2/16/2021

speaker
Operator

Ladies and gentlemen, thank you for standing by and welcome to the fourth quarter and full year 2020 financial results call. I must advise you this conference is being recorded today, Tuesday, the 16th of February, 2021. We would now like to hand the call over to your first speaker today, Yulia Gerasimova, Investor Relations Director. Please go ahead.

speaker
Yulia Gerasimova

Good afternoon and good morning, everyone, and welcome to Yandex fourth quarter 2020 earnings call. You can find our earnings release and supplementary slides on our IR website. The key speakers on our call today are Tigran Hodeverdan, our Deputy Chief Executive Officer, Danil Shuleyka, our Chief Executive Officer of Yandex Taxi, and Greg Obovsky, our Chief Operating and Chief Financial Officer. Evgeny Senderov, Chief Financial Officer of Yandex Taxi, will be available on the Q&A session. Now I will quickly walk you through the Safe Harbor Statement. Various remarks that we make during the call regarding our financial performance and operations may be considered forward-looking, and such statements involve a number of risks and uncertainties that could cause actual results to differ materially. For more information, please refer to the Risk Factors section of our most recent annual report on Form 20F filed with the SEC. During the call, we'll be referring to certain non-GAAP financial measures. You can find a reconciliation of non-GAAP to GAAP measures in the earnings release we published today. And now, I'm turning the call over to Tigran.

speaker
Evgeny Senderov

Thank you, Yulia, and thanks to everyone for joining our call today. In Q4, we continue to focus on deepening the integration between our businesses and developing cross-service products to strengthen our platform. NX Plus is one of the most important pillars in our ecosystem strategy. The total number of subscribers reached 6.8 million at the end of December. This strong momentum continued into this year, and our subscriber base is now approaching 8 million, including over 1 million from taxing. We are very encouraged by the results since the upgrade of the program in August and introduction of cashbacks. In particular, we have seen an improvement in conversion from trials to paid subscriptions as well as better cross-service usage. We also see that the average spend increases once users subscribe to Yandex Plus. For example, the GNV generated by a Plus member on Yandex Market Marketplace is on average 25-30% higher than for other customers. We believe other benefits of our subscription model will be in the areas of customer retention and customer acquisition costs. We plan to further expand the cashback program to other services. From this page, Yandex Eats and Lavka are also part of a cashback program. With that, let me walk you through the key highlights for Q4. Starting with e-commerce. Internally, we see e-commerce as being much more than just Yandex Market. In addition to our marketplace GMV, it also includes GMV of our e-grocery business Lavka, as well as FMCG-related GMV of Yandex Eats. We believe this better reflects Yandex's overall exposure to e-commerce and is therefore more comparable to the results of our peers. We are very pleased that our total e-commerce GMV grew threefold in 2020 to over 56 billion rubles, and specifically in Q4 we saw year-on-year growth of 127%. Note that this doesn't include GMV that goes through Yandex.Market price comparison platform and our logistics services, which together account for another 230 billion rubles. For Yandex.Market, Q4 was the first quarter with price comparison on Marketplace operating as a single platform under one brand. The rebranding process went well as we successfully moved our existing buyers and merchants to the new platform. At the same time as we expected this was a transitional quarter, our customers were getting used to the new interface, which marginally slowed our GMV growth during the holiday season. This effect was temporary, and marketing regrowth reaccelerated in early 2021. Despite rebranding and very limited marketing support throughout most of last year, the number of active buyers increased by 2.4 times and now over 6 million, and our assortment has expanded by more than three times and has reached 2 million SKUs. We have launched on-demand delivery options synergizing the Yandex Market and Kudio capabilities of Yandex.Lavka. This service offers 15 to 30-minute delivery to door and is now available to all users in Moscow, parts of St. Petersburg, and Nizhny Novgorod. Integration with Yandex.Plus has also deepened. In addition to cashbacks, most of our Plus subscribers get free delivery on their orders above 700 rubles. In mid-January this year, we decreased our commission for merchants, which are now the most attractive on the market. In the second half of 2020, we laid the foundation for the integration of markets with other businesses. 2021 will be much more about fast growth, more active transition of merchants from the CPC to CPA models, and also expanding our logistics infrastructure. Moving to search and portal. Our total search share reached a new record of 59.7% in Q4, which represents a further 40 basis points increase from Q3 and a 220 basis points increase year on year. Search has been a key driver behind the recovery and advertising revenue in Q4. Our fixed CPA model is also gaining traction among small and mid-sized advertisers. We launched it in Q2. and it already accounts for almost 6% of total advertising revenue as of mid-February, and over 10% specifically within the Yandex advertising network. For 2021, our priorities include video, fixed CP, and a subscription model for SME clients. We believe this initiative will help us to maintain advertising revenue growth at or above the dynamic of the digital ad marketing in Russia. We are very encouraged by the trends we are seeing in Zen, Daily audience has reached 20.3 million users, up 51% year-on-year. Users consistently spend over 40 minutes per day on our platform, 23% of which is on video. In addition to solid user engagement, we have seen revenue growth recovering to our pre-COVID trajectory. In December, Zen revenue reached 13.1 billion rubles on an analyzed run rate basis, growing 49% year-on-year. Media services. We have already discussed our progress with Yandex+, but another important milestone for the team was achieving more than 3 million viewing subscribers per month as of January. Based on our internal estimates, we believe this makes us the leader in the Russian OTT market, head of both EV and OKO. Finally, a couple of words on cloud. The business continued its rapid expansion and reached an important milestone of 1 billion rubles in revenue in 2020. growing 4.5 times year-on-year. Importantly, this impressive revenue growth was driven by both customer base expansion and higher usage per customer. In December, we had approximately 15,000 active users. The number of paying customers increased 40% compared to December 2019 to almost 10,000, while the average check grew 180% year-on-year. To sum up, we entered 2021 in very good shape with a diversified range of services. Our advertising and ride-hailing businesses are likely to gain from the anticipated economic recovery. We also expect to maintain solid growth momentum in services that have benefited from the pandemic, including in media services, food delivery, logistics, and e-commerce. We will continue to work on the further integration of services within our platform while exploring new opportunities such as FinTech. And with this, I'm turning the mic over to Daniil.

