Nebius Group N.V. (NBIS) Q4 2012 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to the Yandex Q4 and Full Year 2012 Results Conference Call. [Operator Instructions] I'd now like to turn the conference over to your first speaker today, Greg Abovsky, Yandex's Vice President of Investor Relations. Please go ahead, sir.

Hello, everyone, and welcome to Yandex's Fourth Quarter and Full Year 2012 Earnings Call. We distributed our earnings release earlier today. You can find a copy of the press release in the company's Investor Relations website, as well as on NEWSWIRE services. Today, we have on the call our CEO, Arkady Volozh; and our CFO, Alexander Shulgin. Our call will be recorded. The recording will be available on Yandex's IR website in a few hours. We also put together a few slides to supplement the story. These slides are currently available on our IR website. Now I'll quickly take you through the Safe Harbor statement. Various remarks that we make during this call about our future expectations, plans and prospects 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 those 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 may be referring to certain non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with 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've issued today. And now I'll turn the call over to Arkady Volozh, who will give an update of our Q4 and calendar year operational activities.

Thank you, Greg, and thank you all for joining us today for our Q4 2012 earnings conference call. 2012 was our first full year as a public company, and I'm very proud of everything we have achieved this year. As you may have seen, we recently moved ahead of Microsoft to become the fourth largest search engine in the world in terms of number of search shares [ph] as mentioned by comScore. And to put that in perspective, 15 months ago we were the fifth largest globally. Now turning to the Russian market. According to ACAR, contextual advertising in Russia grew 45% in 2012, while display advertising grew 17%. We grew faster than the market in both categories. We had contextual advertising revenue growing 46% and display growing 24%. Let us now turn to our search share. I'm pleased to report that during 2012, we established our search share slightly above 60%. And we were able to achieve this because of continuous enhancements to our user experience that are made possible by the experience of Yandex core technology. We recently rolled out a new search platform which allows for personalized search, where results pages are tailored to individuals based on the knowledge of their search history, language preferences and other interests. We increased the responsiveness of our search engine, as well as our search quality. Over the course of 2012, we also released a number of important products like the Yandex.Browser, our mobile Navigator application and Yandex.Disk, our cloud storage solution. We also enhanced Yandex.Market with the addition of the apparel vertical, launched a subscription in music service for the iPhone, expanded the Yandex.Factory service and much more. Let me actually spend a few minutes on Yandex.Browser because we think it is an important product. We launched Yandex.Browser on October 3. It has been an overwhelming success for us. The product has been extremely well received by our users, and we have the results to prove it. Our browser market share has recently surpassed 4% in Russia. Inside our browser, we have our own 90% share of search queues. And there is yet another significant benefit, as we primarily receive [ph] the browser from our own site at 0 TAC. And we believe that the browser product can keep gaining market share over the course of the year. As we look out to 2013, we are keenly focused on the mobile opportunity with a number of important product releases that are going to be rolled out throughout the year. At Yandex, we have always believed that great products drives users, which translates into market share. So when we approach mobile, we start off with terrific, highly popular products such as our Maps, Traffic Jams, Taxi service, Music and Disk. And we recently introduced the search application for the iPad in the Yandex app store for Android. The iPad