Nebius Group N.V. (NBIS) Q2 2012 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Yandex Second Quarter 2012 Earnings Call. [Operator Instructions] I must advise you that this conference is being recorded today, Tuesday, the 31st of July 2012. I would now like to turn the conference over to your speaker today, Katya Zhukova. Please go ahead.

Hello everyone, and welcome to Yandex's Second Quarter 2012 Earnings Call. Our earnings release were distributed earlier today. And you can find a copy on the company's Investor Relations website, as well as on newswire services. Today, with us are our CEO, Arkady Volozh; our CTO Ilya Segalovich; and our CFO, Alex Shulgin. Mr. Barsukov, our Director of Corporate Finance will be available during the Q&A session. The call is being recorded and the recording will be available on our Investor Relations website later today. As usual, we put together a few slides to compliment this story. These slides are currently available on our IR website. And now, let me follow the Safe Harbor. Various remarks that we make during this call about our future expectations, plans and profits constitute forward-looking statements. Our actual results may differ materially from those indicated or suggested by these forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of our Annual Report on Form 20-F dated March 2, 2012, which is on file with the SEC and is available online. In addition, any forward-looking statements represent our views only as of today, and should not be relied upon as representing our views as of any subsequent date. Although, we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our views change. Therefore, you should not rely on these forward-looking statements as representing our views as of any date subsequent to today. During this call, we will be referring to some non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with the U.S. GAAP. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is provided in the earnings release we issued today. And before I turn the call over to Arkady, I would like to give you a quick update about a huge triumph in the Russian Internet. This spring, monthly Internet penetration reached 51% or nearly 60 million people according to the Public Opinion Foundation. This is an increase of 2 million people from the previous quarter measurement. 77% of them use the Internet on a daily basis. This recent data shows that Internet usage in Russia, followed the growth trajectory forecasted by the Public Opinion Foundation back in 2011. This forecast calls for the Internet to reach 71% Internet penetration by the end of 2014. And now, I'm turning the call over to Arkady Volozh.

Thanks, Katya. And I will start with a quarter-level overview, including a discussion of our achievements for the quarter and the competitive landscape. And then Ilya will get into more detail on products and services and Sasha will drill down into our financials. After that, we'll take your questions. Well, first of all, we delivered another strong quarter with 50% top line growth and more than that, we expanded our profitability margins as we confirm our full year guidance of 40%, 45% year-on-year growth. And our position as the search engine leader in Russia remains unquestionable. Despite change in web browser share and evolving consumer behavior on mobile versus desktop usage, we firmly called the 60% leadership addition on the Russian market. And let me further tell you about it-- on this important point. A year ago, Google Chrome browser was on the rise and we felt pressure. But Chrome's adoption rate slowed down at the end of 2011. At the same time, over this period we grew our share of searches in Chrome from 41% to 46%. Today, our share of searches in Chrome is even higher than those on Google, despite the fact that Google is the default search provider in Chrome, and it's not easy to change that default. In addition to our success in Chrome, we grew our share of searches in all other major browsers including Mozilla, Opera and Internet Explorer. We made it happen by concentrating efforts, primarily on the problem. Distribution is, of course, important. But its importance sometimes is overestimated. For example, as we informed the investor and analyst community in June, [indiscernible] as default search starting from version 14, which became available for download about 2 weeks ago. For those of you who have been watching out sales, such as -- may have noticed that over 1 of 60% of Firefox's teen users, already switched to the new version of the browser. This had a negligible impact on our shares of searches. On a related note, I'm happy to inform you that our relationship with Opera continues as before and we are looking to further extend this global world partnership. On mobile devices. Our share of searches on Android devices also grew, increasing from 32% in the early 2012 to its current 36%. In addition to our default provision on Samsung Bada operating system, we also expanded our relationship with Microsoft and are actively seeking to build partnerships with all other major mobile players. In summary, we have been quite successful in closing our leadership position in the rapidly developing and evolving search market, and are confident that we'll continue to do so going forward. Now changing topics. An important milestone in our development is the creation of a comprehensive international search index, which I'm proud to say we now have. As far as we know, today there are just 3 search engines in the world with such an index: Google, Bing and now, Yandex. With tens of billions of index pages, it is comparable in size with those of Google and Bing, and this is a formidable competitive advantage for Yandex and sets the stage for some interesting modes in the future. And we continue to expand our presence in Turkey, building our user base and open quality search and other services to all different users. Just recently, we added some local business leadership to our Turkish operations. And I'm proud that Mehmet Ali Yalçindag, a former Turkish Media Manager and former CEO of Dogan Yayin Holding, joined us to take a leadership position with Yandex in Turkey. All in all, we are very pleased with our Q2 performance which is a direct result of our market leadership, innovation and the quality of our services. And here I pass my -- the microphone to you. Ilya Segalovich will take you through our most important product and development.