speaker
Lavka

Thank you, Tigran, and hello, everyone. 2020 was a truly transformational year for the taxi group, as we expanded beyond our core ride-hailing services into the other verticals. As a result of our efforts, we finished this challenging year with a diversified portfolio, which, in addition to the ride-hailing service, offered food and grocery delivery, B2C and B2B logistics, as well as car sharing. This transformation has supported solid revenue growth of 54% year-over-year in Q4. Over 40% of this growth was driven by our new businesses, Lafter Eats and Logistics. Let me comment on the performance of each business line. Red hailing, excluding logistics services, was affected by the second wave of the pandemic as the number of COVID cases in Russia increased significantly in Q4. and the authorities had to implement additional restrictions. While these restrictions were not as severe as in the United States and some European countries, they still adversely affected our ride-hailing growth rate. In Q4, rides and GV were up 17%, revenues grew 15% year over year, while adjusted EBITDA of this business grew 86% on the back of multiple optimizations in 2020. In Q4, revenues of ride-hailing totaled to 55% of the total tax segment revenues, versus 74% a year ago. Logistics became a key focus area. On a full-year basis, revenue contribution of logistics was not that material, but it accelerated meaningfully as 2020 progressed, supported by investments. As a result, in December, logistics' annualized run rate reached 55 million deliveries. Foodtech continued to perform very well. Yandex Eats, our food delivery service, demonstrated an acceleration of year-over-year growth rate. Orders were 118%, GV increased 137%, while revenues were up 171% year-over-year in Q4. CP Grocery, where we deliver groceries directly from food retailers, started to ramp up inside Eats in Q3 2020 and was one of the drivers of GV growth in Q4. as the average check of groceries is approximately 40% higher than in restaurant delivery. In December, e-grocery contributes low tins of its total GV, offering deliveries from 20 retail chains. Restaurant food delivery, excluding grocery orders, also shows year-over-year growth rates acceleration in orders and GV. We believe that despite the high base in 2020 fueled by the pandemic, it will demonstrate high double-digit growth in orders in 2021. with grocery orders contributing half of the growth. Last month, our Express 1P grocery delivery services delivered 4.1 billion rubles in revenues, or 18% of taxi groups total in Q4. The question of growth rates in Q4 accelerated compared to Q3. Plaka finished the year with 270 dark stores, while adjusting EBITDA loss of the services has been constantly moderating. However, Yandex's approach to grocery is beyond just a last-minute grocery offer in Yandex. Our e-commerce marketplace, Yandex Market, has a significant portion of GMV generated by FMCG, which expanded in 2020 compared with 2019. Internally, we start to look at all our grocery initiatives as adjacent businesses. Earlier, Tigran provided our total e-commerce GV in 2020, consistent of Hyundai's marketplace, Lavka, and its grocery. If to narrow this GV to just food e-commerce, the aggregate GV of our its grocery, Lavka, and market FMCG categories reached approximately 24 billion rubles in 2020 and grew 366% year over year. This already makes us one of the largest, if not the largest, e-commerce food retailers in the country, and we don't intend to stop here. Grocery retail is an enormous market opportunity where we are well positioned to become the leader and penetrate into other consumption scenarios with a variety of our other services. At the same time, we define our opportunity beyond just grocery and beyond just e-commerce markets in Russia. We believe that our core addressable market is the overall Russian retail market, which in 2020 was approximately $520 billion, not much lower than the retail market in the UK, by the way. The overall Russian retail market is highly fragmented, offline prevailing, but there is a clear trend towards online, where we have just a few high-quality companies capable to accelerate the shift to online. We believe we are one of such players, and we'll be focused to scale up our presence on this market, including the regions. Turning to the regions, as you know, in early February, we announced acquisition of selected assets of VZ Group, including the call centers and logistics business of VZ. The transaction goes beyond just right heading and will help us to expand our other services in the regions. It is also beneficial for the regional development of e-commerce, which is an important part of Yandex strategy. This acquisition will allow us to significantly improve customer care in the regions on the basis of existing call centers of Visa, which, as you know, are very efficient. Assuming successful integration, we expect to reach a well-balanced supply-demand platform and offer drivers a variety of options to earn money beyond just ride-hailing. Assuming completion of the integration in April, we expect to see the impact of mid to high single digits incremental to our TRIPS and GV on an annual basis in 2021. With this, I'm turning the mic over to Greg.