search application provides users with instant answers to direct questions. It is a part of our Internet-based search program aimed at developing the search engine's ability to understand its users' intentions. We believe this is a key feature for our mobile search, and we will work to improve this application. So this year, our mobile strategy will be focused on rolling out new products and working closely with our distribution partners. Second major area of focus for us in 2013 will be Yandex.Market. E-commerce is a large and readily growing segment of the Russian Internet market. Today, it is a $12 billion market, representing just about 2% of total offline sales, but it is projected to grow 35% year-on-year throughout 2015. Yandex is a crucial link in the Russian e-commerce. In December, Yandex.Market had about 15 million unique users according to comScore, around 40% of all e-commerce traffic in Russia processed through Yandex.Market and that is not even counting our Yandex Search. We believe that there's a lot more that we can do with Yandex.Market. In particular, in late Q3, we introduced the apparel vertical to our e-commerce offering, and our monthly audience for apparel is already 7% of the total audience of Yandex.Market. There was actually a lot of work involved in moving the architecture of Yandex.Market from a feature-based comparison tool to a platform that is image-based. There are many categories of goods where overall appearance of an item is a lot more relevant than specific product attributes, that this re-platforming effort will yield many benefits in the future as we extend Yandex.Market into other verticals. We also introduced some changes to our API and together with apparel, these developments drove a meaningful acceleration in revenue growth at Yandex.Market. It is interesting to know that Yandex.Market is already growing faster than overall revenue, and we will be launching new features and new verticals to increase our instance in the fast-growing Russian e-commerce market. I want to spend a few minutes talking to you about Turkey. By the end of Q4, our average daily users numbered around 940,000 people according to comScore, which is a tenfold increase from the year ago and 73% increase from September. In terms of market share, we currently have approximately 2% share based on our own internal metrics. It has been only 15 months since we launched Yandex.Com.Tr and only 10 months since we launched our first advertising campaign there. This compares approximately 1% share we mentioned to you a quarter ago. We believe search quality is the single most important driver of share over time, and we rolled out some significant enhancements in the luxury [ph] base as part of an ambitious roadmap to improve search quality. We are pleased with the early progress and we are growing in line with our business plan for this market. However, I want to stress that we are approaching Turkey as a staged vertical-style investment. We have set for ourselves very specific KPIs that we will need to keep in order to justify our ongoing investment. This approach ensures that we are allocating shareholder capital in a disciplined manner to the most attractive opportunity. We look forward to updating you on Turkey further during the summer. Let me briefly turn to Yandex.Money. We felt that Yandex.Money needed a strong partner with expertise in financial services and scale in order to accelerate its growth trajectory. We believe that we have found that strong partner in Sberbank, Russia's largest bank. As you know, we're receiving $60 million from Sberbank and are still maintaining a 25% blocking stake in the joint venture. We think that Sberbank will help to create tremendous value here, and we're going to be able to participate in that upside through our equity stake. All in all, we had a very strong quarter and a very strong year. We believe that our deep understanding of the Russian Internet market, our technology advantages, experienced management team and a strong pipeline of products uniquely position us to benefit from the continued growth of Internet advertising in Russia. And now it's my great pleasure to pass the microphone to Alexander, who will take you through our great financials.

