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Yelp Looks to Boost Yield on Cash Investments Amid Fed Rate Increases

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Business-listings firm Yelp Inc. is looking to reap higher returns from its cash investments after the Federal Reserve moved to increase rates farther.

The San Francisco-based company, which sells advertising products to restaurants and other businesses on its website, overhauled its investment portfolio in early 2020 to preserve cash. It liquidated its marketable securities and added money-market funds, which are more liquid holdings with lower interest rates. The company said it invested $326.4 million from sales, maturities and redemptions of securities into money-market funds.

David Schwarzbach, CFO of Yelp Inc.

Photo: Yelp

Now Yelp is switching up its portfolio again to include short-term Treasurys and high-quality corporate debt, Chief Financial Officer David Schwarzbach said.

“Rather than earning basically very little on the cash that we have on hand, we think that we can buy highly rated securities to put that money to work,” said Mr. Schwarzbach, who has served as CFO since February 2020.

The change comes as Yelp and other companies weigh the effects of higher interest rates on their investments and financing after holding significant amounts of cash on their balance sheets that didn’t generate much in returns.

The Fed last week approved a half-percentage-point interest-rate increase two months after lifting rates from near zero to slow rampant inflation. Higher rates typically lift companies’ returns on cash holdings and other short-term instruments, even though there can be a time lag.

For Yelp, the interest-rate increases present an opportunity to boost its investment yield from a “few basis points,” Mr. Schwarzbach said. Yelp is assessing a mix of Treasurys, corporate bonds, money-market funds and other securities in its portfolio, he said. The portfolio also will likely include commercial paper and notes with short-term maturities because they are expected to generate a higher yield than money-market funds, he said.

“Our investment philosophy around cash management is just to be extremely conservative,” Mr. Schwarzbach said.

The company’s cash and cash equivalents totaled $465.1 million as of March 31, down 21% from a year earlier. On March 31, 2020, Yelp’s cash and cash equivalents were $364.6 million, plus it held $126.1 million in marketable securities.

Prior to the pandemic, securities investments comprised a healthy chunk of Yelp’s assets. Short-term marketable securities represented 11% of Yelp’s total assets as of March 31, 2020—the last quarter it held them—down from 25% a year earlier, filings show.

Assets of money-market funds soared when the pandemic began, as investors sought safer bets, and have largely stabilized over the past year. The assets totaled $4.51 trillion as of May 4, the same as a year earlier, down 5.4% from 2020 and up 46.3% from 2019, according to the Investment Company Institute, a lobby group for the asset-management industry.

Yelp is experiencing higher demand for its advertising products compared with earlier in the pandemic. Last week, the company reported revenue rose 19% to $276.6 million for the quarter ended March 31, compared with the prior-year period. Its net loss narrowed to $915,000 from $5.8 million a year ago.

Higher returns from securities investments could allow the company to increase its cash balance and therefore spend more money on hiring or investments in products and engineering, said Shweta Khajuria, director of internet equity research at the research arm of investment bank Evercore Inc.

“Having cash on the balance sheet earning minimal returns is not in any companies’ best interest right now,” said Justin Patterson, equity research analyst at KeyBanc Capital Markets Inc., an investment bank. Yelp’s returns from securities investments will likely be limited given the conservative nature of the investments, Mr. Patterson added.

Write to Mark Maurer at Mark.Maurer@wsj.com

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