speaker
Lavka

Thank you, Daniel, and hello, everyone. We're happy with our Q4 in fiscal year 2020 results, which yet again demonstrated the resilience of our business model and our financial discipline. Two things to highlight. Firstly, how diversified our business has become. The non-advertising segments accounted for almost half our total revenue for the full year of 2020. Five years ago, over 90% of our revenue was from Search and Portal. Secondly, Search and Portal is clearly no longer the only business segment generating cash flow, allowing us to fund our new investments into attractive opportunities. Riot Hailing generates solid margin and is now the second largest business within the group, with a very sizable contribution to the group-adjusted EBITDA, helping us to fund our initiatives in food tech and logistics. Let me walk you through our Q4 performance and share the details of the latest trends across our businesses. In search and portal, despite a more challenging macro backdrop in Q4, search and portal revenue growth improved to 8% year-over-year from 2% in Q3. Our XTAC revenue increased to 14% year-over-year, compared with 8% growth in the third quarter. This solid growth was supported by advertising revenue recovery and our TAC optimization efforts, as well as by the strong performance of our devices business. So far, we're seeing that the momentum has continued in Q1 to date. Industry-wise, the dynamic was similar to Q3, with the best-performing industries including IT and telecom, FMCG, finance and insurance, and healthcare, while the worst-performing is still travel, domestic services, and real estate, although we started to see gradual recoveries in autos as the supply and demand balance is normalizing there. The nutrition portal adjusted EBITDA margin was 46.6% in Q4 2020. Importantly, our adjusted EBITDA margin, excluding IoT, came to 50.4%, up 400 basis points year-over-year. Despite investments into Yandex Plus and ad technologies, the margin was supported by TAC optimization, improving efficiency, and tight cost control. Moving on to TAXI. TAXI group revenues increased by 54% year-on-year, driven by the strong performance of our food tech business, including Lofka and Eats, as well as Logistics. Revenues of right-hailing and food tech services grew 65% year-on-year. Despite the second wave of the pandemic, which put pressure on mobility and on right-hailing demand during an important holiday period in December, the growth of the right-hailing and food tech segment remained solid and even slightly accelerated compared to 64% in Q3. This is because growth was supported by an acceleration of revenue growth in EATS, as well as the continued rapid expansion of LAFCA. Adjusted EBITDA of the taxi group was 1.8 billion rubles in Q4. slightly higher than Q3 in absolute terms. It's important to note that our adjusted EBITDA in the ride-hailing segment, excluding logistics, increased 97% year-on-year for the full year of 2020, despite many challenges and revenue slowdown on the back of COVID. Ride-hailing also remains the key funding source for the development of food tech services. Yandex Eats performed very well and accelerated revenue growth to 171% year-over-year in Q4. This segment posted a small adjusted EBITDA loss in Q4, which was primarily couriers at the end of the quarter. The combination of very high demand for food delivery services, harsh weather conditions, and border closures all resulted in significant increase in delivery cost per order. Yandex Drive again delivered positive adjusted EBITDA in Q4 for the second quarter in a row. Turning to Yandex Market. Yandex Market revenue increased 17% year-over-year in Q4. Price comparison revenue growth accelerated sequentially to 29% year-over-year from 23% in Q3. Our marketplace orders more than doubled despite the rebranding efforts that we undertook in Q4 as we end-of-lifed the Beru brand and rebranded it as Yandex Market. Despite solid orders growth, GMV growth slowed down compared to Q3 primarily due to lower AOVs. Revenue from the marketplace was also affected by our success in shifting to 3P model with 66% share compared to only 30% share of 3P in Q4 of 2019. Q4 was in many ways a transitional quarter for us, and we're already seeing meaningful re-acceleration and growth of GMV in January and February month to date. The adjusted EBITDA loss of Yandex Market amounted to 3 billion rubles in Q4, up from 2.9 billion rubles loss in Q4-19. Now on to other businesses. Media Services delivered another quarter of strong performance with revenue growth of 118% year-over-year, while subscription-based revenues more than doubled in Q4, reflecting strong subs additions and a growing number of paying subscribers. Growth remained solid in the quarter to date. The level of investments in Q4 was 1.1 billion rubles, which is comparable to Q3 levels. We continued to invest in quality content, including our original series, which helped us to achieve the leading position in the OCT market by the number of monthly viewing subscribers. Revenue in classifieds grew 13% year-over-year in Q4, just slightly under 16% growth in the previous quarter. The supply chain challenges that led to depleted car stocks and dealerships continued to weigh in on the pace of recovery. However, we have seen a reversal of this trend since December, with revenue growth in January returning to the high teens. We expect the market situation to normalize by the end of Q1 2021. Profitability-wise, we achieved a record high adjusted EBITDA margin of 33% as a result of positive operating leverage and a number of cost-saving initiatives. Turning to other bets and experiments. Revenue increased by 56%, primarily driven by strong revenue growth in Xen, further recovery in Jio, as well as our rapidly growing cloud business, which delivered over 300% revenue growth in Q4. The adjusted EBITDA loss amounted to 1.5 billion rubles in this segment, on the back of improving profitability in Jio, Xen, and cloud, and growing investments in development of our self-driving technology and education platforms. Finally, a couple of words on our outlook. Assuming no further escalation of the pandemic, we expect our group revenues in full year 2021 to be between 305 and 320 billion rubles. We believe the growth of the online advertising market will likely be in the mid-teens in 2021, and we expect our search and portal revenue to grow at least in line with the market. We expect a stable year-over-year margins in search and portal, excluding the effect of the device business. We expect both our Yandex Market Marketplace GMV, as well as our total e-commerce GMV, including LAFCA, as well as grocery GMV generated by Yandex Eats, to grow two and a half times in 2021, despite the high base in 2020, where we saw abnormally high demand during the lockdown months. To support the growth, we will significantly increase investments with a focus on logistics infrastructure, last mile delivery, and improving the customer experience. We anticipate our CapEx to remain in low double digits as a percentage of the total group revenue, including planned investments in our new campus. Excluding campus construction costs, we expect our CapEx to sales to be in the high single-digit range. With this, I'm turning the mic to the operator for the Q&A session.

