the Company reports in a particular period.The Company recognizes the relative fair value of the media placements or ad services as they are delivered assuming all other revenue recognitioncriteria are met.Cost of Revenue—The Company’s cost of revenue primarily consists of credit card processing fees, web hosting, Internet service costs and salaries,benefits and stock-based compensation for its infrastructure teams related to operating the Company’s website as well as creative design for brand advertisingand video production expenses.Stock-Based Compensation—We account for share-based employee compensation plans under the fair value recognition and measurement provisions inaccordance with applicable accounting standards, which require all share-based payments to employees, including grants of stock options, restricted stockawards (“RSAs”), restricted stock units (“RSUs”) and our 2012 Employee Stock Purchase Plan (“ESPP”) to be measured based on the grant-date fair value ofthe awards.Share-based compensation expense is recorded net of estimated forfeitures in the Company’s consolidated statements of income and, accordingly, isrecorded for only those share-based awards that the Company expects to vest. The Company estimates the forfeiture rate based on historical forfeitures ofequity awards and adjusts the rate to reflect changes in facts and circumstances, if any. The Company will revise its estimated forfeiture rate if actualforfeitures differ from its initial estimates.Advertising Expenses—Advertising expenses are expensed as incurred. Total advertising expenses incurred were $8.1 million, $1.3 million and $0.7million for the years ended December 31, 2014, 2013 and 2012, respectively.Comprehensive income (loss)—The Company reports by major components and, as a single total, the change in its net assets during the period from non-owner sources. Comprehensive income (loss) consists of net income (loss) and accumulated other comprehensive income (loss), which includes certainchanges in equity that are excluded from net income (loss). Specifically, it includes foreign currency translation adjustments.Income Taxes—The Company records income taxes using the asset and liability method, which requires the recognition of deferred tax assets andliabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. In estimatingfuture tax consequences, generally all expected future events other than enactments or changes in the tax law or rates are considered. Valuation allowancesare provided to reduce deferred tax assets to the amount that is more likely than not to be realized.F-11Table of ContentsThe Company operates in various tax jurisdictions and is subject to audit by various tax authorities. The Company provides for tax contingencieswhenever it is deemed probable that a tax asset has been impaired or a tax liability has been incurred for events such as tax claims or changes in tax laws. Taxcontingencies are based upon their technical merits, relative tax law and the specific facts and circumstances as of each reporting period. Changes in facts andcircumstances could result in material changes to the amounts recorded for such tax contingencies.The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained onexamination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the financial statements from such aposition are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.Stock Split—On January 25, 2012, the Company’s board of directors approved a 1-for-4 reverse stock split of the Company’s common stock. The reversestock split became effective on February 2, 2012. Upon the effectiveness of the reverse stock split, (i) every four shares of outstanding common stock wasdecreased to one share of common stock, (ii) the number of shares of common stock into which each outstanding warrant or option to purchase common stockis exercisable was proportionally decreased on a 1-for-4 basis, (iii) the exercise price of each outstanding warrant or option to purchase common stock wasproportionately increased on a 1-for-4 basis and (iv) the conversion ratio for each share of preferred stock outstanding was proportionately reduced on a 1-for-4 basis. All of the share numbers, share prices and exercise prices have been adjusted within these financial statements, on a retroactive basis, to reflect this 1-for-4 reverse stock split.Employee Benefit Plan—The Company sponsors a qualified 401(k) defined contribution plan covering eligible employees. Participants may contributea portion of their annual compensation limited to a maximum annual amount set by the Internal Revenue Service. Employer contributions under this planwere $1.9 million, zero and zero for the years ended December 31, 2014, 2013 and 2012, respectively.Recent Accounting Pronouncements Not Yet Effective—In May 2014, FASB issued Accounting Standards Update 2014-09, “Revenue from Contractswith Customers” (“ASU 2014-09”), which amended the existing accounting standards for revenue recognition. ASU 2014-09 establishes principles forrecognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the consideration expected to be received inexchange for those goods or services. The updated standard will replace most existing GAAP revenue recognition guidance when it becomes effective, andpermits the use of either the retrospective or cumulative effect transition method. Early adoption of this accounting standard is not permitted. ASU 2014-09will become effective for the Company in the first quarter of the year ending December 31, 2017. The Company has not yet selected a transition method andis currently evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures.In August 2014, FASB issued Accounting Standards Update 2014-15, “Presentation of Financial Statements — Going Concern (Subtopic 205-40).” Thenew guidance addresses management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concernand to provide related footnote disclosures. Management’s evaluation should be based on relevant conditions and events that are known and reasonablyknowable at the date that the financial statements are issued. The standard will be effective for the first interim period within annual reporting periodsbeginning after December 15, 2016. Early adoption is permitted. The Company does not expect to early adopt this guidance and does not believe that theadoption of this guidance will have a material impact on its consolidated financial statements.3. FAIR VALUE OF FINANCIAL INSTRUMENTSThe Company’s investments in money market accounts are recorded at fair value in the consolidated financial statements. All other financial instrumentsare classified as held-to-maturity investments and accordingly are recorded at amortized cost; however, the Company is required to determine the fair value ofthese investments on a recurring basis to identify any potential impairment. The accounting guidance for fair value measurements prioritizes the inputs usedin measuring fair value in the following hierarchy:Level 1—Observable inputs, such as quoted prices in active markets,Level 2—Inputs other than the quoted prices in active markets that are observable either directly or indirectly, orLevel 3—Unobservable inputs in which there is little or no market data, which requires the Company to develop its own assumptions.F-12Table of ContentsThis hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determiningfair value. The Company’s money market funds and U.S. government bonds are classified within Level 1 of the fair value hierarchy because they are valuedusing quoted prices in active markets. The Company’s commercial paper, corporate bonds and agency bonds are classified within Level 2 of the fair valuehierarchy because they have been valued using inputs other than quoted prices in active markets that are observable directly or indirectly.The Company classifies the contingent consideration liability, related to the acquisition of Restaurant Kritik, within Level 3, because it was estimatedusing a discounted cash flow technique with significant inputs that are not observable in the market. The significant inputs not observable in the market inthe Level 3 measurement included our probability assessments of completion, appropriately discounted considering the uncertainties associated with theobligation, and were calculated in accordance with the terms of the asset purchase agreement. Refer to Note 5 regarding the effects of the acquisition on theCompany’s consolidated financial statements.The following table represents the Company’s financial instruments measured at fair