Thank you, Arkady. I want to start with the core of our business, search. We continue to improve our search technology and most of what's going on inside was not only visible to our users, even those who use our search every day. The improvements include relevance of responses for the long pay period, response time and user interface. Our team was working on the important areas of freshness and search suggestion. On the User Interface side, we improved search suggestion and started to provide direct [ph] in their queries in the search suggestion list right next to the query. For example, if the query is related to a fact, or a figure or a hero. The user improvement -- rather improvement [ph] consolidation whether issued the second search creating a session, our suggestion list adjusts based on the topic of the first query and that improves usability of a search session. This functionality is available both on the desktop search and in the mobile versions for touch screen platforms. And now mobile search application, which started to somewhat recognize user intent and give the answers in their corporate representation, be it a map, or weather forecast or current news or online images. On a desktop distribution front, as Arkady has already mentioned, we reached an agreement with our partners at Opera to extend our business arrangement for mobile and desktop. At the same time, we seek to further expand the scope of our cooperation. This past quarter, we started a new distribution product, Yandex Elements for Mozilla and Internet Explorer. Elements merge the search and address bars, as well as add the graphic thumbnail tabs and shortcut to the browser to create more useful tools and services. In fact, we enhanced the browser capabilities without creating a new toolbar. In mobile and maps, we continue to execute our strategy to boost our presence on mobile devices and all our several new products particularly for Android platform. This helped us to increase our share of searches on Android by 4% in our second quarter. These improvements have been made in mobile search in terms of what users’ skills, at the definition I mentioned before. In mobile distribution released an agreement was Microsoft and from now on, Yandex will be the default search engine, platform-wide on an all Windows phone-based devices, officially sold in Russia the CIS and in Turkey. Just to remind you, that this will be the second platform of the Samsung Bada, where Yandex is the default in Russia. Also during the second quarter, a new version of Opera Mini with pre-installed Yandex search was released, further strengthening our position on feature phones. Mobile, of course, is not only about web browsing and search. We also implemented a number of improvements to our Yandex Maps mobile app. The biggest of them, being the addition of public transportation to their routine options. I will finish my comments on mobile by mentioning the launch of another very popular service, Yandex.Factory. It was first offered on mobile platforms last year, and last quarter became available for desktop. Then, the usage of our taxi booking service doubled during the quarter. And talking about the cloud services. Cloud services continue to gain importance worldwide. Last quarter, we launched 2 of them. The first cloud service launched in Q2 is Yandex.Disc, which serves as a bridge between mobile and desktop. And it allows users to work with their documents from anywhere they have access to the Internet. It this is connected with a Yandex.Mail application on a number of mobile platforms. We were the first in our peer group to have used this service. It was quite warmly received particularly by our Turkish users. The second is the Yandex.Music application for IRS. We give our users ability to listen to millions of tracks on their iPhones. In doing so, we became the only streaming music application with such a large database of legal music in Russia. This is an important milestone for us as we are testing a new business model and started to charge users for the convenience of having access for such a huge music library from their mobile device. Our web version remains strong. Then, second about the advertising. During this quarter, we served just below 200,000 advertising clients, both text-based and display, which represents 34% increase over Q2 2011. Important to note that this spring, we surpassed Russia's leading TV -- all leading team channels, in terms of daily audience. This rate of Internet profile as advertising medium particularly from medium and large merchandising plants. Together with the digital communication group, VivaKi, we rolled back in Q2 for targeting display at Digital Eye. Digital Eye enables advertisers to differentiate specific segments of the web user audience, depending on the amount of time they spent in front of their television sets. The new target of this advertising product is based on Yandex's proprietary Crypta technology and according to some industry analysts, about 30% of the Russian internet audience watch their television less than 1 hour per day. Digital Life gives advertisers an opportunity to specifically target this part of those Internet audience that advertisers wouldn't have met through their television part. A couple of words about Turkey. From a technology perspective, our Q2 launches in Turkey, included obligations of searches, searching over [ph] Twitter, Yandex.Disc Online Games catalog and the Yandex.Maps ATI. That, we believe, will help us to offer Turkish companies our map for use on their website. We have also launched another ad campaign in Turkey to support the development of our business in this market. And now I will turn the call over to Sasha Shulgin, who will take you through our financials before we take your questions.