Thank you, Arkady, and thank you all for joining us today. In the fourth quarter 2012, Yandex consolidated revenues increased 37% year-on-year to RUB 8.8 billion, taking our full year revenues to RUR 29 billion, a 44% increase year-on-year. Contextual or text-based advertising accounted for 87% of total revenues in Q4 and continued to grow at a healthy pace of 40% year-on-year, faster than the overall Russian online advertising market. Yandex-owned sites constituted 70% of total revenue, while advertising network contributed 17%. Yandex advertising network grew 41% year-on-year, generally in line with our owned sites. As you will recall, in Q4, we left several changes we made to the Yandex Ad Network, as well as the inclusion of Rambler. Display advertising accounted for 11% of our revenue in Q4 and grew 12% year-on-year, considerably faster than the 4% growth posted by the overall market. The remaining 2% of our revenue came from Yandex.Money and other sources. As Arkady mentioned, in December 2012, we announced the joint venture with Sberbank. Under the terms of the JV, we are to receive $60 million from Sberbank for a 75% stake in Yandex.Money. We will retain a blocking 25% stake in Yandex.Money once this transaction is completed in Q2 of this year. Our advertising network TAC grew in line with our network revenues, while distribution TAC grew slightly faster than our own integrated revenue. But the increase in distribution TAC as a percentage of O&O revenue was very modest at only 24 basis points. Total TAC increased 41% year-on-year. TAC-based revenue was driven by growth in paid clicks, which increased 26% year-on-year; and by growth in cost per click, which grew 11%. Since we left the technology initiatives that I mentioned, we returned to a normalized growth pattern under which paid clicks cost lower than overall revenue, while cost per click increased. Before I address our costs, I wanted to briefly mention LiveInternet. Many of you called that follow our market share data as reported by LiveInternet. Since the end of 2012, LiveInternet is reporting that our share has increased by about 2%. And so while we agree with the direction of our market share developments, we would caution you against overreliance on daily LiveInternet data, as we believe that for a number of technical reasons, LiveInternet slightly overstates our share. Now turning to our cost structure. Our total operating costs and expenses, excluding traffic acquisition costs and depreciation and amortization expense, grew 53% in Q4 and 43% for the full year. Excluding stock-based compensation and other noncash items, our costs grew 45% in Q4 and 38% for the full year. Personnel costs remain our largest cost item. In Q4, we added 154 employees, of which, 78 were in product development. Our total personnel costs increased 44% year-on-year in Q4 and remained at 18% of revenue as in previous quarter. The increase of personnel costs is partially driven by contingent considerations related to the acquisition of SPB Software. U.S. generally accepted accounting principles require us to report part of this acquisition price as personnel expense. Excluding this noncash item, the growth of personnel cost in Q4 over the same period last year was 28%. Growth in SG&A in Q4 was primarily driven by our browser marketing campaign in Russia and in Turkey and an acquisition-related charge. Our depreciation and amortization expense for the quarter increased 48%, with its growth rate in excess of revenue growth rate, primarily driven by last year's forward investments in servers and data centers. Our adjusted EBITDA grew 30% year-on-year; and our adjusted EBITDA margin was 48%, up sequentially, but down from 51% 1 year ago. This quarter, the impact from ForEx effect on our net margins was quite minimal, a RUB 17 million gain, primarily related to dollar denominated liabilities in our balance sheet, helped the rubles transit from 30.9 as of September 30, 2012, to 38.4 on December 31, 2012. Our effective income tax rate in Q4 was 22.7%, in line with Q3 effective tax rate of 22.5%. This reflects management's intention to continue to reinvest cash and write it in Russia without upstreaming dividends to our parent holding company in the Netherlands. Adjusted net income after adjusting for the effects of share-based compensation, foreign exchange gain from the losses and the RUB 173 million of contingent compensation related to the acquisitions of SPB Software, grew 35%; and adjusted net income margin was 34%. Our Q4 CapEx was RUB 1 billion or 11% of revenue, a considerable change compared with Q3 when CapEx was at 21% of revenue. As we mentioned on our previous call, CapEx is not usually evenly spread across quarters. For the full year, CapEx was 14% of revenue, below our guidance of 15% to 18% of revenue. Turning to our balance sheet, we ended the quarter with around $900 million in cash and investments. Now let me spend a few minutes on guidance. On a like-for-like basis, after removing Yandex.Money from our 2012 and 2013 figures, we expect earnings to grow from 28% to 32% in 2013. Please note that we will still continue to report Yandex.Money in our consolidated results until the transaction with Sberbank is complete. To put it differently, we expect our 2012 advertising revenues of RUB 28.2 billion to grow 28% to 32%. We are not explicitly forecasting the revenues associated with Yandex.Money, even though we'll continue to recognize its revenues until the deal is closed. I apologize if this is a bit more complicated than it has to be, but it has to deal with the accounting treatment of this transaction. Since we are going to have a blocking stake in Yandex.Money after the deal closes, we cannot treat it as discontinued operation today. After the transaction is completed, we'll be recognizing our share of the JV earnings in the other income line on our income statement. And now I will turn the call over to the operator for the Q&A session.