value as of December 31, 2014 and 2013 (in thousands):December 31, 2014December 31, 2013 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 TotalCash Equivalents: Money market funds$ 208,593$ —$ —$ 208,593$ 360,690$ —$ —$ 360,690Marketable Securities: U.S. government bonds5,005——5,005———— Commercial paper—31,965—31,965———— Corporate bonds—29,486—29,486———— Agency bonds—90,575—90,575————Total cash equivalents and marketable securities$213,598$152,026$—$365,624$360,690$—$—$360,690 Current liabilities: Contingent consideration liability$—$—$835$835$—$—$—$—4. MARKETABLE SECURITIESThe amortized cost, gross unrealized gains and losses, and fair value of securities held-to-maturity, all of which mature within two years, as of December31, 2014 are as follows (in thousands):As of December 31, 2014GrossGrossUnrealizedUnrealized Amortized Cost Gains Losses Fair ValueShort-term marketablesecurities: Commercial paper$ 31,964$ —$ —$ 31,964 Corporate bonds24,3971(31)24,367 Agency bonds57,1301(26)57,105 U.S. government bonds5,007—(2)5,005$118,498$2$(59)$118,441 Long-term marketablesecurities: Corporate bonds$5,120$—$(1)$5,119 Agency bonds33,492—(22)33,470$38,612$—$(23)$38,589 Total marketable securities$157,111$2$(82)$157,031F-13Table of ContentsThe following table presents gross unrealized losses and fair values for those securities that were in an unrealized loss position as of December 31, 2014,aggregated by investment category and the length of time that the individual securities have been in a continuous loss position (in thousands):As of December 31, 2014Less Than 12 Months12 Months or GreaterTotal Fair Value Unrealized Loss Fair Value Unrealized Loss Fair Value Unrealized Loss Corporate bonds$ 24,439$ (32)$ —$ —$ 24,439$ (32)Agency bonds79,564(48)——79,564(48)U.S. government bonds5,005(2)——5,005(2)Total$109,008$(82)$—$—$109,008$(82)The Company periodically reviews its investment portfolio for other-than-temporary impairment. The Company considers such factors as the duration,severity and reason for the decline in value, and the potential recovery period. The Company also considers whether it is more likely than not that it will berequired to sell the securities before recovery of their amortized cost basis, and whether the amortized cost basis cannot be recovered as a result of creditlosses. During the three months and year ended December 31, 2014, the Company did not recognize any other-than-temporary impairment loss. TheCompany had no investments in marketable securities outside of money market funds prior to April 1, 2014.5. ACQUISITIONS2014 AcquisitionsIn 2014, the Company, through its wholly-owned subsidiary, Yelp Ireland Ltd., completed the acquisition of all the outstanding equity interests inCityvox SAS. The Company, through its wholly-owned subsidiaries Yelp Ireland Ltd. and Qype GmbH, also acquired the assets comprising the businessconducted under the name Restaurant Kritik (“Restaurant Kritik”) from Kabukiman Ltd. The aggregate purchase price of these businesses was $15.3 million,net of $0.1 million cash acquired; the purchase price did not include stock in either transaction. Each of these acquisitions has been accounted for as abusiness combination in accordance with Accounting Standards Codification Topic 805, “Business Combinations” (“ASC 805”), under the acquisitionmethod. Accordingly, the aggregate purchase price is allocated to the tangible and intangible assets acquired and the liabilities assumed based on theirrespective fair values on the acquisition dates, and is subject to adjustment based on purchase price adjustment provisions contained in the acquisitionagreements. The results of operations of the acquired companies have been included in the Company’s consolidated financial statements from the respectiveacquisition dates. Net revenues, earnings since the acquisition and pro forma results of operations for these acquisitions have not been presented because theyare not material to the consolidated results of operations, either individually or in aggregate. During the quarter ended December 31, 2014, the Companyrecorded acquisition-related transaction costs of $0.6 million, which were included in general and administrative expense.Under the Restaurant Kritik asset purchase agreement, the Company agreed to pay an additional $0.9 million in consideration if the migration ofRestaurant Kritik's content to Yelp is completed within one year of the acquisition date. The estimated fair value of the contingent consideration wasapproximately $0.8 million as of the acquisition date and is included in current liabilities on our consolidated balance sheet.F-14Table of ContentsThe following table presents the aggregate purchase price allocations recorded in the Company's consolidated balance sheets as of the acquisition dates(in thousands):Net tangible assets$ (277)Goodwill13,995Intangible assets1,546 Total purchase price (excluding contingent consideration)15,264Contingent consideration826 Total purchase price$16,090Estimated useful lives as of the acquisition dates of the intangible assets acquired are shown below:Intangible TypeUseful LifeContent5 yearsDeveloped technology0.5 yearsTrade name2 years Weighted average4.3 yearsThe intangible assets are being amortized on a straight-line basis, which reflects the pattern in which the economic benefits of the intangible assets arebeing utilized. The goodwill represents the excess value over both tangible and intangible assets acquired. The goodwill in these transactions is primarilyattributable to traffic and the opportunity for expansion. None of the goodwill is expected to be deductible for tax purposes.2013 AcquisitionOn July 24, 2013, the Company acquired SeatMe, Inc. (“SeatMe”). In connection with the acquisition, all of the outstanding capital stock and options topurchase capital stock of SeatMe were converted into the right to receive an aggregate of approximately $2.2 million in cash and 260,901 shares of YelpClass A common stock with an aggregate fair value of approximately $9.7 million, as determined on the basis of the closing market price of the Company’sClass A common stock on the acquisition date. Of the total consideration paid in connection with the acquisition, $0.1 million in cash and 31,236 shares ofYelp Class A common stock were initially held in escrow to secure indemnification obligations. The key factor underlying the acquisition was securing thetechnology to provide online reservations directly through the Company’s website with minimal product and engineering work.F-15Table of ContentsThe acquisition was accounted for as a business combination in accordance with ASC 805, with the results of SeatMe’s operations included in theconsolidated financial statements starting on July 24, 2013. The following table summarizes the consideration paid for SeatMe and the allocation of thepurchase price, based on the estimated fair value of the assets acquired and liabilities assumed at the acquisition date (in thousands):July 24, 2013Fair value of purchase consideration: Cash: Distributed to SeatMe equity holders$ 2,057 Held in escrow account56 Class A common stock: Distributed to SeatMe equity holders8,420 Held in escrow account1,246 Total purchase consideration$11,779 Fair value of net assets acquired: Cash and cash equivalents$56 Property and equipment47 Intangibles1,440 Goodwill10,279 Other assets117 Total assets acquired11,939 Total liabilities assumed160 Net assets acquired$11,779Estimated useful lives as of the acquisition date of the intangible assets acquired are shown below:Intangible TypeUseful LifeDeveloped technology6 yearsCustomer relationships2 yearsTrade name2 years Weighted average5.6 yearsThe intangible assets are being amortized on a straight-line basis, which reflects the pattern in which the economic benefits of the intangible assets arebeing utilized. The goodwill results from the Company’s opportunity to offer its customers and leverage the SeatMe web- and app-based reservation solution.None of the goodwill is deductible for tax purposes.For the year ended December 31, 2013, the Company recorded acquisition-related transaction costs of approximately $0.2 million, which were includedin general and administrative expense in the accompanying consolidated statement of operations. Net revenues, earnings since the acquisition and pro formaresults of operations for this acquisition have not been presented because they are not material to the consolidated results of operations, either individually orin aggregate.2012 AcquisitionOn October 23, 2012, the Company, through