speaker
Operator

Thank you. Ladies and gentlemen, if you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach your equipment. And please limit yourself to one question and one follow-up question. And that's, again, star 1 to ask a question. And we take our first question from Cesar Tyron of Bank of America. Please go ahead.

speaker
spk09

Thank you. Yes, thanks everyone for the call and the opportunity to ask questions. I have two, so I'll use that as a follow-up if that's okay. So the first one would really be on the ad trends. Can you please repeat what you're seeing in Q1 and how that compares with Q4? And maybe if December was particularly stronger and there's a pattern of better months and months come as we move towards 2021. And then the second question, can you please help us understand better? I know you mentioned some elements in the opening remarks, but just on the e-commerce business, on the slowdown and the trends that you're seeing in Q1, and how long do you think these integration issues that you mentioned will subsist? Thank you so much for your help.

speaker
Lavka

Hi, CSERGs, Greg. Thank you very much for your questions. Let's start off with the advertising trends that we're seeing. So if you look at the XPAC search and portal revenue growth, We're seeing that January is more or less on par with what we saw in November and what we saw in the quarter overall. We definitely did see a slight acceleration in December as some of the budgets were pulled in. But overall, I would say the trends we're seeing are fairly solid. And then turning to your second question in terms of e-commerce. So Q4 was very much a transitional quarter for us. I mentioned that we end-of-lifed the previous brand for our marketplace, Biru. We shifted everything onto the Yandex Market platform and began transitioning both merchants and consumers to this new brand. You know, we saw solid trends in GMVs. But we also saw the following. We saw a rapid uptick in 3P, which obviously translates into lower revenues since we only recognize the commission portion. We also saw lower AOVs, which I think was potentially seasonal. What we're seeing in Q1 to date is we're seeing a pretty strong reacceleration in Yandex.Market. We're actually quite happy with the performance that we're seeing there. GMVs are growing. The platform is stabilizing. The number of users on the platform is growing significantly. So I'd say overall we're pretty, you know, optimistic about the outlook for the segment.

speaker
Operator

Thank you. The next question comes from Slava Daktraev of Goldman Sachs. Please go ahead.

speaker
Slava Daktraev

Thank you very much for the call. My first question would be on self-driving. Can you please share some recent data points over the key milestones that you managed to achieve in the self-driving division and also what you are most focused on in 2021? Is it increasing the number of miles driven, some geographic expansion, or maybe potential partnerships? Thank you.

speaker
Lavka

Hi, Slava. On SDG, some data points is we currently have 160 cars, autonomous cars, which are spread between Russia, USA, and Israel. We've accumulated 6 million autonomous miles on public roads. We continue to improve in terms of, you know, the disengagement rates we're seeing. And overall, I think we're very happy with the progress there. We've also been investing in our delivery robot called Yandex Rover. Obviously, that is more a testing phase now, but it is delivering in parts of Moscow and as well as Annapolis and Kazan. And you may have seen maybe on Instagram, maybe on Facebook videos that people post of the delivery rover actually delivering food for both Yandex LAFCA and Yandex EATS. And I think that's an exciting opportunity for it. And at the same time, we are exploring various partnership opportunities with SDG and both auto OEMs and Tier 1 suppliers. So, you know, I think this is a business that is progressing well. I think we found more interesting applications beyond just self-driving there. And I think we're very happy with the progress.

speaker
Slava Daktraev

Okay, thank you. And my follow-up would be on e-commerce. So basically, it's been more than six months since you delivered the strategic outlook on the segment with the acquisition of Sberbank Stake. Can you share maybe the updated vision over the past towards profitability, the leadership targets, or any other learnings that you made over the last half a year? Have your views changed anyhow since then, especially taking into account the competitive developments? Thank you.