Thank you, Ilya. In the second quarter 2012, the Yandex consolidated revenues increased 50% year-on-year to RUR 6.8 billion. Contextual or text-based advertising continues to be the main growth driver for us, growing at 50% year-on-year and accounting for 89% of total revenues. Yandex's own websites bring the bulk of text-based revenue accounting for 72% of total revenue, while ads on the Yandex ad network accounted for 17% of the total revenue. The Yandex advertising network grew 93% year-on-year. This accelerated growth in partner revenue is primarily explained by 2 factors. Improvements in the ad service technology and addition of Rambler search to the partner network. Both of these changes were introduced in Q3 2011. Display advertising in Q2 accelerated to the growth from Q1 and we are determined to repeat that goal that -- though it's slightly tied behind contextual. During Q2, display revenue demonstrated a 43% year-on-year growth rate. Display advertising accounted for 9% of total revenue. The remaining 2% of our total revenues came from Yandex.Money and other sources. Our traffic acquisition costs related to the partner network grew in line with its revenue growth while distribution tax growth was slightly ahead of owned and operated revenue, remaining approximately the same as percentage of owned revenue compared to Q1 2012. As a result, total ex-TAC revenue increased 45% year-on-year. Text-based revenue was primarily driven by paid clicks, which increased 62% year-on-year. Accelerated growth in clicks came as an expected result of web technology recently introduced in Q3 2012. We are very pleased by the growth in paid clicks, which is a key metric to driving revenue. We expect to grow paid clicks while keeping CPC low to drive customer growth. As anticipated, in Q2 the effective CPC declined year-on-year, about 7%. On a sequential basis, however, we saw an increase in effective CPC from Q1 2012 of around 18%, which is consistent with what we saw in Q1 2011 on a sequential basis. As we cycle the full year, we've added technology initiatives for the last 5 years from Q3 2011, we expect to see normalized growth pattern, with the stage could grow slightly slower than overall revenue while CPC would grow at low single-digit rates. Our total operating costs, excluding traffic acquisition costs grew 35% slower than revenue. Just to remind, in Q2 a year ago we incurred considerable marketing and IPO-related costs, as well as a relatively high personnel-related expense due to aggressive hiring. This past quarter, we maintained a normalized level of marketing and legal costs, and proceeded with disciplined hiring, adding 133 employees during the quarter, bringing the total headcount to just under 3,500 employees. Our depreciation and amortization expense for the quarter increased 63%. Of this growth rate, in excess of revenue growth primarily due to last year's funnel of investments, insurer funds and related equipment. Accordingly in Q2, our adjusted EBITDA increased 60% and our adjusted EBITDA margin for the quarter was 45%, up from 32% a year ago -- in Q2 a year ago. This quarter, we saw a small ForEx effect in our net margins with a RUR 52 million gain, primarily related to dollar-denominated cash and term deposits held in Russia, reflecting a 12% strengthening of the dollar during the quarter. By the end of June, we've almost fully paid [indiscernible] in Russia but ForEx effect going forward will be very minimal. And on a related note, considerable volatility of the Russian ruble exchange rate in Q2 affected some analyst's estimate and the way consensus falls at what is voted for the quarter. As a reminder, since we report in rubles, we translate our quarterly financials including the P&L, into U.S. dollars at the quarter-end exchange rate, that was approximately at RUR 32.8 at June 30, 2012. Some Russian companies that choose to report in U.S. dollars translate their income statement at the average exchange rate of the quarter. In Q2 2012, the average exchange rate was approximately RUR 31 for $1. Analysts, particularly those who cover several Russian companies including Yandex, may choose to apply average exchange rate approach to all companies. This new process may result in incompatibility between our translation and analysts estimates, as well as among the results of different companies in this sector. Therefore, we urge you to pay special attention to the exchange rate underlying any dollar base number for the quarter. Our own effective income tax rate in Q2 was 21.7%, reflecting management's intention to continue to reinvest cash generated in Russia without ups in the dividends to our parent holding company in The Netherlands. As a result, our net income increased 76% faster than operating income. And our net income margin was 29%. Adjusted net income, after correcting for the effects of share-based compensation following exchange gains and losses, and the USD 1.68 million of contingent compensation related to the acquisition of SPB Software, grew 64% and our adjusted net income margin was 30%. Our CapEx was RUR 700 million or 10% of revenue. Please note that our CapEx is not usually evenly spread across quarters. We earlier guided that our CapEx will be down to the typical historical level of 18% to 20%. This year, most likely, our CapEx will be even below our normal level of 20%. Talking about our balance sheet, we have the equivalent of USD 742 million in cash, cash equivalents, term deposits and other investments and debt instrument. On this amount, approximately half is in U.S. dollars, in the Netherlands and the other half of sales in Russia in rubles, and even invested in bank deposits. And finally, turning to guidance. Given the dynamics that we see in the market and our performance year-to-date, we are confirming our full year guidance, expecting our annual growth for the full year 2012 to be in the 40% to 45% range of our full year 2011. This forecast does not assume any major shift in the macro-economic environment in our markets and reflects our basic view of the expected business trends as we see them today. I will now turn the call over to the operator for the Q&A session. Thank you.