Yelp Ireland Ltd., completed the acquisition of all the outstanding equity interests of Qype forapproximately $24.3 million in cash and Yelp Class A common stock with an approximate fair value of $23.3 million. Of the total consideration paid inconnection with the acquisition, $10.3 million is held in the form of cash in escrow to secure indemnification obligations. The balance remaining in theescrow fund relating to this acquisition was approximately $7.5 million as of December 31, 2014.F-16Table of ContentsThe acquisition was accounted for as a business combination in accordance with ASC 805, with the results of Qype’s operations included in theconsolidated financial statements starting on October 23, 2012. The key factors underlying the acquisition were to secure an established European marketpresence, obtain Qype’s content and traffic and the opportunity for expansion. The following table summarizes the consideration paid for Qype and theallocation of the purchase price, based on the estimated fair value of the assets acquired and liabilities assumed at the acquisition date (in thousands):October 23, 2012Fair value of purchase consideration: Cash consideration$ 14,020 Cash in escrow account10,276 Fair value of Class A common stock23,254 Total purchase consideration$47,550 Fair value of net assets acquired: Cash$172 Accounts receivable1,237 Other current assets1,239 Property and equipment233 Intangibles6,134 Goodwill48,056 Total assets acquired57,071 Accounts payable2,169 Accrued liabilities4,858 Deferred revenue1,190 Debt1,304 Total liabilities assumed9,521 Net assets acquired$47,550The fair value of the 968,919 shares of Class A common stock issued as part of the consideration paid for Qype was determined on the basis of the closingmarket price of the Company’s Class A common stock on the acquisition date.Estimated useful lives as of the acquisition date of the intangible assets acquired are shown below:Intangible TypeUseful LifeContent5 yearsAdvertiser relationships2 yearsDeveloped technology2 yearsTrade name2 years Weighted average3.6 yearsThe intangible assets are being amortized on a straight-line basis, which reflects the pattern in which the economic benefits of the intangible assets arebeing utilized. The goodwill results from the Company’s opportunity to expand its geographic footprint in Europe, the future revenue opportunities that theCompany expects to achieve from leveraging Qype’s content to attract more traffic and users to its website and ultimately to acquire more advertisers. Noneof the goodwill is deductible for tax purposes.For the year ended December 31, 2012, the Company recorded acquisition-related transaction costs of approximately $1.0 million, which were includedin general and administrative expense in the accompanying consolidated statement of operations.Refer to Note 14 regarding the tax effect of the acquisition on the Company’s consolidated financial statements.F-17Table of ContentsThe unaudited pro forma financial information in the table below summarizes the combined results of operations for the Company and Qype, andincludes the accounting effects resulting from the acquisition, including transaction, restructuring and integration costs, amortization charges from acquiredintangible assets, and changes in depreciation due to differing asset values and depreciation lives as though the companies were combined as of January 1,2012. The unaudited pro forma financial information, as presented below, is for informational purposes only and is not necessarily indicative of the results ofoperations that would have been achieved if the acquisition had taken place as of January 1, 2012 (in thousands, except per share data):Pro Forma for the Year Ended December 31, 2012 Revenue$146,265Net income (loss)(23,186)Basic and diluted net loss per share attributable to common stockholders$(0.42)In October 2012, following the acquisition of Qype, the Company announced its plan to reduce the size of the Qype workforce and terminate several ofQype’s leases. These actions were taken in order to reduce the Company’s cost structure, enhance operating efficiencies and strengthen the Company’sbusiness to achieve long-term profitable growth. As a result of this plan, the Company incurred restructuring charges during the fourth quarter of 2012 andthe first quarter of 2013, which were included in the restructuring and integration costs in the accompanying consolidated statements of operations for suchperiods. The Company’s restructuring plan was substantially completed during the year ended December 31, 2013 and the remaining restructuring liabilitywas zero as of December 31, 2014. The Company has recorded restructuring charges of $1.9 million through December 31, 2013. The following tablesummarizes the changes in the Company’s restructuring liabilities (in thousands):Balance as of December 31, 2012$ 685Provision935Adjustment to provision(261)Payments(1,308)Balance as of December 31, 2013$51Payments(51)Balance as of December 31, 2014$—6. CASH AND CASH EQUIVALENTSCash and cash equivalents as of December 31, 2014 and 2013 consist of the following (in thousands):December 31, 2014 2013Cash and cash equivalents Cash$ 38,719$ 29,074 Money market funds208,593360,690Total cash and cash equivalents$247,312$389,764The lease agreements for certain of the Company’s offices require the Company to maintain letters of credit issued to the landlords of each facility. Eachletter of credit is subject to renewal annually until the applicable lease expires and is collateralized by restricted cash. As of December 31, 2014 andDecember 31, 2013, the Company had letters of credit totaling $17.9 million and $3.2 million, respectively, related to such leases.7. PROPERTY, EQUIPMENT AND SOFTWARE, NETProperty, equipment and software, net as of December 31, 2014 and 2013 consist of the following (in thousands):December 31,2014 2013Computer equipment$ 19,111$ 13,348Software802541Capitalized website and software development costs27,60213,878Furniture and fixtures6,6214,388Leasehold improvements36,99113,984Telecommunication2,6102,179 Total93,73748,318Less accumulated depreciation(30,976)(17,652)Net property, equipment and software$ 62,761$ 30,666F-18Table of ContentsDepreciation expense for the years ended December 31, 2014, 2013 and 2012 was approximately $14.3 million, $7.9 million and $5.9 million,respectively.8. GOODWILL AND INTANGIBLE ASSETSGoodwill as of December 31, 2014 and 2013 and changes in the carrying amount of goodwill during the years ended December 31, 2014 and 2013 are asfollows (in thousands):Balance as of December 31, 2012 $ 48,605 Goodwill acquired10,279 Measurement period adjustment(1,153) Effect of currency translation1,959Balance as of December 31, 2013$59,690 Goodwill acquired13,995 Effect of currency translation(6,378)Balance as of December 31, 2014$67,307Under the terms of the share purchase agreement by and among the Company, its wholly-owned subsidiary Yelp Ireland Ltd., Qype and its shareholders,the Qype purchase price was subject to a post-closing adjustment based on Qype’s net working capital as of the acquisition date. On April 15, 2013, Yelp andthe former Qype shareholders agreed to an adjustment of the purchase price in favor of Yelp in the amount of €0.9 million (approximately $1.2 million as ofApril 15, 2013) based on Qype’s net working capital as of the acquisition date. As this agreement occurred during the measurement period of the acquisition,as defined by ASC 805, the impact of this adjustment was recorded as an increase to cash and a decrease to goodwill. The related funds were released to theCompany from the escrow fund during the year ended December 31, 2013.The intangible assets detail at December 31, 2014 and 2013 consist of the following (in thousands): GrossCarryingAmount AccumulatedAmortization NetCarryingAmount WeightedAverageRemainingLifeDecember 31, 2014: Content$ 4,299$ (1,393)$ 2,9063.6 years Developed technology1,963(861)1,1024.2 years Advertiser relationships1,853(1,853)—0.0 years Data licenses1,724(138)1,5864.5 years Trade name and other596(469)1271.4 years Domains253(188)653.5 years$10,688$(4,902)$5,786 GrossCarryingAmountAccumulatedAmortizationNetCarryingAmountWeightedAverageRemainingLifeDecember 31, 2013: Content$3,413$(811)$2,6023.8 years Advertiser relationships2,045(1,214)8310.8 years Developed technology1,851(422)1,4294.8 years Trade name and other553(276)2771.1 years Domains250(154)963.9 years$8,112$(2,877)$5,235F-19Table of ContentsAmortization expense for the years ended December 31, 2014, 2013 and 2012 