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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good day, and welcome to Yelp's Third Quarter 2020 Earnings Conference Call. [Operator Instructions].
At this time, I'd like to turn the conference over to James Miln, Vice President of Finance and Investor Relations. Please go ahead.
James Miln
Good afternoon, everyone, and thanks for joining us on Yelp's third quarter earnings conference call. Joining me today are Yelp's Chief Executive Officer, Jeremy Stoppelman; Chief Financial Officer, David Schwarzbach; and Chief Operating Officer, Jed Nachman. We published the shareholder letter on our investor relations website and with the SEC about an hour ago. I hope everyone had a chance to read it.
We'll provide some brief opening comments and then turn to your questions. Now I'll read our safe harbor statement. We'll make certain statements today that are forward-looking and involve a number of risks and uncertainties that could cause actual results to differ materially. Please note that these forward-looking statements reflect our opinions only as of the date of this call, and we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements in light of new information or further events.
In addition, we are subject to a number of risks that may significantly impact our business and financial results. Please refer to our SEC filings as well as our shareholder letter for a more detailed description of the risk factors that may affect our results. During our call today, we'll discuss adjusted EBITDA and adjusted EBITDA margin, which are non-GAAP financial measures. These measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with generally accepted accounting principles.
In our shareholder letter released this afternoon and our filings with the SEC, each of which is posted on our website, you will find additional disclosures regarding these non-GAAP financial measures as well as historical reconciliations of GAAP net income to both adjusted EBITDA and adjusted EBITDA margin.
And with that, I will turn the call over to Jeremy.
Thanks, James, and welcome, everyone. Yelp's third quarter results demonstrate our business' considerable resilience. Although we clearly remain in the midst of a pandemic, in the third quarter, we were excited to see significantly improved business performance from the second quarter and signs that our long-term strategy is working. Third quarter net revenue grew by 31% from the second quarter as both consumers and local businesses turn to Yelp as their trusted resource for adapting to the new normal. This revenue, coupled with strong expense management, enabled us to deliver a 24% adjusted EBITDA margin, demonstrating our ability to perform under the most challenging and circumstances.
Traffic and engagement trends showed robust improvements in the third quarter. Overall page views and searches increased by approximately 40% from the second quarter, while App Unique Devices rebounded by $4 million from the second quarter to $32 million. Consumers turned to Yelp for our trusted content and added more than 5 million reviews in the third quarter. Our balanced ratings and high-quality reviews continue to differentiate us from competitors.
In fact, a recent study authored by an economist at the Federal Trade Commission highlighted Yelp's robust review content and significant efforts that combat review fraud. As a complement to our valuable review content, Yelp has put a focus on providing the most up-to-date local business information through our COVID-19 features. For example, our health and safety measures section has been particularly well received with more than 700,000 business locations leveraging it by the end of October.
We have also continued to make progress on our long-term strategy, which is designed to drive increased revenue growth and profitability. In the third quarter, we saw positive year-over-year revenue growth in 2-key areas: Home and local services and our self-serve sales channel. With approximately 20% of leads monetized in the home and local services category by the end of the quarter, we continue to see a substantial opportunity to further monetize our consumers' high purchase intent fees. To support the execution of our long-term strategy and to diversify and continue to refresh our Board's expertise, we have welcomed 4 accomplished independent directors over the last 2 years.
Today, I'm pleased to announce another fantastic addition to Yelp's Board, Tony Wells. As Chief Brand Officer at USAA, Tony brings a wealth of experience, which will be particularly valuable as we continue to evolve our go-to-market capability and expand our self-serve channel as part of our next phase of growth. While we hope that the worst of COVID-19's economic impact is behind us, Yelp remains focused on the continued execution of its strategy.
In the third quarter, we demonstrated a more efficient go-to-market capability and made progress on our strategic growth initiatives, while improving our already strong balance sheet. As the pandemic subsides, we are confident in our ability to return to sustainable growth in the new year.
With that, I'd like to turn it over to David.
