The review platform, which generates the majority of its revenue from advertising, plans to invest 40 million USD this year to expand its business with local service providers such as plumbers, electricians, and moving companies. This comes in the context of strong growth over the past two years. This investment push is happening at a time when Yelp's restaurant business is faltering, as the industry grapples with rising food and labor costs and shifts its advertising increasingly to platforms like delivery apps.

Yelp anticipates that revenue growth in the service sector, which already accounts for about 60 percent of total revenue, will be significantly higher in the coming years than in the restaurant sector, according to David Schwarzbach, Chief Financial Officer of Yelp.

The weakness in the restaurant business stems from consumers who, according to Schwarzbach at a recently held conference, are more cautious about dining out as their debts increase. "Consumers seem to be under pressure, and businesses are also struggling with margin pressure," the CFO added.

Yelp observed a change in consumer behavior related to restaurant visits starting at the end of December. In contrast, demand in the service sector remained significantly more stable, Schwarzbach continued. "As people stay in their homes longer, they seem to be undertaking more projects.

Investors are skeptical about the plan, say analysts, as the returns on investments are unclear and a recovery in the restaurant sector seems distant. Yelp's stock has fallen by about 22 percent this year, even after achieving higher but still disappointing revenue in the last quarter, despite the company returning to profitability.

Investors have not yet fully grasped the nature of these investments," said Jason Kreyer, an analyst at Craig-Hallum Capital Group. "There is uncertainty about whether this budget will work and accelerate revenue growth.

Yelp sees its investment in paid search ads in the service sector as an opportunity to enhance the value for advertisers, boost ad spending, and increase Yelp's revenue over time.

The initial results we saw in the first quarter gave us the confidence to increase our investments in the acquisition of paid service projects to create high-quality connections between consumers and service professionals," said a Yelp spokesperson.

The investment from Yelp includes expenses for paid search ads on sites like Google to drive traffic to service providers on the Yelp website. This helps bring more visitors to Yelp listings and reviews, providing further incentive for advertisers to enhance their presence on the Yelp website.

Growth in the Service Sector Has Gained Importance as Yelp's Revenue from Restaurants, Retailers, and Other Businesses Stalls.

Here's the translated heading in English:

"Investing in services is the right step for Yelp," said Kreyer. It is a less competitive market than that of restaurants, where Google Reviews and others compete for advertising dollars. Yelp has more than tripled its advertising revenue over the last ten years, reaching about $1.3 billion in 2023, but is still far below the $237.9 billion that Google generates from advertising.

The service market remains robust and could become even more robust in the coming quarters if the investments are successful," said Kreyer.

Raymond James analyst Josh Beck agrees that Yelp's investments in services make sense, even though the restaurant and retail business is currently weakening. "The progress they have made in home services is the bright spot," he said.

A crucial question is when the investments will pay off. Kreyer said that Yelp will probably show the first signs that the investments are bearing fruit, but it might still take until next year for the stock price to recover. "Some patience is required," he said.