was approximately $2.4 million, $2.3 million and $0.4 million,respectively.Estimated future amortization of purchased intangible assets at December 31, 2014 was as follows (in thousands):Year ending December 31, Amount2015$ 1,69420161,46120171,29920187942019 and thereafter538Total amortization$5,7869. ACCRUED LIABILITIESAccrued liabilities as of December 31, 2014 and 2013 consist of the following (in thousands):December 31, 2014 2013Fixed asset purchase commitments$ 6,329$ 2,247Accrued commissions4,1983,707Accrued vacation3,9722,950Accrued employee related expenses2,1161,784Accrued cost of sales2,052624Accrued income, withholding, and business taxes1,3541,837Accrued payroll tax1,2511,508Deferred rent1,229298Merchant revenue share liability1,218932Other accrued expenses5,8623,117 Total$29,581$19,00410. OTHER INCOME (EXPENSE), NETOther income (expense), net for the years ended December 31, 2014, 2013 and 2012 consist of the following (in thousands):Year Ended December 31, 2014 2013 2012Interest income$ 727$ 62$ 51Transaction gain (loss) on foreign exchange(121)(251)(259)Other non-operating income (loss), net(385)(218)(18) Other income (expense), net$221$(407)$(226)11. COMMITMENTS AND CONTINGENCIESOffice Facility Leases—The Company leases its office facilities under operating lease agreements that expire from 2015 to 2026. Certain leaseagreements provide for rental payments on a graduated basis. The Company recognizes rent expense on a straight-line basis over the lease period.Rental expense was $14.6 million, $8.7 million and $4.8 million for the years ended December 31, 2014, 2013 and 2012, respectively.F-20Table of ContentsAggregate Future Lease Commitments—The Company’s minimum payments under noncancelable operating leases for equipment and office spacehaving initial terms in excess of one year are as follows at December 31, 2014 (in thousands):Year Ending December 31, OperatingLeases 2015$25,617 201634,720 201736,944 201837,386 201937,309 Thereafter171,433Total minimum lease payments$343,409Legal Proceedings—The Company is subject to legal proceedings arising in the ordinary course of business. Although the results of litigation andclaims cannot be predicted with certainty, the Company currently does not believe that the final outcome of any of these matters will have a material adverseeffect on the Company’s business, financial position, results of operations or cash flows.In February and March 2010, the Company was sued in two putative class actions on behalf of local businesses asserting various causes of action basedon claims that the Company manipulated the ratings and reviews on its platform to coerce local businesses to buy its advertising products. These cases weresubsequently consolidated in an action asserting claims for violation of the California Business and Professions Code, extortion and attempted extortionbased on the conduct they allege and seeking monetary relief in an unspecified amount and injunctive relief. In October 2011, the court dismissed thisconsolidated action with prejudice. The plaintiffs have appealed to the U.S. Court of Appeals for the Ninth Circuit, which affirmed the dismissal of theconsolidated action. The plaintiffs submitted a petition to the Ninth Circuit for a rehearing, which was denied on October 28, 2014.In August 2014, two putative class action lawsuits alleging violations of federal securities laws were filed in the U.S. District Court for the NorthernDistrict of California, naming as defendants the Company and certain of its officers. The lawsuits allege violations of the Exchange Act by the Company andits 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, plaintiffs filed a consolidated complaint seeking unspecified monetary damages andother relief. On February 6, 2015, the Company and the other named defendants filed a motion to dismiss the consolidated complaint, and the court iscurrently scheduled to have a hearing on the motion on April 16, 2015.In addition, we are subject to legal proceedings arising in the ordinary course of business. Although the results of litigation and claims cannot bepredicted 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.Indemnification Agreements—In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to customers,vendors, lessors, business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of breach of suchagreements, services to be provided by the Company or from intellectual property infringement claims made by third parties. In addition, the Company hasentered into indemnification agreements with directors and certain officers and employees that will require the Company, among other things, to indemnifythem against certain liabilities that may arise by reason of their status or service as directors, officers or employees.While the outcome of these matters cannot be predicted with certainty, the Company does not believe that the outcome of any claims underindemnification arrangements will have a material effect on the Company’s financial position, results of operations or cash flows.F-21Table of Contents12. STOCKHOLDERS’ EQUITY (DEFICIT)Initial Public OfferingIn March 2012, the Company completed its initial public offering (“IPO”), whereby 8,172,500 shares of Class A common stock were sold by theCompany (inclusive of 1,072,500 shares of Class A common stock from the full exercise of the overallotment option of shares granted to the underwriters)and 50,000 shares of Class A common stock were sold by a selling stockholder, The Yelp Foundation. The public offering price of the shares sold in theoffering was $15.00 per share. The Company did not receive any proceeds from the sales of shares by the selling stockholder. The total gross proceeds fromthe offering to the Company were $122.6 million. After deducting underwriters’ discounts and commissions and offering expenses, the aggregate netproceeds received by the Company totaled approximately $111.4 million. Immediately prior to the closing of the IPO, all shares of the Company’soutstanding redeemable convertible preferred stock automatically converted into 35,816,772 shares of Class B common stock. As a result, following the IPO,the Company has two classes of authorized common stock outstanding: Class A common stock (one vote per share) and Class B common stock (ten votes pershare).In November 2011, the board of directors of the Company approved the establishment of The Yelp Foundation (the “Foundation”), a non-profitorganization designed to support consumers and businesses in the communities in which the Company operates. The Foundation’s officers include several ofthe Company’s current officers. The Company’s board of directors approved a contribution and issuance of 520,000 shares of the Company’s common stockto the Foundation, of which the Foundation has sold 100,000 shares, including 50,000 shares in the IPO. The Company recorded an expense in the amount of$5.9 million for the contribution based on the fair value of the common stock on the date the shares were issued to the Foundation. The Company recordedthe expense as a charitable contribution expense as it constituted an unconditional transfer of assets to an entity in a voluntary nonreciprocal transfer.The Company has not consolidated the Foundation as (1) the Company does not have a financial interest in the Foundation, (2) the Company does nothave voting rights and (3) the Foundation meets the definition of a non-profit organization under ASC 810-20, Consolidation – Control of Partnerships andSimilar Entities as it is organized exclusively for charitable, scientific, literary and educational purposes within the meaning of Section 501(c)(3) of theInternal Revenue Code of 1986 and is governed by Section 5211(b) of the California Nonprofit Public Benefit Corporation Law.Follow-on OfferingIn October 2013, the Company closed its follow-on offering of 4,312,500 shares of its Class A common stock (inclusive of 562,500 shares of Class Acommon stock from the full exercise of the overallotment option of shares granted to the underwriters). The public offering price of the shares sold in theoffering was $67.00 per share. The total gross proceeds from the offering to the Company were $288.9 million. After deducting underwriting discounts andcommissions and offering expenses payable by the Company, the aggregate net proceeds received by the Company totaled approximately $276.5 million.The following table presents the shares authorized and issued and outstanding as of the periods presented:December 31, 2014December 31, 2013 SharesAuthorized SharesIssued