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

I have one question and one follow-up, if I may. Firstly, just on margins. You reported 46% EBITDA margin in 2012. I was wondering if you excluded Turkey, the impact of Yandex.Money and then the noncash effect from Q4, would the Russian margin be around 50%? And if indeed the plan does involve -- if the venture capital start approach does not work and you do in fact end up closing down that business, all this modifying, is that sort of level for the Russian margin a realistic base case in maybe 2014 or 2015? That's my first question. The second question is a follow-up but just on use of cash. You ended the year with $900 million of cash. CapEx is low, looks as though it's sort of coming in lower-than-expected Internet use as well. Do you -- you obviously have some ambitions in M&A, but would you expect or indeed plan to possibly do a share buyback this year?

Ed, thank you for the questions. This is Alexander speaking. So talking about margins of 2012, you are absolutely right. The full year margin was 46% flat compared to previous year. But if you peel back the onion a bit, you will see that the Russian core business demands straight operating leverage despite our numerous investments that we'll make in development or mobile applications in e-commerce and of course, in core search. But our Turkish investment masks that operating leverage should be, so that the overall margins appear flat. And our investment at Turkey accounts for about 2% of our revenue. Talking about 2013, as you know, we generally do not provide specific guidance about the margins. But in general, in fact, I could say that we expect the total business margins to be around flat compared to 2012. But again, taking into account the Turkish investment, the Russian business demonstrates operating leverage, which is reinvested in the Turkish initiative. Then coming back to your second question of the use of cash, I could say that between the cash enumerated by the business, the expected prices from the Sberbank JV and of course, cash that we already have on hand, which is about $900 million, we expect to have about $1 billion on the balance sheet in total in the nearest future. At the same time, we do not see any large transformative acquisitions on the horizon. And we've found our various investment opportunities and growth initiatives out of internal free cash flow that were generated by the business. So we think that the -- our capital structure of about $1 billion of cash is not absolutely or fully optimal. We have nothing definitive to announce today, but I can tell you that we have been discussing shareholder returns in great detail at the board level. And we are focused on the ways to create best shareholder value, so please stay tuned.

I just have a follow-up on Yandex.Money. You've broken out the revenues for us per economy, but could you also break out the OpEx base or confirm that business was either sort of breakeven, loss-making or low-single-digit margin, just so we get an idea of how to adjust the margins for 2013?

Yandex.Money in 2012 was very close to breakeven, so very slightly positive. So -- but in 2013, we'll have to report Yandex.Money financial separately, so you will see the exact figures, but say, the margin is close to 0.

Great. And on the CapEx, the CapEx is clearly low in Q4. Is there something which has changed in the way you look at CapEx? I mean, should we expect CapEx to remain low for '13 and '14 as well, no lower than the -- or the 18% guidance?

Yes, thanks for raising this point, Ed. So in 2012, our CapEx revenue ratio was 14%, which is a large decrease compared to 2011 level of over 20%. We, early in Q3, guided that our 2012 CapEx will be in the range of 15% to 18%. Actual figure turns out to be lower because it is difficult to exactly time cash outflow on the data construction project -- data center construction project that we're on now. In 2013, we expect CapEx-to-sales ratio to be in the same range of 15% to 18%, including that cash shift that we have from Q4 to Q1. Also, we think that we are starting now to reach a point where the efficiencies created by our data center infrastructure start to pay off. And despite that, we do not provide formal guidance on 2014. We believe that capital efficiency of the business could improve from the standpoint of CapEx-to-sales ratio. This is a big change from the previous thinking of high-teens to 20%. We think that in the long run, our CapEx-to-sales ratio could be in low teens.

[Operator Instructions] Your next question comes from the line of Lloyd Walmsley of Deutsche Bank.

Just wondering if we could dig into the TAC changes a bit. It looked like network TAC declined a little bit again as a percentage of network revenue on a year-over-year basis. I'm wondering if this benefit is coming from the produced TAC obligations to Mozilla as you're no longer the default search there, and what we should think about going forward on that? On then on a related note, just wondering if you could comment on the rise in distribution TAC as a percent of O&O? And is that an effort to promote the Yandex.Browser in such a way that O&O can ultimately take share of network?

Lloyd, this is Alexander again. Thanks for the question. So talking about TAC, total TAC as percentage of revenue remained roughly flat compared to Q3. If we take separately the partner TAC as a percentage of its appropriate revenue stream of partner network's revenue, then TAC ratio is virtually flat -- I mean, revenue share is the same. When we talk about distribution TAC as a percentage of its appropriate revenue stream, we see some positive benefits of Yandex.Browser, since on this search traffic that we generate from our own browser. We do not have to share revenues when we distribute from our own website. And as you correctly mentioned, starting July of this year, we do not have a search default position with Mozilla and therefore, would not have to share revenue on new installations. Having said that, we are looking for new distribution partners and therefore, distribution TAC as a percentage share of its revenue stream is again fairly flat if we take only Russia. There is small upside in distribution TAC as a percentage of revenue due to our additional distribution activities in Turkey, where we also distribute our browser but currently do not yet generate revenue from the Turkish operation. But as we discussed previously, we estimate total Turkey costs including TAC, personnel and advertising expense to be around 2% of our revenue.

Your next question comes from the line of Alex Balakhnin of Goldman Sachs.