Thanks, Jeremy. As Jeremy highlighted, we were pleased to see improving trends across both consumer and business metrics in the third quarter. Net revenue increased by $52 million from the second quarter to $221 million in the third quarter resulting in a 16% year-over-year decline and a net loss of $1 million. Ad budgets improved steadily throughout the quarter, highlighted by our home and local services category, which grew by a mid- single-digit percentage compared to the third quarter of 2019.
In addition, nonterm advertiser retention improved by more than 25% compared to the third quarter of 2019. The returning to the year-over-year retention gains we saw back in February. And many of our multilocation advertisers returned to spend in the third quarter after receiving relief in the second quarter, which drove a 34% quarter-over-quarter increase in paying advertising locations to over $500,000. This strong revenue performance, combined with a leaner cost structure and favorable expenses enabled us to deliver $53 million of adjusted EBITDA and a 24% adjusted EBITDA margin, even as we continue to invest in sales, marketing and products Expenses were more favorable than expected in the quarter, driven primarily by lower-than-anticipated headcount.
This resulted from a combination of modestly higher-than-expected attrition, sales reps returning from furlough at a somewhat lower rate than anticipated and the movement of some hiring for the fourth quarter. In addition, we saw favorability across areas like health care and bad debt, reflecting the improving macro environment in the third quarter. These encouraging operational results further strengthened our balance sheet. Leading to the addition of $65 million in cash and cash equivalents in the third quarter with $591 million of cash and cash equivalents on our balance sheet for the end of the third quarter and $269 million remaining available under our share repurchase program.
We believe that it is appropriate to resume returning excess capital to shareholders. The exact timing for the restart of our buy back program will depend on market and economic conditions. I'll now turn to our outlook. Based on the improved business and local economic trends in the third quarter, we are providing a business outlook. We expect fourth quarter net revenue will fall within the range of $220 million to $230 million. It's important to underscore that our fourth quarter results are subject to increased volatility due to a variety of seasonal dynamics. These include such things as holiday spending for multilocation customers and the number of SMB customers choosing to pause their ads over the holidays.
The ongoing pandemic also increases uncertainty, and our outlook does not reflect a widespread of [indiscernible] of shelter-in-place orders. On the expense side, we intend to further invest in our growth initiatives in the fourth quarter. This includes increasing our product investments as we focus on opportunities in self-serve at our home and local services category.
While we have gained efficiency in our local sales channel, we intend to invest selectively in our multilocation sales team and in performance marketing to support our self-serve channel. We will also see full quarter expenses related to restoring reduced salaries in August and completing the staggered return of furloughed employees in October. As a result, we anticipate fourth quarter operating expenses will increase from the third quarter. Accordingly, we expect fourth quarter adjusted EBITDA margin will be approximately 16% to 20%.
With that, operator, please open up the line for questions.
[Operator Instructions]. Our first question today will come from Shweta Khajuria from RBC Capital Markets.
Let me try two, please. First, on home and local. So you said 20% of leads we monetized. Could you talk about the opportunity there? Where can that percentage go, how does that compare to industry? And how are you positioning yourself today for post-COVID growth in that category, whether it is converting restaurant traffic better for home and local or the products that you've introduced like special offers and nearby jobs? That's first.
And then the second one is a high-level question on recovery. Understood that there are a lot of uncertainties, shelter-in-place, vaccine, stimulus. How are you thinking about the recovery curve and to speak? Post vaccine, do you think that the advertising dollars will snap back in with a quick recovery? Or will that be a slower curve?
So this is Jeremy. I guess I can kick it off on the home and local question. Here. As you noted, we're at 20% monetized leads, so we continue to improve there. 20% is not that much in our view. We think there's an opportunity to continue to better merchandise things like Request-A-Quote, improve our matching. We've expanded the number of categories, that Request-A-Quote has questionnaires for. And all of that is continuing to drive more monetization.
So we see a lot of headroom there. But also, we think that it's a great product, and so we should see growth over time in that category. You also mentioned some of the innovations that we're driving in the home and local segment, things like nearby jobs. And we've really seen that resonate in the early days of its release with newer businesses.
So they might not be able to compete on -- purely on reputation alone, but they can compete on important dynamics like pricing and their responsiveness. And so that's very promising. That's something that we're going to continue work on into 2021, refining both pricing and the way it works and drives more leads for local businesses, especially newer local businesses.