andOutstanding SharesAuthorized SharesIssued andOutstandingStockholders’ equity:Class A common stock, $0.000001 par value200,000,00063,062,071200,000,00059,163,134Class B common stock, $0.000001 par value100,000,0009,858,511100,000,00011,711,359Common stock, $0.000001 par value200,000,000—200,000,000—Undesignated Preferred Stock10,000,000—10,000,000—F-22Table of ContentsCommon Stock Reserved for Future IssuanceAs of December 31, 2014, the Company had reserved shares of Class A and Class B common stock for future issuances in connection with the following:Options outstanding 9,037,935Restricted stock units and awards outstanding1,131,849Available for future stock option and restricted stock units and awards grants5,010,212Available for future ESPP options1,958,667Total reserved for future issuance17,138,663Equity Incentive PlansThe Company has outstanding awards under three equity incentive plans: the Amended and Restated 2005 Equity Incentive Plan (the “2005 Plan”), the2011 Equity Incentive Plan (the “2011 Plan”) and the 2012 Equity Incentive Plan, as amended (the “2012 Plan”). In July 2011, the Company terminated the2005 Plan and provided that no further stock awards were to be granted under the 2005 Plan. All outstanding stock awards under the 2005 Plan continue tobe governed by their existing terms. Upon the effectiveness of the underwriting agreement in connection with the IPO, all shares that were reserved under the2011 Plan but not issued were assumed by the 2012 Plan. No further awards will be granted pursuant to the 2011 Plan. All outstanding stock awards under the2011 Plan continue to be governed by their existing terms. Under the 2012 Plan, the Company has the ability to issue incentive stock options, non-statutorystock options, stock appreciation rights, RSUs, RSAs, performance units and performance shares. Additionally, the 2012 Plan provides for the grant ofperformance cash awards to employees, directors and consultants.Stock OptionsStock options granted under the 2012 Plan are granted at a price per share not less than the fair value at date of grant. Options granted to date generallyvest either over a four-year period with 25% vesting at the end of one year and the remaining vesting monthly thereafter or over a four-year period with 10%vesting over the first year, 20% vesting over the second year, 30% vesting over the third year and 40% vesting over the fourth year. Options grantedgenerally are exercisable for up to 10 years.A summary of stock option activity for the year ended December 31, 2014 is as follows:Options OutstandingWeighted-AverageRemainingContractualTerm(in years)AggregateIntrinsic Value(in thousands) Number ofShares Weighted-AverageExercisePrice Options outstanding—December 31, 201311,101,166$ 18.248.17$ 562,855Granted209,70075.58Exercised(1,679,654)11.99Canceled(593,277) 35.05Options outstanding—December 31, 20149,037,935$19.647.26$324,160 Options vested and expected to vest as of December 31, 20148,717,559$19.217.20$315,938Options vested and exercisable as of December 31, 20144,658,770$13.486.63$193,221F-23Table of ContentsAggregate intrinsic value represents the difference between the fair value of the Company’s common stock and the exercise price of outstanding, in-the-money options. The total intrinsic value of options exercised was approximately $108.7 million, $90.7 million and $31.3 million for the years endedDecember 31, 2014, 2013 and 2012, respectively.The weighted-average grant date fair value of options granted was $41.84, $16.75 and $0.72 for the years ended December 31, 2014, 2013 and 2012,respectively.As of December 31, 2014, total unrecognized compensation costs, adjusted for estimated forfeitures, related to unvested stock options was approximately$54.7 million, which is expected to be recognized over a weighted-average time period of 2.03 years.The following table summarizes information about outstanding and vested stock options as of December 31, 2014:Options OutstandingOptions Vestedand ExercisableExercise PriceRange Number ofOptionsOutstanding WeightedAverageRemainingLife (Years) WeightedAverageExercisePrice Number ofOptions WeightedAverageExercisePrice$1.00 - $6.92181,1774.81$ 4.54177,010$ 4.52$7.163,014,8416.007.162,578,4447.16$8.16 - $18.851,178,7197.1514.16577,29712.58$18.91 - $21.13262,1588.1720.2887,57220.12$21.181,817,4558.1021.18566,78621.18$21.24 - $26.031,133,4967.9224.86330,90924.41$26.89 - $51.98961,0068.3033.95251,28433.79$58.32 - $78.18463,6588.9167.7389,46866.17$82.421,8759.6682.42——$94.4223,5509.1694.42——Total9,037,9357.26$19.644,658,770$13.48RSUs and RSAsThe cost of RSUs and RSAs are determined using the fair value of the Company’s common stock on the date of grant. RSUs and RSAs generally vesteither over a four-year period with 25% vesting at the end of one year and the remaining vesting quarterly or annually thereafter, or over a four-year periodwith 10% vesting over the first year, 20% vesting over the second year, 30% vesting over the third year and 40% vesting over the fourth year.A summary of RSU and RSA activity for the year ended December 31, 2014 is as follows:Restricted Stock UnitsRestricted Stock Awards Number ofShares Weighted-AverageGrant DateFair Value Numberof Shares Weighted-Average GrantDate FairValueUnvested—December 31, 2013443,603$ 44.6673,470$ 9.41Granted905,83971.76——Released(101,872)39.69(42,500)9.36Canceled(115,721)62.57——Unvested—December 31, 20141,131,849$64.9630,970$9.48F-24Table of ContentsAs of December 31, 2014, the Company had approximately $61.6 million of unrecognized stock-based compensation expense, net of estimatedforfeitures, related to RSUs and RSAs, which will be recognized over the remaining weighted-average vesting period of approximately 3.32 years.Employee Stock Purchase PlanConcurrent with the effectiveness of the underwriting agreement in connection with the IPO on March 1, 2012, the ESPP became effective. The ESPPallows eligible employees to purchase shares of the Company’s Class A common stock at a discount through payroll deductions of up to 15% of their eligiblecompensation, subject to any plan limitations during designated offering periods. At the end of each offering period that began prior to December 1, 2014,employees are able to purchase shares at 85% of the lower of the fair market value of the Company’s Class A common stock on the first trading day of theoffering period or on the last day of the offering period. At the end of each offering period that began December 1, 2014 or later, employees are able topurchase shares at 85% of the fair market value of the Company’s Class A common stock on the last day of the offering period. There were 279,538 sharespurchased by employees under the ESPP at weighted-average purchase price of $31.73 per share during the year ended December 31, 2014. The Companyrecognized $4.5 million of stock-based compensation related to the ESPP during the year ended December 31, 2014.Stock-Based Compensation ExpenseThe fair value of options granted to employees is estimated on the grant date using the Black-Scholes-Merton option valuation model. This valuationmodel for stock-based compensation expense requires the Company to make assumptions and judgments about the variables used in the calculation,including the expected term (weighted-average period of time that the options granted are expected to be outstanding), the volatility in the fair market valueof the Company’s Class A common stock, a risk-free interest rate, expected dividends and the estimated forfeitures of unvested stock options. To the extentactual results differ from the estimates, the difference will be recorded as a cumulative adjustment in the period estimates are revised. No compensation cost isrecorded for options that do not vest. The Company uses the simplified calculation of expected life and volatility is based on an average of the historicalvolatilities of the common stock of several entities with characteristics similar to those of the Company. The risk-free rate is based on the U.S. Treasury yieldcurve in effect at the time of grant for periods corresponding with the expected life of the option. Expected forfeitures are based on the Company’s historicalexperience.The Company uses the straight-line method for expense attribution. For the years ended December 31, 2014, 2013 and 2012, the weighted-averageassumptions are as follows:Year Ended December 31, 2014 2013 2012Dividend yield———Annual risk-free rate2.07%1.25%1.01%Expected volatility 57.56% 60.83% 62.76%Expected term (years)6.176.176.18The following table presents the