[Operator Instructions] Your first question comes from Edward Hill-Wood from Morgan Stanley.

If I may, I'll ask 2. Firstly, just on revenue guidance. In order to deliver your revenue guidance, you need to do somewhere between sort of 30% and 40% growth, or just a 40% growth in the second half of the year. I know you're not going to commit to anything right now but I was wondering if you could tell us, or give us an indication if you're expecting the third quarter to be over 40% revenue growth? Secondly, on international expansion. You mentioned back in February that you were looking to potentially leverage the Index and-- what with the international technology company. You mentioned it again, Arcadia, on the call just earlier. I was wondering if you could just elaborate a little bit on what you specifically are talking about and whether or not there's any, sort of, time frame or just the conversations you might be having with people?

Very interesting, that is a tough question. First of all, I would say that we're absolutely optimistic about our outlook for the full year having 6 months of the year behind us with 50% year-on-year revenue growth. And very solid performance on key business metrics such as paid click growth and also, growth of number of customers. Yet, we now think that it will be prudent on our side to be cautious about the full year guidance and keep it on the same level as announced last quarter as seen in the volatility on the global macroeconomic trends. And also a lot of specific items that relates to Yandex starting Q3 was up just comparable to last year, it seems will be this will be around substantial improvement in the ad technologies resulting in high growth of partner network revenue. Considering all of this, we think it will be for us to keep the guidance unchanged and to deliver on it in Q3 and Q4, which are by the way, historically our 2 biggest quarters in the year.

Talking about the second question on the international index. This is Arkady. We compete with international companies and on our all local markets, first of all. I'm talking about Russia, Ukraine, Turkey. We compete against companies providing services with global indices. And of course, we need to provide a competitive product. So first of all, we need to have a global index to compete on equal terms on our existing local market or any new market we could -- and another issue that could arise from the fact that yesterday, there were just few search companies and not all of them have index of this size, of this caliber, so we may see any other opportunities coming from any potential partner -- partnerships which we may have anywhere in the world.

Okay. So, I'll just come back to the first question, I understand you're reluctant to give formal guidance for-- within the quarters. But maybe you could just tell me if there's been any change in dynamic in the business in the short-term since the end of June without necessarily having to comment on the future?