speaker
Lavka

Yeah, sure. So we've been actually kind of pulling the various assets that we have and we're looking at the picture today as one that is much more complex where we're serving the consumer with a range of different products. We're able to deliver groceries to them within 20, 30 minutes using Yandex.Lavka. We're also able to deliver groceries to them from retailers kind of using the Instacart model, if you will, within Yandex.Eats. And then Yandex Market itself, which has a much wider selection of goods, approximately 2 million SKUs of Q4, which we attempt to deliver next day or beyond. I think we have a range of assets that we can bring to bear to attack this problem. And the assets that we have within Yandex, which I think should help us achieve a leadership position in e-commerce, are the following. Obviously, we have... a large and growing base of subscription customers of Yandex Plus, all of whom receive free shipping whenever they spend more than 700 rubles in Yandex Market. So that's 8 million consumers that we can sell and deliver Yandex Market products to. We currently have about 30 million transacting customers per month across our various platforms, whether it's Yandex Go or Yandex Market or Yandex Lost or Yandex Eats. Also, we cover something like 20 million consumers, 20 million adults with 15 to 30 minute delivery from Yandex.Lavka stores, which provides us with this last leg of deliveries. And so what we've been doing is we've been actually offering consumers in Yandex.Market the following use case. You can actually get something delivered to you. in Moscow, in St. Petersburg, in Nizhny, the very next day, any time you need it. So instead of having to coordinate with a courier or having to go to a pickup point, or a pickup locker, you essentially click a button inside the app and a courier is dispatched to you and brings you something within 20, 30 minutes. And obviously, at that point, we try to upsell the consumer with more products, more groceries from Yandex.Lofka. And I think that's getting a lot of traction. And obviously, we have this last mile, which we've built up with Yandex.Axi and Yandex.Logistics. I mentioned the number of deliveries we're doing in logistics, and that business is really growing very, very rapidly with lots and lots of businesses connected to that platform. So overall, I'd say the market is dynamic. The market is competitive. There's strong competition, but we are looking to invest meaningfully in this. We're looking to spend, you know, $400 million to $500 million across the various e-commerce initiatives that we have at Yandex, including Yandex Market, Yandex Lafka, and the grocery part of Yandex Eats. And we still aim to be, you know, a top player in this market in a few years.

speaker
Operator

Thank you. The next question comes from Uliana Lenvalskaya of UBS. Please go ahead.

speaker
spk03

Hi, everyone. Thank you for all and congratulations on good numbers. I just wanted to discuss a couple of high-level questions, if I may. Firstly, on the basis of the guidance presentation, and thank you for providing the guidance at all, At the moment, the COVID situation in Russia is quite favorable, so all the restrictions are essentially being lifted. Would it be fair to say that the guidance this time is not really super conservative, if it's based on the current environment, in a sense?

speaker
Lavka

Yeah, I think the guidance is based on the situation as we currently see it.

speaker
spk03

So any, like, third wave or any restrictions, again, would suggest downside risk to it?

speaker
Lavka

Correct. I mean, I think if things get better, I think there's upside room, and if things get worse, there's downside room. I think the guidance is the current view of the management as we sit here today.

speaker
spk03

Fine, fine. Thank you. And, Greg, secondly, what is the current thinking about FinTech initiatives? What are the options management team is considering? There were local discussions about Yandex buying some sort of a bank again. How far does rumors are from reality?

speaker
Lavka

Yeah, look, on FinTech, there's a lot of preparatory work that's taking place now. We are spending a whole lot of time on it. It's one thing that we absolutely feel like we're going to do. We think it fits very well with all of our transactional products, with our e-commerce products, and with just the vast ecosystem that we've built. I'm not going to sort of speculate on specific rumors in the market, but I would say that if we need certain licenses, we will go out in the market and acquire them to sort of jumpstart the process and sort of talk to you when it's appropriate.

speaker
Operator

Thank you. The next question comes from Miriam Adisa of Morgan Stanley. Please go ahead.

speaker
Miriam Adisa

Thanks for taking my question. The first one is on Yandex Market. Apologies if you covered this in the prepared remarks, but just wanted to get a sense of how we should think about the EBITDA losses this year in e-commerce. Is it reasonable to take the 4Q run rate for this year, or should we assume another step up, given what you were saying earlier about introducing free delivery and also reducing merchant commissions? Thanks.

speaker
Lavka

Hey, Miriam. I covered it a little bit, but I'll just repeat it. You know, what I've said in the answer to, I think, Slava's question on e-commerce was the following. Yes, we do indeed plan to accelerate the pace of investments in e-commerce. What we're looking to spend is $400 million to $500 million across all of our e-commerce assets. That includes Yandex Market, obviously, but it also includes our investments in Yandex Lafka. which is our 20-minute delivery, 1P-based, as well as Yandex Eats, the grocery portion of that, which is the Instacart model. So across all of those assets, we're looking to spend $400 million to $500 million, and we believe that that will allow us to dramatically accelerate the pace of growth and sort of kind of climb the ranks, if you will, in the competitive landscape.