weighted-average assumptions used to estimate the fair value of the ESPP for the year ended December 31, 2014 and2013. There were no offering periods prior to 2013.Year Ended December 31, 2014 2013Dividend yield——Annual risk-free rate0.18%0.19%Expected volatility 47.14% 56.30%Expected term (years)1.091.25F-25Table of ContentsThe following table summarizes the effects of stock-based compensation related to stock-based awards to employees and non-employees on theCompany’s consolidated statements of operations as of December 31, 2014, 2013 and 2012, is as follows (in thousands):Year Ended December 31, 2014 2013 2012Cost of revenue$ 729$ 421$ 122Sales and marketing15,08310,1314,917Product development14,8046,2701,705General and administrative11,6579,3008,134Restructuring and integration—555— Total stock-based compensation in income (loss) before income taxes$42,273$26,677$14,878Benefit from income taxes(15,064)—— Total stock-based compensation effects in income (loss)27,20926,67714,878During the years ended December 31, 2014, 2013 and 2012, the Company capitalized $2.3 million, $0.5 million and $0.3 million, respectively, of stock-based compensation as website development costs.13. NET INCOME (LOSS) PER SHAREBasic and diluted net income (loss) per share attributable to common stockholders are presented in conformity with the “two-class method” required forparticipating securities. Immediately prior to the consummation of the IPO in March 2012, all outstanding shares of preferred stock and common stock wereconverted to Class B common stock. As a result, Class A and Class B common stock are the only outstanding equity in the Company. The rights of theholders of Class A and Class B common stock are identical, except with respect to voting and conversion. Each share of Class A common stock is entitled toone vote per share and each class of Class B common stock is entitled to 10 votes per share. Shares of Class B common stock may be converted into Class Acommon stock at any time at the option of the stockholder, and are automatically converted upon sale or transfer to Class A common stock, subject to certainlimited exceptions, and in connection with certain other conversion events.Basic net income (loss) per share is computed using the weighted-average number of shares of common stock outstanding during the period. Diluted netincome per share is computed using the weighted-average number of shares of common stock and, if dilutive, potential shares of common stock outstandingduring the period. The Company’s potential shares of common stock consist of the incremental shares of common stock issuable upon the exercise of stockoptions and, to a lesser extent, shares issuable upon the vesting of RSUs, RSAs and purchases related to the ESPP. The dilutive effect of these potential sharesof common stock is reflected in diluted earnings per share by application of the treasury stock method. The computation of the diluted net income (loss) pershare of Class A common stock assumes the conversion of Class B common stock, while the diluted net income (loss) per share of Class B common stock doesnot assume the conversion of Class B common stock.The undistributed earnings are allocated based on the contractual participation rights of the Class A and Class B common stock as if the earnings for theyear have been distributed. As the liquidation and dividend rights are identical, the undistributed earnings are allocated on a proportionate basis. Further, asthe conversion of Class B common stock is assumed in the computation of the diluted net income (loss) per share of Class A common stock, the undistributedearnings are equal to net income (loss) for that computation.F-26Table of ContentsThe following table presents the calculation of basic and diluted net income (loss) per share (in thousands, except per share data):Year Ended December 31,201420132012 Class A Class B Class A Class B Class A Class BBasic net income (loss) per shareattributable to common stockholders: Numerator: Net income (loss)$ 31,178$ 5,295$ (6,291)$ (3,777)$ (3,464)$ (15,649) Accretion of redeemable convertible preferred stock————(6)(26) Allocation of undistributed earnings$31,178$5,295$(6,291)$(3,777)$(3,470)$(15,675) Denominator: Weighted-average shares outstanding61,49210,44441,03324,6329,81544,333Basic net income (loss) per shareattributable to common stockholders$0.51$0.51$(0.15)$(0.15)$(0.35)$(0.35) Diluted net income (loss) per shareattributable to common stockholders: Numerator: Allocation of undistributed earnings for basic calculation$31,178$5,295$(6,291)$(3,777)$(3,470)$(15,675) Reallocation of undistributed earnings as a result of conversion from Class B to Class A shares5,295————— Reallocation of undistributed earnings to Class B shares—911———— Allocation of undistributed earnings$36,473$6,206$(6,291)$(3,777)$(3,470)$(15,675) Denominator: Number of shares used in basic calculation61,49210,44441,03324,6329,81544,333 Weighted-average effect of dilutive securities Conversion of Class B to Class A common shares outstanding10,444————— Stock options4,3772,584———— Other dilutive securities39925———— Number of shares used in diluted calculation76,71213,05341,03324,6329,81544,333Diluted net income (loss) per shareattributable to common stockholders$0.48$0.48$(0.15)$(0.15)$(0.35)$(0.35)The following weighted-average stock-based instruments were excluded from the calculation of diluted net income (loss) per share attributable tocommon stockholders because their effect would have been anti-dilutive for the periods presented (in thousands):Year Ended December 31, 2014 2013 2012Stock options7111,10110,113Restricted stock units—444284Restricted stock awards—73116Employee stock purchase plan—20—F-27Table of Contents14. INCOME TAXESThe Company accounts for income taxes in accordance with authoritative guidance, which requires the use of the asset and liability method. Under thismethod, deferred income tax assets and liabilities are determined based upon the difference between the consolidated financial statement carrying amountsand the tax basis of assets and liabilities and are measured using the enacted tax rate expected to apply to taxable income in the years in which the differencesare expected to be reversed.The following table presents domestic and foreign components of income (loss) before income taxes for the periods presented (in thousands): 2014 2013 2012United States$ 13,083$ (6,184)$ (12,624)Foreign(1,803)(3,046)(6,367)Total$11,280$(9,230)$(18,991)The income tax provision is composed of the following (in thousands):2014 2013 2012Current: Federal$ —$ —$ — State7041453 Foreign1,3221,1891362,0261,334139Deferred: Federal$(14,806)$—$— State(7,613)—— Foreign(4,800)(496)(17)(27,219)(496)(17)Total (benefit) provision for income taxes$(25,193)$838$122The following table presents a reconciliation of the statutory federal rate and the Company’s effective tax rate for the periods presented: 2014 2013 2012Tax benefit at federal statutory rate35.00%(34.00)%(34.00)%State—net of federal effect3.63(4.71)(5.84)Foreign rate differential(2.17)33.11(38.74)Stock-based compensation12.761.217.96Acquisition costs—0.512.39Meals & Entertainment3.753.743.05Tax credits(23.37)(39.77)(5.22)Change in valuation allowance(248.14)45.0270.13Change in tax rate(4.72)——Other(0.08)3.950.91Effective tax rate(223.34)%9.06%0.64%F-28Table of ContentsThe effective tax rate in 2014 reflects a $28.2 million benefit associated with the release of valuation allowance previously recorded against certaindomestic and foreign deferred tax assets. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that someportion or all of deferred tax assets will not be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxableincome during the periods in which those temporary differences become deductible.At the end of 2013, the Company could not assert, at the required more-likely-than-not level of certainty, that its domestic and foreign operations wouldgenerate sufficient taxable income to realize all of our deferred tax assets after considering the duration and severity of losses in prior years, investments indomestic and international markets, and investments in employees, content, brand and technology.During 2014, after consideration of the relative impact of all evidence, positive and negative, the Company determined, at the required more-likely-than-not level of certainty, that certain domestic and foreign deferred tax assets would be realized. In determining the need for a valuation allowance, the weightgiven to positive and negative evidence is commensurate with the extent to which the evidence may be objectively verified. Consideration was given tonegative evidence that was also present in 2013. However, after considering the profit achieved in 2014 and expectations of continued profitability on anongoing basis, we concluded that it was more-likely-than-not that the Company would have future taxable income sufficient to realize the benefit associatedwith certain domestic and foreign deferred tax assets.F-29Table of ContentsDeferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reportingpurposes and the amounts used for income tax purposes. The following table presents the significant components of the Company’s deferred tax assets andliabilities for the periods presented (in thousands): 2014 2013Deferred tax assets: Reserves and others$6,584$4,285 Accrued legal—12 Stock-based compensation17,93310,416 Contribution carryforward1,8892,070 Net operating loss carryforward10,61117,335 Tax credit carryforward 4,9574,671 Gross deferred tax assets41,97438,789 Valuation allowance(4,159)(31,166) Total deferred tax assets 37,8157,623Deferred tax liabilities: Depreciation and amortization(10,738) (7,095) Total deferred tax liabilities (10,738) (7,095)Net deferred tax assets$27,077$528At December 31, 2014, the Company has federal and state net operating loss carryforwards of approximately $166.7 million and $146.5 millionrespectively, expiring beginning in 2024 and 2015, respectively. Further, the Company has trading losses in Ireland of $11.5 million. The Ireland tradinglosses may be carried forward indefinitely against Ireland profits. The Company has losses of $9.6 million and $13.4 million in Germany and France,respectively, which may be carried forward indefinitely against profits in the respective jurisdictions as a result of the acquisitions of Qype and Cityvox. AtDecember 31, 2014, the Company has federal research credit carryforwards of approximately $4.1 million that expire beginning in 2024, and Californiaresearch credit carryforwards of approximately $3.8 million which do not expire. At December 31, 2014, the Company also has $4.5 million of CaliforniaEnterprise Zone credit, expiring beginning in 2023.Utilization of the net operating loss carryforwards and credits may be subject to a substantial annual limitation due to the ownership change limitationsprovided by the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitation may result in the expiration of net operatinglosses and credits before utilization. The Company does not expect any previous ownership changes, as defined under Section 382 and 383 of the InternalRevenue Code, to result in a limitation that will reduce the total amount of net operating loss carryforwards and credits that can be utilized. Further, Qype andCityvox loss carryforwards may be subject to limitations under the applicable laws of the taxing jurisdictions due to ownership change limitations.As a result of certain realization requirements of the accounting guidance for stock-based compensation, the table of deferred tax assets and liabilitiesshown above does not include certain deferred tax assets at December 31, 2014 and 2013 that arose directly from (or the use of which was postponed by) taxdeductions related to equity compensation in excess of compensation recognized for financial reporting. Approximately $163.5 million of federal netoperating losses, $138.3 million of state net operating losses, $1.7 million of Ireland net operating losses, $2.5 million of federal research and developmenttax credits and $0.1 million of state Enterprise Zone credits are related to tax stock option deductions in excess of book deductions. The Company uses theaccounting guidance for income taxes for purposes of determining when excess tax benefits have been realized. This amount will be credited to stockholders’equity when it is realized on the tax return.It is the intention of the Company to reinvest the earnings from Yelp Canada Inc., Yelp UK Ltd., and Yelp Ireland Holding Company Limited and itssubsidiaries. The Company does not provide for U.S. income taxes on the earnings of foreign subsidiaries as such earnings are to be reinvested indefinitely.As of December 31, 2014, the Company estimates $2.1 million of cumulative amount of earnings upon which U.S. income taxes have not been provided. Theincome tax liability would be insignificant if these earnings were to be repatriated.F-30Table of ContentsAs of December 31, 2014, 2013 and 2012 the Company has $3.3 million, $1.8 million and $0.6 million, respectively, of unrecognized tax benefits. Areconciliation of the beginning and ending amount of unrecognized benefits is as follows (in thousands): 2014 2013 2012Balance at the beginning of the year$1,774$611$1 Increase based on tax positions related to the prior year 69 3 495 Increase based on tax positions related to the current year 1,433 1,160115Balance at the end of the year$ 3,276$ 1,774$ 611As of December 31, 2014, the Company has $3.2 million unrecognized tax benefits that, if recognized, would affect the effective tax rate. The Company’spolicy is to record interest and penalties related to unrecognized tax benefits as income tax expense. During the years ended December 31, 2014, 2013, and2012, the Company had immaterial amounts related to the accrual of interest and penalties.The Company does not have any tax positions for which it is reasonably possible the total amount of gross unrecognized tax benefits will increase ordecrease within 12 months of the year ended December 31, 2014.The Company is subject to taxation in the U.S. and various states and foreign jurisdictions. Due to the Company’s net losses, substantially all of itsfederal, state and foreign income tax returns since inception are still subject to audit.15. RELATED-PARTY TRANSACTIONSThe Company does not have any significant related party transactions, other than contributions made to The Foundation (see Note 12).16. INFORMATION ABOUT REVENUE AND GEOGRAPHIC AREASThe Company considers operating segments to be components of the Company in which separate financial information is available that is evaluatedregularly by the Company’s chief operating decision maker in deciding how to allocate resources and in assessing performance. The chief operating decisionmaker for the Company is the Chief Executive Officer. The Chief Executive Officer reviews financial information presented on a consolidated basis,accompanied by information about revenue by product line and geographic region for purposes of allocating resources and evaluating financial performance.The Company has one business activity and there are no segment managers who are held accountable for operations, operating results or plans for levels orcomponents below the consolidated unit level. Accordingly, the Company has determined that it has a single operating and reporting segment.The following tables present the Company’s revenue by product line for the periods presented (in thousands):Year Ended December 31, 2014 2013 2012Net revenue by product: Local advertising$319,137$192,983 $109,159 Brand advertising34,482 27,960 20,579 Other services 23,91712,0457,829 Total$ 377,536$ 232,988$ 137,567For the years ended December 31, 2014, 2013 and 2012, revenue generated internationally was 2.9%, 4.6% and 2.2%, respectively. Revenue bygeography is based on the billing address of the customer. No individual customer accounted for 10% or more of consolidated net revenue in any of suchperiods.F-31Table of ContentsThe following tables present the Company’s long-lived assets by geographic region for the periods presented (in thousands):December 31,Long-Lived Assets 2014 2013 2012 United States$73,344 $29,186 $14,275 All Other Countries5,900 1,786 702 Total$ 79,244$ 30,972$ 14,97717. SUBSEQUENT EVENTSOn February 9, 2015, the Company acquired Eat24Hours.com, Inc. (“Eat24”), a leading web and app-based food ordering service, for an aggregatepurchase price of $134 million, consisting of approximately 1.4 million shares of Yelp Class A common stock and $75 million cash, less certain transactionexpenses and subject to customary working capital adjustments. The Company expects the acquisition to drive daily engagement in the key restaurantvertical and provide it with the opportunity to expand Eat24’s offering to the approximately 1 million U.S. restaurants listed on the Company’s platform. Thecompany is currently in the process of valuing the assets acquired and liabilities assumed in the transaction.F-32Table of ContentsEXHIBIT INDEXFiledIncorporated by Reference HerewithExhibitNumber Exhibit Description Form File No. Exhibit Filing Date2.1Share Purchase Agreement, dated October 23, 2012, by and amongYelp Inc., Yelp Ireland Ltd., Qype GmbH and the shareholders of QypeGmbH.8-K001-3544499.110/24/2012 2.2Agreement and Plan of Merger, dated July 18, 2013, by and amongYelp Inc., Ranger Merger Corp., Ranger Merger LLC, SeatMe, Inc. andAlexander Kvamme, as Stockholders’ Agent.8-K001-3544499.17/24/2013 3.1Amended and Restated Certificate of Incorporation of Yelp Inc.8-K001-354443.13/9/2012 3.2Amended and Restated Bylaws of Yelp Inc.S-1/A333-1780303.42/3/2012 4.1Reference is made to Exhibits 3.1 and 3.2. 