I had a question with your mobile product pipeline. Arkady mentioned briefly in the presentation that 2013 will be a big focus in the pipeline on these products, but also you mentioned that you expect the growth of the partnerships. Can you probably elaborate a little bit more on what the products are in the pipeline, and what partnerships you are already thinking about? Do you expect probably some agreements you can share the information about now, that will be helpful. And overall, what is your mobile traffic monetization strategy? Do you feel that over time, there will be any price differential between desktop and mobile search? Or do you think you'll be able to price mobile traffic advertising at the same rate as desktop?

Thank you, Alex. This is Arkady. Talking about mobile, as we said, our main focus is on products. We believe that good products drive traffic, and it drives monetization. So in mobile, we have one of the most popular mobile products on the market, both in Search, Maps, Disk, Music, everything. And we will continue launching new products in mobile. I cannot now tell the full list of them, but we have several of them in the pipeline. Talking about partnerships, we -- I will give you just one example of our partnership in the area of our shelf Android. If you remember, we bought a company called SPB Software within 1 year ago. Now we have a product which we use in partnerships with, in Russia, for example, MTS and MegaFon. And we also use this product in Turkey with Avaya, that's the #2 or #3 operator there. So we partner with operators, we partner with retails chains, we partner with vendors.

Traffic monetization?

Yes, coming back to the traffic monetization question. First of all, there are 2 types of mobile devices: one is small-screen devices, smartphones and feature phones; and the second part is tablets. So monetization of tablets is virtually the same as the traditional PCs or laptops. There is absolutely no issue with the monetization of this type of device. On small-screens monetization is -- was lower but we see the gap closing. And monetization of smartphones, for example, just recently came back to exactly what we have on laptops. This is because on smartphones, we show the most relevant ads. On PCs or say, on bigger-screen devices, we show top placements and also ads on the right side, which makes the total average price per page slightly lower than on smart -- small-screen devices because on small-screens we show only one ad, which is the most relevant ad and which has the highest CPC. So currently, we're happy with the progress of monetization of small-screen devices and with the trends.

And just a clarification question, when you talk about similar monetization, you CPT or CPC? And another quick clarification, what share of mobile traffic is now accounted for in your total traffic?

I was talking about CPC. About share of traffic, small-screen devices account for about 7% of our total shares traffic.

Your next question comes from the line of Olga Bystrova of Credit Suisse. Olga Bystrova - Crédit Suisse AG, Research Division: My first question about the mobile market share, I don't know if you have sort of rough estimates where you stand versus Google currently, just roughly. And how the market share on the mobile devices has changed in 2012 versus 2011? And what do you think was the main driver and therefore how you think that might develop going forward? And the second question on profitability, you mentioned something on the breakdown between Russia and Turkey, do you have any indication where you expect your margin to come through in 2013 similarly to what guidance or indication you gave for 2012?

This is Arkady. Olga, talking about our market share in mobile. If we talk about for -- Android, for example, in Russia we have something like 45% share and this is flat. This has been flat throughout the year, it doesn't change. And this is despite the fact that -- all the distribution pressure we have. And I would add that all in all, if you look at our market share through 2012, it didn't change or even grew up a little bit and also, it grows in the recent couple of months, which shows a combination of many different factors we had. And despite all this different factors in distribution, we still maintain our market share, which I think proves something. Olga Bystrova - Crédit Suisse AG, Research Division: Do you have a total? I mean, Android is currently sort of taking leadership in the market in terms of operating systems, but do you have approximate total market share in the mobile? I guess it's probably going to be more than 15% and over.

In LiveInternet, there -- this is Alexander speaking. There is no way to see total share on mobile devices. But if we take 3 major platforms on Android, our market share is about 45%; on iPhone, it's in mid-30s; and on feature phones and Opera Mini, our market share is close to 70%. Olga Bystrova - Crédit Suisse AG, Research Division: Okay. And then I was actually more interested in revenues, to be honest, not traffic.

If we talk about revenues, I can give you the metrics from our own business. So the contribution of small-screen devices total of search traffic is about 6% to 7% and revenue contribution is about 5%. But as we discussed just recently, we see a big gap between contribution to shares and contribution to revenue closing over time. Olga Bystrova - Crédit Suisse AG, Research Division: Okay. Okay, that's fine. And maybe on the profitability, if you could you give some indications on -- just like you gave last year for 2012.