speaker
Miriam Adisa

Okay, thanks. Thanks. And then my second question is just on the smart speaker and IoT contribution. I mean, it seems to be having a bigger impact on the margin for Search and Portal, but just wondering how much of this was just seasonal or how we should think about the contribution both to sales and then also the impact on Search and Portal margin this year.

speaker
Lavka

A lot of it was seasonal. I think it's a high class problem. The products are selling very well. We're getting a lot of traction both with our large speakers, the new large speaker that we put out called the Station Max, as well as the Mini. All of those are selling very well. In total, we generated something like $4 billion of revenue from devices. We also see that the unit economics are improving. To that end, you should... expect, I think, those device trends to continue. Obviously, there's seasonality in that business, as you know well. But we also expect that as unit economics improve, the drag on search and portal margins should decrease over time. And I think I'm extremely proud of the work that the team has done with these products. They are clearly the market leader in the Russian market by a very, very wide margin. and we're looking to see if there are other applications of smart speaker and Internet of Things technologies beyond just speakers with things like television sets, where we're also building ourselves into. And obviously that fits very well with the story around media services with Kinopoiesk and with the Yandex Plus subscriber base, which is growing rapidly.

speaker
Miriam Adisa

Perfect. Thank you.

speaker
Operator

The next question comes from Vladimir Despachov. Hello, thank you for taking my question.

speaker
Vladimir Despachov

My first question is on your guidance for GMV of all your e-commerce assets in 2021. If I got it correct, it should be something like about 140 billion rubles this year. And basically, 2.5 times growth is good, but this doesn't resolve the key issue, bridging the gap with your competitors, which might grow slower, but in absolute terms, they will grow much faster than you. So how do you expect to bridge this gap? And basically, what are the reasons maybe which are preventing you from doing this in 2021? The fulfillment capacity? And the second question is kind of related to this. Maybe you could update a little bit on your strategy for the development of Yandex.Lavka. How are you going to grow this business? Are you going to expand it to the regions to grow the number of dark stores or maybe integrate it closer into Yandex.Market? Maybe you can provide more color on this. Thank you.

speaker
Lavka

Hey, Vladimir. Great questions. So you got it correctly in terms of the guidance around GMB. We do expect that the GMV, both of Yandex market itself and of e-commerce overall, so including contributions of Lofka and groceries within Yandex Eats, will increase by two and a half times. And so the number you provided of about 140 billion GMV is more or less in the ballpark, right? I think that puts us squarely in the number three slot in the Russian e-commerce landscape, which is, I think, a very, very formidable achievement in a very short period of time. At the same time, we recognize that the market is competitive, and I think our competitors uh... e-commerce are very strong and we have a tremendous met respect for them and you know what we're focused on is delivering on the uh... customer experience and bringing to bear whatever assets we have uh... in this uh... in this uh... battle if you will and i think i lifted them uh... when i uh... when i talked uh... to slobber just earlier on uh... and hopefully that answers that and then on the question around locker i would say that uh... uh... Our strategy is certainly to go beyond just Moscow and St. Petersburg. We do expect to roll those out, and we've actually been looking to expand those beyond just Russia as well. As you know, we have a small experiment in Israel, and that's showing some promise. But focusing on the Russian regions, we are looking to expand Lofka. It may not be the exact same type of Lofka. We may... make some alterations to the model, but the premise will be the same. So maybe the SKU assortment will be a little different. Maybe the price points will be a little different. But we do think that there is a real need for this, and we also think of this as a very important part of the overall e-commerce strategy.

speaker
Yandex Eats

Thank you very much. Yeah, I just want to add a quick point that Lefkoe already – You know, we see it as a logistics infrastructure platform, and already currently we have a LAFCA dark store within 30-minute walking radius for 20% of Russian adult population. So that's going to grow going forward. And, of course, we're going to focus on integrating it into our overall e-commerce and overall ecosystem.

speaker
Vladimir Despachov

Okay, thank you, Eugenio.

speaker
Operator

Thank you. Once again, ladies and gentlemen, please press star 1 if you wish to ask a question. The next question comes from Lloyd Wansley of Deutsche Bank. Please go ahead.

speaker
spk08

Thanks. Two questions probably for Greg. They're kind of related. I guess first just that vision of connecting banks. Yandex Plus with Yandex Market and Lavka. How far along in the integration are you? Maybe in markets where it's rolled out, what percent of transactions are running through the Lavka delivery and how is that impacting user behavior and unit economics? And then the second one is just, can you give us a sense of what you're doing to drive that 3P mix higher in the market and how is that maybe impacting you know, gross margins and EBITDA margins, you know, and related to that, like, are your third-party sellers bearing the cost of a lot of the logistics, or are you guys still absorbing a lot of that to drive market share? Thanks.