4.2Form of Class A Common Stock Certificate.S-1/A333-1780304.12/3/2012 4.3Form of Class B Common Stock Certificate.S-1/A333-1780304.22/3/2012 10.1*Amended and Restated 2005 Equity Incentive Plan.S-1333-17803010.211/17/2011 10.2*Form of Option Agreement and Option Grant Notice under Amended andRestated 2005 Equity Incentive Plan.S-1333-17803010.311/17/2011 10.3*2011 Equity Incentive Plan.S-1/A333-17803010.42/3/2012 10.4*Forms of Option Agreement and Option Grant Notice under 2011 EquityIncentive Plan.S-1/A333-17803010.52/3/2012 10.5*Form of Indemnification Agreement made by and between Yelp Inc. andeach of its directors and executive officers.S-1/A333-17803010.62/3/2012 10.6*Amended and Restated Offer Letter, by and between Yelp Inc. and GeoffDonaker, dated February 3, 2012.S-1/A333-17803010.72/3/2012 10.7*Amended and Restated Offer Letter, by and between Yelp Inc. and RobKrolik, dated February 3, 2012.S-1/A333-17803010.82/3/2012 10.8*Amended and Restated Offer Letter, by and between Yelp Inc. and JedNachman, dated February 3, 2012.S-1/A333-17803010.92/3/2012 10.9*Amended and Restated Offer Letter, by and between Yelp Inc. and LaurenceWilson, dated February 3, 2012.S-1/A333-17803010.102/3/2012 10.10Amended and Restated Office Lease, by and between Yelp Inc. and 706Mission Street Co. LLC, effective October 1, 2009.S-1/A333-17803010.122/3/2012 10.11Galleria Corporate Center Lease between Yelp Inc. and JEMBSCOTTSDALE LLC, dated January 20, 2010; First Amendment to Lease,dated January 4, 2011; Second Amendment to Lease, dated August 8, 2011.S-1/A333-17803010.132/3/2012 10.12License Agreement between Harrison 160, LLC, as Licensor, and MRLVentures Inc., as Licensee, dated as of April 16, 2004; Addendums throughNovember 10, 2011.S-1/A333-17803010.142/3/2012 10.13*Offer Letter, by and between Yelp Inc. and Jeremy Stoppelman, datedFebruary 3, 2012.S-1/A333-17803010.152/3/2012 10.14*2012 Equity Incentive Plan, as amended.8-K001-3544410.16/11/2013 10.15*Form of Option Agreement and Grant Notice and RSU Award Agreement andGrant Notice under 2012 Equity Incentive Plan.S-1/A333-17803010.172/3/2012Table of ContentsFiledIncorporated by Reference HerewithExhibitNumber Exhibit Description Form File No. Exhibit Filing Date10.16* 2012 Employee Stock Purchase Plan.S-1/A333-17803010.182/3/2012 10.17*Executive Severance Benefit Plan.S-1/A333-17803010.192/3/2012 10.18*Secondment Agreement, dated April 25, 2012, by and between Yelp Inc.and Jed Nachman.8-K001-3544499.14/27/2012 10.19Lease Agreement, by and between Yelp UK Limited and Knight Frank LLP,dated March 1, 2012. 10-Q001-3544410.115/4/2012 10.20Office Lease, dated May 9, 2012, by and between Yelp Inc. and Stockbridge138 New Montgomery LLC.8-K001-3544410.15/10/2012 10.21*Compensation Information for Registrant’s Executive Officers.8-K001-35444 2/8/2013 10.22*Letter Agreement, dated May 22, 2014, by and between JosephNachman and Yelp Inc.8-K001-3544499.15/28/2014 10.23Lease, dated July 31, 2014, by and between Yelp Inc. and 11 MadisonAvenue LLC.8-K001-3544410.18/6/2014 21.1Subsidiaries of Yelp Inc.X 23.1Consent of Independent Registered Public Accounting Firm. X 24.1Power of Attorney (included on signature page).X 31.1Certification pursuant to Rule 13a-14(a)/15d-14(a).X 31.2Certification pursuant to Rule 13a-14(a)/15d-14(a).X 32.1†Certifications of Chief Executive Officer and Chief Financial Officer.X 101.INSXBRL Instance Document.X 101.SCHXBRL Taxonomy Extension Schema Document.X 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document.X 101.DEFXBRL Taxonomy Extension Definition Linkbase Document.X 101.LABXBRL Taxonomy Extension Labels Linkbase Document.X 101.PREXBRL 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, are not deemed filed with the Securities and Exchange Commission and arenot 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, asamended, whether made before or after the date of this Annual Report, irrespective of any general incorporation language contained in such filing.EXHIBIT 21.1SUBSIDIARIESCityvox SAS (France)Eat24, LLC (Delaware)Qype GmbH (Germany)Qype Ltd. (England and Wales)Qype SARL (France)Qype Spain S.L. (Spain)SeatMe, LLC (Delaware)Yelp Australia Pty Ltd (Australia)Yelp Canada Inc. (Canada)Yelp Deutschland GmbH (Germany)Yelp España S.L. (Spain)Yelp France SAS (France)Yelp Ireland Holding Company Limited (Ireland)Yelp Ireland Limited (Ireland)Yelp Italia S.r.l. (Italy)Yelp Singapore PTE Ltd. (Singapore)Yelp UK Ltd (England and Wales)Yelp Japan, G.K. (Japan)Yelp Brazil Servicos de Marketing Ltda. (Brazil)EXHIBIT 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in Registration Statement No. 333-191967 on Form S-3 and Registration Statement Nos. 333-180221, 333-187545, 333-192016, and 333-194260 on Form S-8 of our reports dated February 27, 2015, relating to the consolidated financial statements of Yelp Inc. andsubsidiaries, and the effectiveness of Yelp Inc.‘s internal control over financial reporting, appearing in this Annual Report on Form 10-K of Yelp Inc. for theyear ended December 31, 2014./S/ DELOITTE & TOUCHE LLPSan Francisco, California February 27, 2015EXHIBIT 31.1CERTIFICATIONSI, Jeremy Stoppelman, certify that:1. I have reviewed this Annual Report on Form 10-K of Yelp Inc.;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and have:a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared;b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposesin accordance with generally accepted accounting principles;c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an Annual Report) that has materially affected, or is reasonably likely to materially affect, theregistrant’s internal control over financial reporting; and5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; andb) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controlover financial reporting.Date: February 27, 2015/s/ Jeremy StoppelmanJeremy StoppelmanChief Executive OfficerEXHIBIT 31.2CERTIFICATIONI, Rob Krolik, certify that:1. I have reviewed this Annual Report on Form 10-K of Yelp Inc.;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and have:a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared;b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposesin accordance with generally accepted accounting principles;c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an Annual Report) that has materially affected, or is reasonably likely to materially affect, theregistrant’s internal control over financial reporting; and5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; andb) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controlover financial reporting.Date: February 27, 2015/s/ Rob KrolikRob KrolikChief Financial OfficerEXHIBIT 32.1CERTIFICATIONPursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 1350 ofChapter 63 of Title 18 of the United States Code (18 U.S.C. § 1350), Jeremy Stoppelman, Chief Executive Officer of Yelp Inc. (the “Company”), and RobKrolik, Chief Financial Officer of the Company, each hereby certifies that, to the best of his knowledge:1. The Company’s Annual Report on Form 10-K for the period ended December 31, 2014, to which this Certification is attached as Exhibit 32.1 (the“Annual Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act; and2. The information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of theCompany.In Witness Whereof, the undersigned have set their hands hereto as of the 27th day of February, 2015./s/ Jeremy Stoppelman /s/ Rob KrolikJeremy StoppelmanRob KrolikChief Executive OfficerChief Financial OfficerThis certification accompanies the Annual Report on Form 10-K to which it relates, is not deemed filed with the Securities and Exchange Commission and isnot 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, asamended (whether made before or after the date of the Form 10-K), irrespective of any general incorporation language contained in such filing.

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