Our policy is not to provide formal guidance on margins. But I could say that roughly we estimate 2013 margins to be flat compared to 2012 with the efficiency separate in leverage generated by the Russian business to reinvest it in the Turkish project. We see Turkey as a stage investment project with clear metrics defined for this projects because of market share and it’s also budgets allocated to this initiative. And we are entirely committed to reassess the performance that we have in Turkey. And make decisions on allocation of additional funds to this initiative. Olga Bystrova - Crédit Suisse AG, Research Division: Okay. Would you judge that Turkey is developing currently below your previous expectations or in line or perhaps above?

No. It go -- it's Arkady. It goes right in line with what we expected. Actually we have several examples of coming to the market with search and the first example is ourselves when we came to the market in 1997. It took us 5 years to gain our current market share. And when Google came to Russia, it took them 4 years to gain market share. And in all cases, it was slow in the beginning for us and then slow again. So we are with our -- we are perfectly fine with our 2% market share last year after the first year of operation. Now we expect something larger. And if we are there then we are totally fine.

The next question comes from Jean Kaplan of HSBC.

The question I have is on the SG&A expenses and more specifically, the advertising part of that. What's exactly -- if you could break out possibly the kind of general split in that, that is Russia advertising, Turkey kind of understand that it's the maximum of 2% of revenue. But basically, what also is your goal, medium and kind of short-term tactical goals, for the advertising that you're doing now? Kind of want to understand the cycle of that spending and in Turkey this is the initial big . How long does that go on? In Russia, what's the tactical current goal of the advertising campaigns, et cetera?

Jean, thank you for the question. This is Alexander speaking. So there are 2 main reasons for the increase of SG&A costs in Q4 compared to Q4 last year. First one is being browser advertising campaign that we ran in Russia, and also browser and mainstream advertising in Turkey. The bigger part of advertising spend was in Russia because we launched our very successful product Yandex Browser, and we wanted to support its growth and -- with advertising campaign. In Q4 2011, our advertising expense was very low because we ran advertising campaigns in previous quarters. And therefore, comparison to previous quarter in Q4 is a bit, like, a negative. The other part was accelerated recognition of the contingent consideration related to a previous software acquisition. So we have to accelerate recognition and therefore it showed as SG&A expense, despite that this is a noncash item and it doesn't affect adjusted EBITDA margin. So talking about our -- for the plans for advertising in 2013, we have allocated sufficient as we would have funds for advertising in Russia and in Turkey. And this expense isn't included in the margin expectations that I provided to be flat compared to 2013. But due to competitive reasons, I cannot disclose the exact amounts that we plan to spend. And allocation of these funds will be contingent on the performance of the product that we launch and our product pipeline.

You're next question comes from the line of Gene Munster of Piper Jaffray.

You mentioned that iPhone -- your share in iPhone is in the mid-30s, and is there an opportunity for you guys to do a deal with Apple as they kind of default search in Safari? I know we've seen news and you guys obviously do maps right now, so would something like that make sense? And then one follow-up question.

Thanks, Gene. This is Arkady. Actually I think this question should be related to Apple itself. But in general, as you can see, Apple's moves in Russia -- they just recently launched their iTunes here. There were plans and announcement about some more localization in Russia. So we're staying tuned and we expect for their next moves. But again, it's for them to comment what their policy will be in Russia.

That makes sense. Then my follow-up question is regarding Yandex.Market. Is there any percentage of sales that you can help us with in terms of to think about how big a business that is, and is there a chance that this could be replacing search revenue down the road?

Gene, this is Alex speaking. Yandex.Market accounts for high-single digits percent of our total revenues. And just recently, we saw some acceleration of growth in Yandex.Market. We attribute this growth acceleration to acceleration of total e-commerce in Russia and the launch of Yandex Apparel on Yandex.Market. We believe that this product has a high potential for growth.

And the next question comes from the line of Anna Lepetukhina of Sberbank.

My first question is on additional services such as Yandex.Taxi For example, can you please share with us kind of does these services contribute any revenues to the total revenues right now? And if -- do you see untapped potential in these services in terms of monetization? And when do you think this can happen and what can be the potential size? And my second question on Turkey, just to understand, do you expect to generate any revenues from Turkey operations in 2013? Or in 2013, you will focus on increasing your market share and then revenues will come more in 2014?