On the recovery side, as you can kind of see from our results and traffic, as the economic activity picks up, we do see fairly correlative recovery alongside that. So I would imagine in a post-vaccine world, as people get more comfortable as panic continues to subside as people get out and do more things. We will see -- we will participate in that robust recovery.
The exact time frame, I think, is anyone's guess at this point. But if you look at our business, quite a bit of it now is driven by this home and local services segment, which has been really solid for us throughout the year. And from a traffic standpoint, it's consistent with 2019. And so we feel really good about the opportunity ahead of us for our business. And we're not really relying on, say, restaurant traffic coming back to create the growth that we need to have a good start to 2021.
Okay. Our next question today will come from Dan Salmon of BMO Capital Markets.
We've seen some recent reports of just sticking with a question about home and local services, some recent reports about Google testing more auction-based, more bid taste -- more bid-based bidding options, excuse me, versus sort of straight leads for home and local. I'm just curious have you guys seen or heard anything in the marketplace about that? Do you have a view on it? And then of course, there were some other reports about the Department of Justice digging in on Google a little bit more. Jeremy, you've obviously had some views to share on that in the past. Would you care to update those now?
Sure. I can try and take a stab at these questions here. So first, on the home and local side, you mentioned Google products. I think they are testing some sort of leads product, as I understand, and maybe that's what you're referring to, and it's moving to an auction model like the rest of their system.
I actually think -- my understanding is most of their system is the CPC system and whatnot is already auction based. But I can't really answer specifics. I don't know their product pipeline. But from our perspective, home and local has been kind of a key area of investment. For us, we've been driving higher percentage of monetized leads, but we've been trying for the last few years really up -- the value we deliver to advertisers. I think that's shown up in our business metrics and our retention.
And innovation continues. So with the launch of nearby jobs, we've got a new product offering out there for those. They maybe don't want to buy CPC ads for one reason or another, but want to get in there and see the value that you help can provide and start responding to customers. And so we're not sitting on our hands, watching the market change around us, we're trying to lead the change as well.
On the other question about DOJ antitrust -- the DOJ's antitrust case. Our view has always been, we're happy to talk to regulators. We've been on this for about a decade or so, and we haven't been shy about expressing our views. We're absolutely encouraged that there's bipartisan support for an antitrust investigation into Google, DOJ, kind of got started. We understand state AGs are also working on something. And so I think that's -- it's a healthy thing. We're certainly supportive. We're happy to share our views with anyone who comes and ask about it. And so we'll continue to do that.
But that said, it's a long process. As I mentioned, we've been at it for a decade or so. And so this isn't something that's going to be resolved in the next year or 2, it'll probably take a long time. And so we're really focused on the opportunities that we have right in here and now, things like 20% of our leads being monetized, like let's get that number up and drive revenue herein now instead.
[Operator Instructions]. Our next question today will come from Sergio Segura from KeyBanc.
On nearby jobs, it sounds like you guys are off to a strong start. Do you see more opportunity selling to existing advertisers or onboarding new ones? Given the success of the product and Request-A-Quote, where do you see further opportunities for product innovation?
Yes. So as you noted, nearby jobs is off to a solid start. We're excited to see that. It's something we've been working on for a little while now. I don't think we're -- we fully know exactly how it fits into the wider picture. I think we're kind of in the early days. So it's a fixed price product right now. We are seeing some resonance with new businesses, but I think primarily because of these new businesses not having essentially a fully built out reputation with Yelp because of course you see Yelp is about reviewing and so forth, it's a great way to introduce themselves to potential customers and try to differentiate.
On other dimensions that customers care about, like are you responsive, are you getting back to me, is your price super competitive, et cetera. But that said, this product, in my mind, there's no reason why it shouldn't work for existing customers as well. So I think it's on us to continue to experiment with those pricing models, merchandising, the leads that are put into that flow, there's a lot of different dimensions for us to optimize in the coming years. So we're excited about the overall opportunity there.
[Operator Instructions]. There are no further questions. Ladies and gentlemen, at this time, we will conclude our question-and-answer session, and this also will conclude Yelp's third Quarter 2020 Earnings Conference call. We thank you for attending today's presentation, and you may now disconnect your lines.