speaker
Lavka

Hey, Lloyd. So on Yandex Plus and market integration, those are fairly fresh, and those have all taken place in the last, call it, six months. In fact, the idea that deliveries above 699 rubles will be free for Yandex Plus subscribers is very recent. And we think that this is a big opportunity. We see that those users that have Yandex Plus are spending considerably more on Yandex Market. On average, we're seeing 25% to 30% higher GMBs from Yandex Plus subscribers on Yandex Market. and obviously we're focused on growing cross-service usage through various mechanics within our apps. And then on the question of 3P, What I can tell you is we obviously are focused on building a 3P marketplace. This is the idea that we have, and it's to enable merchants. It's not to compete with merchants. To that end, we've been investing aggressively, and just recently, we dramatically lowered our commission on Yandex markets, so the take rates are some of the most attractive in the market on the Russian landscape. I think they're probably the most competitive market. and the most attractive, and obviously 3P is more favorable to marketplace margins compared to 1P products. That's obvious, but we're also investing heavily to attract more merchants onto the platform.

speaker
Operator

Thank you. The next question comes from Ildar Devletchin of Woodson Company. Please go ahead.

speaker
Ildar Devletchin

Thank you very much and congratulations on very good results. One question I wanted to ask on the taxi and broader logistics business, specifically with drivers. We know there was a bit of tightness in the market last year at certain periods of time. Do you see any further tightness, especially given the drive in the growth in e-commerce deliveries? And what's the situation with potentially migrants if the borders are reopening. And if you could specify the level of subsidy that you had in your Yandex Taxi business. That would be my first question and I'll just ask a follow-up on your guidance. Have you included any benefits from the tax maneuver on your guidance for margins for this year? And also on the cost-cutting that you launched last year, have you already incorporated the growth in additional headcount and pay this year, or are you still operating in a more cautious environment? And so this could calm the growth in cost in 2022, which you kind of deferred last year. Thank you.

speaker
Lavka

Hi, Elder. Let me take the second question first, and then I'll pass it on to Evgeny to give you some color on the first question. On the margins, I would say that we baked into our outlook the various things as we see them today. I think this is, Ujjana asked this earlier, but our guidance provides the outlook as we currently see it. And then in terms of sort of our paces of hiring, we did exercise quite a lot of discipline in 2020, and I think we're pretty proud of that. In 2021, we do a plan to expand the pace of hiring, and that's built into the margins, as well as the pace of investments in various e-commerce initiatives, as I just sort of covered them. And again, you can take the question on drivers and borders.

speaker
Yandex Eats

Yeah, hi, Eldar. As far as drivers and boarders and couriers, I think I'd like to separate. First of all, in taxi we did see some tightness, but I think that began to reverse itself at the end of last year. What we are experiencing right now is very high surge pricing really related to the sort of even unusually cold and snowy winter for Russia. So our GMV is growing in excess of Russia. in excess our TRIPS growth right now. If we talk about CPO in terms of delivery, yes, CPO was affecting, you know, sort of cost per delivery goes both for, you know, our EATS and other businesses was affected by courier undersupplies, and, you know, the borders have been closed. And of course, the seasonality that I already mentioned, you know, again, winter in Russia is cold and snowy, even for Russia this time. And, you know, that's affected the overall food delivery market. But we have seen, we've started to see signs that sort of normalization. So current CPO in the eats business, for example, is down, you know, roughly 15% from the peak levels in December. And, you know, we expect going forward, you know, this is going to moderate.

speaker
Ildar Devletchin

All right. Thank you.

speaker
Yandex Eats

Thank you.

speaker
Operator

Thank you. The next question comes from Uliana Lenvalskaya of UBS. Please go ahead.

speaker
spk03

Thank you. I just wanted to follow up on a couple of things. Firstly, the cloud business performance looks really impressive. Would you consider showing this separately as a business unit?

speaker
Lavka

Yeah, I think we're pretty happy with the cloud businesses currently progressing. You know, it grew significantly in Q4, and we expect that it's going to grow further this year. We expect that it's approximately triple in 2021. And I think as we get more and more traction, we will likely break it out as a business unit. Internally, it's already set up as a business unit, and we think that this is a great forum for encouraging entrepreneurship at Yandex. And I think it's been very successful in all of our endeavors, and we think that this will help us win in cloud as well.

speaker
spk03

Great, thank you. And Greg, I remember on the first quarter 2020 call, we were discussing the cut of management comp, which actually helped to the margin in search and portal. Was this thing reversed within 2020, or do you plan to reverse it in the coming quarters?

speaker
Lavka

So we didn't reverse it in 2020. We are expecting to pay bonuses, and we have gone back to normal salaries for management in 2021. So assuming we achieve our KPIs and our targets in 2021, management will be paid bonuses in 2021. In 2020, like I said before, management decided to forego all bonuses at the beginning of the pandemic.

speaker
Operator

Thank you. Thank you. The next question comes from Sebastian Patulea of Jefferies. Please go ahead.