Yes, Anna, it's Arkady. Talking about Yandex.Taxi, it's a good example of both a very good service for customers, which retain our users with us, and also for us, it's a testing bowl in a new business model, I'd say. We don't expect this model to be a huge driver for us -- for our revenues, but the service has been already profitable in the range of millions of dollars. And it has, of course, a potential to grow. But this -- not this specific service but services like that, which connect the real world to the online, we believe could drive some new revenues for us in the future. But first of all, again the Yandex.Taxi is a hugely successful service, one of the best ones we launched last year and we currently have more than 600,000 of users who downloaded the application and use it. Talking about revenues in Turkey, of course, we have nothing against new revenues this year. But the main focus now is to gain market share. We need to reach some critical mass to start selling the search advertising there. So our focus this year will be market share and not so much revenues.

Your next question comes from the line of Anastasia Obukhova of VTB Capital.

Could you please tell me, given say the lack of agreement with Apple, for example, or kind of not really successful attempt for operation with, like, Facebook via Wonder, which potential clients or IT companies or maybe some other companies could be the users of your potential, non-advertising, say, technological products, that you're currently, like, working on, for example?

Anastasia, this is Arkady. Our main focus is services for end customers, for users not for businesses. So we are not a B2B business. Talking about our partnerships with Facebook, VKontakte, the social networks, we partner with all of them in different areas. Wonder is one example but we also have partnerships with Facebook in other areas, just like Twitter, and VKontakte and Odnoklassniki and the rest. Talking about partnership with Apple, just to remind you that last year, we launched -- they launched their maps -- independent map service here on iPhones which was powered by Yandex geosearch, so we're already partnering with Apple at least in one area.

And then the follow-up question in this regard, which way of non-ad monetization then do you see for your end-users apart from -- again, apart from advertising?

So we have the 3 major revenue streams. One is search advertising, and it's majority of our revenues; another is display, again advertising; and the third is e-commerce. I don't know if you call it advertising or what. So in a sense, all the 3 are advertising revenue streams. On the other side, it's -- they are a little bit different. And we are experimenting with other models like we do with TAXI or Yandex.Music, but they haven't become the huge revenues streams yet.

But do you consider them to, say, kind of shift away from advertisement as you were mentioning in the third quarter conference call, for example, focus on e-commerce? Or maybe have you seen some already impact pronounced in the fourth quarter already?

No, we're focusing, of course, on advertising revenues. And I -- actually, I believe that our e-commerce, Yandex.Market and other services around e-commerce, is -- for us, is still advertising because our major impact on the industry is advertising in e-commerce. So for us, e-commerce is advertising and we -- and the share of e-commerce in our total revenue is increasing.

You're next question comes from the line of Alexander Vengranovich from OTKRITIE Financial Corporation.

My question actually continues the theme of display advertising. So I would like to get your ideas regarding potential increase in monetization of your own websites. So currently you have approximately the same amount of monthly active users on your portals like mail.ru, but still you are getting less of the advertising budgets for display. Do you plan to develop further this business stream? And what are the ways for you to develop it further? Or you're kind of happy with the current market share and you expect this business stream to go in line with the market?

Alexander, thank you for the question. This is Alex speaking. So talking about display in Q3 and Q4, our display revenue was growing. It's measured by ACAR, faster than the market. In Q4, our display revenue growth was 12%, while ACAR reports total market growth of 4%. So we do, do activities to increase our share in the total display advertising. And as you said, we have no display advertising on the owned -- Yandex-owned web properties. There is some opportunity to display advertising on, certainly by the web pages, but currently, we do not have this particular product. So our market share in total display advertising increases and we're committed to continue to provide good advertising tools for our customers to pull back even more customers from TV to display and to Yandex specifically.

And -- yes. Are you doing that by increasing the prices for your advertising, or you're increasing the inventory on your websites?

There is combination of tools, but it's primarily new technologies that we provide on improved relevance and target of display advertising. Plus we do, do increase prices when we feel the -- we see opportunities to do so.

Okay. And if we come back to context advertising, do you expect that the main growth of the market will come from increasing CPC, not from increasing number of paid clicks? And what should be the driver of the increase of the CPC at this stage?