Well, unfortunately I cannot provide you exact figures but what I could say is that we're absolutely comfortable with the performance of the business in this period. So we see no negative turns.

[Operator Instructions] Your next question, sir, comes from Lloyd Walmsley of Deutsche Bank.

I was wondering if you could just -- following up on the outlook, can you comment at all on what you're hearing from advertisers in terms of tone? Are seeing any shift, any increased caution in the ad markets in general, and in particular, around digital ad buyers? And then if you could just comment on your current margin outlook for the year?

This is Alexander. I would like to point out that fact that, as you know, our display of the guidance growth has accelerated in Q2 and returned into its typical growth of slight in health and texture. So we see, for this one, as you do with our customer center -- continued growth, an increase on the number of customers. So nothing negative in the business.

And then, in terms of just margin guidance for the year, any change there?

Well, first of all, the margin first half of the year was very strong, and we have solid revenue growth on both of good cost management. But our policy, as you know, is not to provide the margin guidance. So what I could say in broad terms is that our intention is to be around last year level on the full year margin particularly in metrics. But having said that, we're constantly looking for new opportunities [ph] and to expand our trade footprint in terms of the products, and in terms of our share in the markets where we operate. So when that partner changes to invest in itself, it could have an impact to the margins. In seems in our business, we experience in liquidity incurred of product development costs and also promotion costs. But having said that, we hope to see very good full success in the business and optimistic about this and the financial performance for the full year.

Your next question comes from Alex Balakhnin from Goldman Sachs.

I have a question on your distribution partners. One part of that question is, is it reasonable to expand that for and in the termination over the agreement with you -- and you will have a sequential decline of your-- like-for-like decline of your distribution expenses? And my second question is on your -- second part of first question is on your agreement with Opera. Is it completely the same, I mean, both actuation and financially or there are some changes, probably you expand your partnership across the products or probably across the geographies. If you could share any more granularity on this contract, it would be really helpful.

This is Arkady. On my view of the issue, I already commented a little bit. The transition started 2 weeks ago and now we have more than half of all the users already switch to the new version of browser where Google is default, not Yandex. And if you follow our numbers on any content systems, quite live [ph] into something, you may see that yes, we lost a tiny market share which is for 3.4%. Currently, we expect it to be another something like this but it doesn't change-- that's the model, as you can see. Our model is to become the number 1 player with 60% plus/minus market share and equaling this model, everything else is fine. And this change of distribution again, in my view, it doesn't change the model. That's the key for us.

But in terms of the cost, the expenses you had related to Mozilla. So now you don't have a contract, you have the same market share but am I correct that you don't have to pay for it?

It is correct. We don't need to pay for this part of the resolution.

So we may have a like-for-like decline of distribution cost potentially in the third quarter?

It's difficult to comment on that, what -- this is Sasha, Alexander -- what I could say is that we do not expect any negative impact on our direct acquisition cost related to the Mozilla contract. The payment attributable to Mozilla will decline but we're also looking for new distribution channels. So what I could say, as I've said before, we expect no negative impact on that. And also talking about Opera, yes, we renewed. Arkady and I, we've authorized the current distribution agreement. We do not disclose exactly the terms of the deal, but again, we expect no negative impact on direct acquisition costs from Mozilla.

And strategically, I appreciate you can't share the financial terms, but does it cover only Russia, or do you have a broad agreement or probably a bigger preference on other browsers, or anything like that?

We can't comment on this contract beyond the normal distribution terms which have basically used and over it, it's not the only our contact is the initial point and we can't disclose that.

Your next question comes from Gene Munster from Piper Jaffray.

If you could talk a little bit about the penetration of the advertisers right now -- I know you have about 200,000. Any idea how many small businesses you can ultimately add to the platform, and separately, is it becoming more expensive to add these advertisers, these small advertisers going forward?

This is Arkady. Yes we currently have 200,000 or so and the total number of small businesses in Russia of which we have here is something like, in the range of 1 million. There are different measurements, but it's in the range of this 1 million of small businesses which have to pay taxes. So maybe this is our potential, the maximum potential addressable audience of the advertisers on the Russian market.