speaker
Sebastian Patulea

Hello, everyone. Thank you for taking my questions, and thank you for the presentation earlier. I've got two, and I'll use the second one as the follow-up, please. First one is regarding grocery delivery. There has been a focus recently on building your grocery delivery offering, and indeed, in that regard, the latest proof point is your partnership with Metro and Kazan. Can you please discuss the unit economics or the dynamics of building partnerships with pre-established retailers such as Metro versus building your own stores? And also in that regard, what are some of the key points or levers that you look at when deciding between offering delivery via partnership or via a dark store? Second one is regarding search and portal. Globally, we're seeing governments aiming to force search engines to pay publishers for news. Is this a threat to your cost base, or you don't see this dynamic at play in Russia? That's it. Thank you.

speaker
Lavka

Hey, Sebastian. On the first question, so it's a very interesting question, and obviously we have both a 1P model with LAFCA and a 3P model that's Instacart-like in Yandex Eats. I would say that the differentiation is more about the customer experience. When consumers choose to have groceries delivered from Yandex Eats, they are looking for specific products from specific stores, i.e., they want a specific steak from Miratorg or they want a specific popcorn from Cousville, and so they choose to order it there. And the experience in terms of click-to-eat time or order completion times are a little bit longer. You're a little bit less accurate because obviously you don't know exactly what's in stock at every given minute in the retail store because you don't have 100% integration and the retailers themselves don't exactly know what's on the shelf. With Yandex.Lofka, you're offering a smaller SKU mix. You're offering more rapid delivery. It's a slightly different consumer experience. I think there's definitely place for both and we will continue to pursue both of those models. Specifically on Metro and Kazania, I'm not going to comment because we have a lot of experiments with lots and lots of different partners. onto your second question with the search and portal and paying for news. So that hasn't, that question hasn't really gotten a lot of traction here, but obviously, you know, once it does, if it does, we will explore it and figure out what to do with that. I think right now it's just not something that's at the top of the agenda.

speaker
Operator

Thank you. The next question comes from Anna Kurbacheva of Alphabank. Please go ahead.

speaker
Anna Kurbacheva

Yes, good afternoon. Thank you very much for the presentation. Very simple question. When the taxi IPO may return to the company's agenda, so what conditions you will be looking for? I mean in terms of the overall business of taxi and segments, profitability, organizational things and the capital markets. Thank you.

speaker
Lavka

Hi, Anna. So I would say that the consideration of the IPO of Yandex Taxi is not on the agenda. We are focused on building the leading digital platform in the countries in which we operate, and we see a ton of synergies between the various assets that we have. I think the power that we have is the platform that we've built, and being able to offer all of these services to consumers whenever they want, whatever they want, is what gives us real strength. And so I think pursuing an IPO is just not something that we're considering.

speaker
Operator

Okay, thank you. Thank you. And the next question comes from Cesar Tiron of Bank of America. Please go ahead.

speaker
spk09

Yes, hi. I'd like to ask two more questions, if that's okay. The first one would be on ZEN. Do you believe that ZEN is monetized to its full potential today? So I'd like to explain what I mean by that. Of course, if you increase further the number of users, and even usage, you know, you get further impressions, et cetera, and the revenues will increase. But with the current user base and the current usage that you see on Xen, is it, in your view, monetized to its full potential, or do you think there is a significant amount of inventory which is not used, or do you think that the pricing has come to increase significantly? So that's the first question. And then the second one would be on the margins. Usually, Greg, you make some comments on these calls on profitability outlook. I might have missed it, but is there anything you'd like to tell us for 2021? Thank you so much.

speaker
Lavka

Sure. Cesar, hi. On Zen, so it's a great question that you asked. So I would say... What we're seeing with Zen is that there's probably not a whole lot of opportunity to increase monetization in its current format. The massive opportunity that we see to increase monetization in Zen is through new formats. And specifically, it is app install ads and video within the feed. And there, I would say that we're investing a lot of time and a lot of effort to make this a much larger business. So if you took just the existing news feed and said, hey, is there a lot of inventory there that you guys are not monetizing? The answer is no. But what you could do is, and what we're in the process of doing, is replacing some of that existing ad inventory with new formats. And I think we're getting... finally starting to see traction with app install ads, with video. And you saw that video is growing as a percentage of total time spent. As a percentage of total time spent, it's over 23% now. And we also see that the number of users is growing rapidly. So, you know, while revenue was up something like 49% year-over-year in December, their users were growing 51% in December, which is, I'd say, incredibly impressive. And, you know, currently, kind of quarter to date, we're seeing, we're toying with 22 million daily average users, which is just fantastic. So lots of opportunities for new products within ZEN. And we're excited about that. And then on margins, we said that we expect that our search and portal margins to remain at the same level in 2021 as in 2020, excluding the impact of devices. And I think to the question that Miriam asked around smart speakers, we expect that the headwind from devices should decline over the course of the year. As the devices become more profitable, as we're no longer subsidizing them quite as much, they should not be as much of a drag on margins.

speaker
Operator

Thank you. There are no further questions at this time. I would like to turn the call over to Yulia Gerasimova for any additional or closing remarks.

speaker
Yulia Gerasimova

Thank you very much for joining our call today, and thank you for your questions. If there are any more follow-up questions, please contact the AR team. Goodbye. Until next time.

speaker
Operator

Thank you, ladies and gentlemen. This concludes today's conference call. Thank you for your participation. You may now disconnect.

Disclaimer

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