To put it in perspective, last year, we saw a high growth of paid clicks, which was driven primarily by technology improvements that we made in early Q3 2011 by improving relevance of the ads displayed on search results and primarily on Yandex third-party web pages, in Yandex Ad Network. So that improved relevance was driving huge increase in paid clicks, and therefore was driving revenue in partner network up by over 100%. Now, starting Q3 2012, where we left the period last year when those technology improvements were made, and paid clicks growth came back to roughly same as growth in searches in our pages. We think that keeping all technology improvements neutral, paid clicks grow roughly at the same pace as total searches our pages. Now, we have some initiatives in the pipeline in technology and advertising technologies to reaccelerate growth of paid clicks which we believe is a better way to grow revenues, through paid clicks rather than CPC. However, growth of CPC at around inflation level is absolutely normal and we're fine about that. So currently in Q4 and probably Q1, we're past the period when CPC grows slightly ahead of inflation growth in the online auction system when we demand from our customers increases the supply of paid clicks, CPC starts to increase.

Okay. And on the last quarter call, you told us that you're targeting small and medium enterprises, and then also the number of these enterprises of around 1 million in the country. So currently, you have 213,000 of the clients for your context advertising. Do you expect that the increase of that number will be the key driver of the growth of your revenues in the context market?

Well, it's both. It's increase of total number of customers and also increase of spend per customer. It is very important for us to increase our customer base to accelerate acceptance of online tax-based advertising by the Russian businesses. But say in new business which comes online, doesn't -- they don't -- tend to not spend so much. It takes time for businesses to learn how to improve efficiency of their advertising campaigns. And we have our internal sales force and the agencies, which are educated by our salespeople to help customers do more targeted and high-relevance advertising campaigns. So as I said, we need to build a customer base. And that's why we're focused on increasing total number of customers, but the other very important way to grow our revenue is to upsell our customers to increase their advertising spend.

Your next question is -- comes from the line of Alex Balakhnin with Goldman Sachs.

I just wanted to ask you on your Yandex.Market initiative, and I was just wondering, if you plan to go any further into the value chain? In particular, do you plan to own the customer experience in any shape or form? Probably hypothetically, do you think about pulling together some physical infrastructure for delivery or, I don't know, partnerships with the delivery services? If you could just share your thoughts on how you want to progress further with e-commerce that would be really helpful?

E-commerce is one of our focuses for the Russian market for domestic market. Yandex.Market in its present form has been launched 12 years ago. And of course, the time came to change something, and we can do a lot in this area. The search change you witnessed last year was with this platform shift we added. Usually Yandex.Market was just feature selection mechanism. Now, we added the feature-based, selection mechanism and we, in addition to Apparel, we -- in December, we launched Health and Beauty category. And we'll continue launching categories which fits to this type of selection. And this is not the only thing we can do in this area, and we are thinking and working on new products which we could launch to help the market grow here, to help the whole market to grow. And of course, we want -- we don't want to take over this market from our partners. We will be focusing on collaborating -- continuing collaborating with them as we're looking for other areas where we can help them.

But don't you think the customer will benefit from probably a little bit more customized results for the search? And if the -- if Yandex owns all the credentials of all the customers, so you build a sort of one-click purchase experience, do you think that this will be good for both you customer and the merchant?

Yes, this is a good example of the lines we're thinking along.

You're final question comes from the line of Anna Kurbatova of BCS.

I have 2 questions. First of all, could you elaborate a bit on current market development, advertising context and display and what do you see from the beginning of the year? So let's say, 2013, the beginning, do you see the normal seasonal trends for this period of the year or you see something special? And my second question is about your cash instruments, could you provide us a bit some rough split of where do you hold your cash, what kind of instruments? Because the latest available information is at the end of 2011, there are some bond deposits and CRM, could you provide some updates in this regard?

Thank you for the question. This is Alexander speaking. So answering your last questions on cash, we keep cash like -- more than 50% of our cash is accumulated in Russia in top tier Russian banks in term deposits. That's -- we believe that's a very safe instrument which provides reasonably high return. The other part of cash is held in our holding company in the Netherlands. Again, in money markets, in term deposits and also in credit link notes, which are linked to credit rating of Germany and the Netherlands. Again, we think that these are safe instruments which provide reasonably good return judging by European interest rates.

There are no further questions. Please continue.

Okay. Thank you all for participating in the call today, and we look forward to speaking with you after our Q1 results in April.

That does conclude our conference for today, ladies and gentlemen. Thank you all for your participation. You may now all disconnect.