Nebius Group N.V. (NBIS) Q2 2019 Earnings Report, Transcript and Summary

Good afternoon ladies and gentlemen, thank you for standing by and welcome to the Yandex Second Quarter 2019 Financial Results Conference Call. At the same time all participants are in a listen-only mode. After the presentation we will have a question and answer session. [Operator Instructions] I must advice you that this conference is being recorded today on Friday the 26th July, 2019. And now I would like to hand the conference over to your first speakers today, Katya Zhukova. Please go ahead.

Hello, everyone, and welcome to Yandex' second quarter 2019 earnings call. We distributed our earnings release earlier today. You can find this copy on our IR website as well as on newswire service. On the call today, we have Tigran Khudaverdyan, our Deputy Chief Executive Officer; and Greg Abovsky, our Chief Operating and Chief Financial Officer; Arkady Volozh, our Chief Executive Officer; and Vadim Marchuk, our VP of Corporate Development, will be available on the Q&A session. The call will be recorded. The recording will be available on the IR website in a few hours. As you know, we have prepared a few supplementary slides, which are currently available on the IR website. Now, I will quickly walk you through the Safe Harbor statements. Various remarks that we 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-20F dated April 19, 2019, which is on file with the SEC and is available online. In addition, any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. Although we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our views change. Therefore, you should not rely on these forward-looking statements as representing our views as of any date subsequent to today. During this call, we will be referring to some non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with U.S. GAAP. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is provided in the earnings release we issued today. And now, I am turning the call over to Tigran.

Thank you, Katya, and hello to everyone. Thank you for joining our second quarter 2019 earnings call. This is my first call in the Deputy CEO role and I'm very excited to report a terrific set of results. In Q2, we deliver consolidated revenue growth of 41% year-over-year Yandex. Market basis. This is the fifth quarter in the row when Yandex inserted to operator above 40%. The growth was driven by solid performance in our core business, despite advertising market being more challenging this year. However, we expect to continue seeing solid growth in online advisors as a result of shift towards online. Search and Portal revenues increased 21% year-on-year driven by Yandex Properties, which is a solid result despite tougher comps. On surcharge trends, in June, our overall surcharge was 56.9% up 130 basis points compared with a year ago. Our surcharge on Android is 52.6% in June, including 90 basis points from March 2019 and 460 bps from June of 2018. In Q2, for the first time our overall mobile surcharge surpassed 50% and in June averaged 58.1% growing 400 basis points year-on-year. With further share gains on mobile, but as we have said many time before, it's logical to assume that the pace of gains will moderate. Now turning Alice, our voice assistant. Our main focus is building products that are designed to help people in their daily life. Alice is exactly these type of product, it help user beyond search on a growing number of platforms. I'm excited to highlight that we recently signed an agreement, we are going to Nissan and LADA for Yandex.Auto of in car infotainment system. According to these partnership Yandex.Auto will ship in two million vehicles of Russia's best selling brands. Beyond cars to make user experience even better. We have recently introduced smart home integration into Alice. Now users can easily control tens of thousands of devices and appliances from leading manufacturers with just their voice. We also continue working to integrate our system into apartment devices. Alice is now powering smart speakers sold by Elari. We are excited with the prospects of voice assistant across the world and we are committed to invest in development going forward. Turning to Taxi. This segment delivered robust results with 117% year-on-year revenue growth reflecting strong performance of our ride-sharing business of the vehicle. Ride growth, incentives optimization and our corporate taxi service. Another tremendous news is that in Q2 2019, the whole taxi segment turned profitable. Its adjusted EBITDA was RUB 423 million. The profitability of the ride-sharing segment offset our investment in food delivery and self-driving. In Q2, the number of rides increased 49% year-on-year. The ride growth continue to be solid in mature cities like Moscow and St. Pete that drove in the regions was also very impressive. We believe that deeper focus in the region will allow us to significantly improve the quality of taxi services there into just high standards of safety and security and to continue providing affordable ride for regional users. At the same time, the vehicle better utilization rates, driven by our technology, we can deliver higher income for drivers. Our recently announced transaction with the Vezet Group will accelerate our penetration into the regions. Let me know quickly walk you through the key aspects of our transaction with Vezet. We agreed to acquired IP and call centers of Vezet Group in Russia. After the due completion the current Vezet shareholders will receive up to 3.6% of issued share capital of MOU in new shares. Together with up to $71.5 million in cash. The deal requires the Federal Anti-Monopoly service approval, we expect to close a deal by the end of 2019. We are very excited with this deal and truly believe that these transactions will help us to continue to develop the regional market, delivering our world-class technologies to our users and drivers. Turning to Food Tech. Yandex.Eats, our food delivery service continued performing very well. As of today Yandex.Eats is connected to 11,000 restaurants and is available in 24 cities Yandex.Eats revenues in Q2 increased over 600% year-over-year. On the previous earnings call, we talked about the introduction for deliver fee. We see that this experiment pays off as it considerably improves the unit economics of our food delivery business without a material impact on our pace of growth. Introduction or delivery fees together with logistics optimization allowed us to make very significant improvements in our unit economics. Now to autonomous vehicles. In Q2, we further advanced in developing our self-driving technology, series of achievements into it. The launch of an R&D center in Israel, where we also have a license for operations and the completion of integration of our self-driving technology in new Hyundai Sonata. Just think of it. On the last call, I mentioned that we signed a memorandum of understanding with Hyundai motors. The two companies were able to create and present the prototype of a driverless car base on Sonata in just five weeks. Quite an achievement, I think. With this I'm turning the mic over to Greg.