Gene, maybe I could add -- this is Alexander. The priority for us is not only to grow the number of customers but also to provide them advertising technologies so that, to grow their business and to increase revenue for customers. That's also the important objective for our team.

Okay. And then, just, how about just the cost of adding incremental customers, is that changing?

Since it's all automated technologies the incremental cost sale customer is the decline in cost. So it's -- this is what the system was designed for, to serve a big number of online customers in an automatic mode. The bigger ones, they also use our internal sales team or advertising agencies to manage their company. And we also have connections to big advertising systems which are available in the markets to manage the fiscal base.

Your next question comes from Mariya Kahn from Bank of America.

I was curious to get some color on your Android market share. You managed to grow, it's quite significant. If you could elaborate what products helped you grow it and whether there's any opportunity for, sort of, distribution of Android devices for you?

It's a combination of factors and we attribute the increase of our market share mostly to the quality of search. And also, as Ilya covered, we launched 11 new products which bring new audiences to our portal and that's how we grow our market share, mostly. Distribution also helped. The product should sell itself, that's the key.

Our next question comes from Anna Lepetukhina from Troika Dialog.

My question relates to mobile applications, mobile services. You now have an extensive list of these services, and you've launched a new ones like Yandex.Taxi, I'm just wondering about monetizing all of these services because if Yandex.Maps were in place for a long time and all of these services are quite popular. Do you manage to monetize and do you plan to monetize them in the short-term?

There are some particular money position models that we are now trying to explore, such as Yandex.Taxi, and of course it's quite an interesting thing when we're trying to come offline, like we're trying to aggregate some off-line business on an online world. But basically, our strategy in mobile is to develop the best experience. As soon as you have the best experience in terms of applications and the basic set of applications that connect people to the cloud, be it storage or mail or maps, having that best experience and the biggest audience somehow will roll -- go on with that in the future and with money position models for mobile. Of course, it is not monetizable directly for sale like it is, like the regular Web. But this is a strategic, a very important area where we want to be the best.

This is Arkady. Our core business model is search advertising. And the added services -- the minimum value from any added service we have is gaining audience and bringing more audience to the search. Each new application helps us generate more searches and leads to integration. But of course, we will also use those services to play with new models like on Yandex.Music. This quarter, and where we just introduced the monthly fees, and Yandex.Taxi where we plan to introduce commissions on the taxi products in the next quarter or so. But the main integration comes from driving traffic to search.

Our next question comes from Olga Bystrova from Credit Suisse. Olga Bystrova - Crédit Suisse AG, Research Division: I wanted to talk a little bit about Turkey and your CapEx. So you're obviously running CapEx significantly below your previous suggestions. You're saying you might have it below 18%, 20% of revenues this year. Is that somehow related to your investment in Turkey or are you just overestimated CapEx in the beginning of the year. And sort of an adjacent question is, how -- can you give us some numbers on your Turkey business. What is -- how much revenue you have been generating with this market share there and whether it's meeting or beating or lagging your expectations?

Olga, our CapEx cost. So as you know, last year, we implemented an accelerated capital investment program where now CapEx was about 20% of revenue. And this year we see opportunities to improve efficiency at all data centers and therefore, we think that it is possible that our CapEx will be below 20% of revenue. But on the longer time scale, we still think that the normal level of CapEx for Yandex, for about several years, it's high in the 20%. But in this particularly year, we see a part in -- reduced CapEx could result in a point both in our long-term growth perspectives.

This is Arkady. I believe that this is the CapEx expansion last year and product expansion actually included what you see today, which is our Turkish product and as well as our global index, it's all included in the CapEx which we invested a year ago. And our current margins -- increased margins include all the results of Turkey and international index and the rest. And we improved our margins even despite the fact that we're going into this additional project which are not related to our primary market session. Talking about our Turkish success. It's too early, we have said previously, we will be ready to discuss this probably closer through the end of the year. All in all, we launched services there -- at weekly and the audiences you can say measurement, some of them are available, some or somebody else but it's a very, very early stages, both any F curve or whatever it is there. It's still early to say about the results. It could be depending on how we grow there, it could be flat, it could be slow. So we're going to elaborate more on this maybe in our Q4 call.

Your next question comes from Alexander Vengranovich from OTKRITIE Securities.

I just have a quick -- 2 questions, actually, regarding your CPC and number of advertisers. For the first, you told that in the second quarter, cost per click increased quarter-over-quarter by around 18%. I'm just wondering what was the reason for that? And second question is, what was the primary reason for substantial increase in the total number of advertisers in the second quarter, in comparison to the first quarter this year?

Alexander, this again is Alexander. So what you see in the increase -- sequential increase over Q1 was simply physical seasonal terms that what we see over several years overall. Q1, as you know, is a low season -- is a slow business season. In Russia, therefore, if you see it will tend to go down after they exit Q4 and then they start to grow again in Q2. And exactly the same reason is acceleration on the advertiser growth. It's simply the more busy season to themselves. That's a trend that we were seeing over several years. What I'm talking about is that the increase, as you know, we make potential improvements in the technologies in Q3 which accelerated revenue growth, especially in the partner ad network. And that have section to technical growth while Q3 slightly down, but now we see that -- we see it growing up on a sequential basis which is the trend as well.

Your next question comes from David Ferguson from Renaissance Capital.

Just as a follow up on the question about mobile, maybe you can give us a bit of a high-level picture on how advertisers in Russia are thinking about advertising on mobile search, when the advertisers come to you and take mobile only, for example. What do you think are the best formats for monetization on mobile, things like Click-to-call? And then going forward, as mobile becomes more important in the midterm, what impacts will that have on things like cost per click, number of paid clicks and so on?

Alexander speaking. So on mobile, what I could say is that traffic coming from mobile devices is still a very small percentage of our total revenue. It's about 10%, which would include both objective from technical devices where a user experience is the same as on desktop devices. So talking about -- at the time that we see that the CPC is slightly, but not substantially, slightly a little over than on desktop devices and in our long term plan, is to develop special applications for the mobile devices when the traffic becomes substantial. But again, it would be simple speculation on my side as to say what and how it would impact our customers. Thus, it’s important that they're using special cameras for products, for the advertisers. On mobile devices, it's important for us and we are working on this healthy growth plan. But it's not a short-term issue.

Our next question comes from Anastasia Obukhova from VTB Capital.

I was wondering, where do you see most of your share, on the mobile Internet search and which technologies, maybe operating system, you are pointing to maybe, to develop, or to capture the potential size from mobile Internet growth? And if I may, the follow up question on your partnership to utilize your search index. If I may, you were mentioning it since the first quarter conference call, and now you're picking up the audience for such a partnership. And were there any theme, results that you can share with us in the search for such a partnership?

First of all, again, mobile is still small and it's just growing and it's a new landscape. From what you see in our knowledge of the last few quarters, our market share is growing in all of the mobile platforms. Both those where we're default and those where we have not default. That's the first part, the second issue is that whether or not the mobile market will be diversified, will be split between different platforms, and as we see now, yes it will be. As we see now, there will be at least 2 of them, and hopefully maybe 3 of them including -- 2 of them is definitely Android and the third, which is Microsoft may emerge late this year or next year. So the platforms will be -- there will be different platforms and from what you see in our partnerships, we managed to make arrangements with different platform owners. And fortunately for us, not all the platforms they were on were all direct competitors, and given more than half of the market share belongs to owning the business and the majority of the market share will be available for partnership for us. So including our market share on all of the platforms and also part of partnering with our noncompetitors, I think it's our approach to the growing mobile. But again, mobile is too small to talk about right now.

Okay. And the partnership, you mean, only in the mobile context, you were talking about the partnership agreement?

You saw how we performed on the desktop partnership and our market share, different backgrounds in desktop and in mobile, we just signed up with Samsung. We signed up with Microsoft. We're working with other platform owners and we expect the business to ramp.

Our next question comes from Alex Balakhnin from Goldman Sachs.

I had a question on the split of the revenues in the end of the year. What I'm trying to understand is, obviously, the year-on-year market share differential of Yandex, like a change of market share, will be very minor. And I suspect that may contribute to, probably, some acceleration of the paid clicks you-- all-in-all net growth is able to generate. Do you think that will lead to a lower share of partner's revenues or you will use this opportunity to grab higher market share overall?

Alex, this Alexander. If I understand the question correctly, you talked about the split between the context share of owned and operated revenue, and partner networking, right?

Yes. Basically, in the first half, your share of all-in-all revenues was relatively low because your market share year-on-year declined, right? In search. When there will be no such a year-on-year effect in the second half or less effect on the second half, should we expect lower contribution of advertising network to revenues, as you will be able to capture more of the revenues yourself, like more detecting demand yourself?

I think it will be difficult for me to provide any guide beyond our revenue guidance for the full total consolidated revenue of 40% to 45% for the full year. But maybe one element which probably could help and you -- just a reminder, in Q3, we made improvements to the advertising technologies which accelerated revenue growth in partner network and now starting this Q3, will be affecting that period, which could have an impact on the gross rate in the partnership revenue. But it would be, probably, inappropriate for us to dissect our revenue guidance into classes or tax revenue.

We have another question from Olga Bystrova from Credit Suisse. Olga Bystrova - Crédit Suisse AG, Research Division: I have 1 conceptual question for you. You obviously have 2 private equity shareholders in your shareholder structure. How do you view your relationship with them? Do you think that there's a potential increase in overhang coming into the market particularly with you delivering very strong results recently? And if I may ask also just a very quick clarifying question on the difference between adjusted EBITDA and what would be reported EBITDA, like for like equations, the difference is about RUR 129 million, and I just wanted to confirm that this is the only -- the only difference is attributed to SPB Software costs acquisition or there is something else, some other costs are included in that difference?

This is Alexander speaking. So talking about your first question. We cannot comment on the plans of our shareholders and obviously, so this question would probably be directed to the shareholder themselves. Probably on 1 data point that is available publicly is that Tiger, they sold some of their shares in Q1 and this was reported in the Q1 financial report then. But other than that, we cannot comment on the shareholder front. Talking about the reconciliation of reported EBITDA and adjusted EBITDA, it's provided in our press release -- in the back of the press release. So if you would have questions, I would suggest just to take it offline.

Your final question, sir, comes from Anna Lepetukhina from Troika Dialog.

I have 1 more question. I just wanted to hear your view on drivers defined revenues growth because as far as I see right now, the growth is driven by number of paid clicks. My question is, for how long do you think these growth can continue and once, where to see a slowdown where the cost of click can actually grow. Do you see the potential for CPC to grow? And also, what is the relationship between search queries and number of paid clicks? Because there is a slowdown in the growth in search queries, is there some relationship and correlation between those 2 terms?

This is Alexander. So talking about the growth revenue behind our total revenue. We used to report, to dissect that the growth in paid clicks and CPC, while in fact the way we view our revenue is that the amounts of money that our customers are willing to spend to support their -- the technical campaign. The system works as an auction, as you know, and when we're able to provide additional traffic for the customers, CPC will obviously go down when the traffic becomes more in demand or like -- relatively above, then CPC goes up. So the customers, they view the advertisement spend in terms of a return on investment, rather than number of paid clicks that they're buying. So I guess, it's -- first of all, we will not be able to comment on expectations and the pace of the growth. And the other item, it's slightly on the way to look on the revenue growth. The growth mainly is driven by growth in the Internet, the number of users online and then the advertisers, manually follow the eyeballs of the Internet users. So given the fact that Internet is growing at high rate and there was some gap between the growth of the audience and growth of Internet as spent, we see very high opportunities for growth for our revenues for several years ahead.

Can I clarify, so basically you recommend and you think that it's better to look and more appropriate to look at every budget per advertiser, and the opportunity to increase this budget per advertiser, and get a number of advertisers rather than paid clicks and CPC, which is a derivative of these 2 factors?

Yes, maybe this will be another way to look at it. The growth of current number of customers and spend per customer.

There are no more questions at this time. That does conclude our conference for today. Thank you for participating. You may all disconnect.