Thank you Tigran, and thank you all for joining our call today. We had a strong quarter, as our consolidate revenue excluding Yandex.Market grew 41% year-on-year and Q2. Online advertising revenues excluding Yandex.Market increased 21% year-on-year. Total tax grew 18% year-on-year and amounted to 13.5% of total revenues down 240 bps from Q2 of 2018, and down 80 bps sequentially. Traffic acquisition costs related to partner advertising network increased 11% year-on-year. Traffic acquisition costs related to distribution partners grew 39% year-on-year due to the continued growth of Android. In Q2, distribution TAC averaged 7.8% of Yandex.Properties revenues, which is 40 basis points lower compared to Q1. Turning to our cost structure. In Q2, total OpEx excluding TAC and G&A grew 42% year-on-year. Excluding stock base comp, operating expenses increased 41%, in-line with our revenue growth rates. The increase was mainly driven by costs related to Taxi, primarily due to corporate Taxi services and costs associated with our food delivery business as well as by costs related to drive. As a June 30th, we had 9005 employees, up 4% compared to March 31st, primarily driven by Taxi as well as new hires in our experimental businesses. On a year-over-year basis, our headcount was 9% higher. In Q2, our personnel costs amounted to 18% of total revenues. G&A expense in Q2 increased 28% year-on-year. Growth acceleration mainly reflects our investments in the servers and data center equipment. Cost related to land lease of the Korston Site which we acquired in December 2018 for Moscow headquarters, as well as purchases of office equipment. Our consolidators adjusted EBITDA excluding Yandex.Market grew 48% year-on-year. This quarter the impact from ForEx was a loss of RUB 270 million related to the appreciation of the Russian ruble during Q2, from RUB 64.7 to $1 to RUB 63.1 to $1. Adjusted net income in Q2 was up 16% year-over-year. Adjusted net income margin was 14.1%. Excluding our share velocity of the Yandex.Market adjusted net income was up 31% from Q2 2018. Our CapEx was 19% of total Q2 revenues. As was previously said, in 2019, we expect our CapEx excluding new HQ expenditures to be in the low teens as a percent of total revenues. Now, I'm turning to the performance of our business units. Search and Portal demonstrated solid growth despite tougher comp. This quarter Search and Portal revenues were 21.4% year-on-year. Adjusted EBITDA of Search and Portal grew 18% year-on-year in Q2, and it's adjusted EBITDA on margin was 47.3%, down 140 bps compared with Q2, 2018 reflecting mainly video content costs as well as sales of our devices. Excluding IoT, adjusted EBITDA margin and Search and Portal was 48% down 80 bps from Q2, 2018. We continue to anticipate that our adjusted EBITDA margin of Search and Portal business for the full-year 2019 to be a 100, to perhaps 150 basis points lower compared to the previous year. Primarily as a result of our ongoing investments in IoT. Excluding IoT, we continue to expect adjusted EBITDA margin of Search and Portal business will be roughly flat compared to 2018 levels. Now turning to Classifieds. Revenue of Classified business grew 42% year-on-year in Q2. This quarter, the growth rates were mainly reflected the revenues from listing fees and value added services, which increased 90% year-on-year. Adjusted EBITDA Classifieds was RUB 265 million. On to Media Services. In Q2, Media Services revenue grew 122% year-on-year, primarily driven by the growth of our subscription service and video advertising, reflecting integration of KinoPoisk into Yandex's ecosystem and the growth of the video content inventory. Media Services adjusted EBITDA loss was RUB 438 million in line with Q2 reflecting our investment in our content library, as well as in advertising and marketing. In Q2, Yandex.Music demonstrated rapidly growing number of subscribers. Over two million as of today, while the description revenues grew 141% year-over-year. KinoPoisk continue to building up its content library and subscription base. Video consumption in Russia is gaining traction. We consider further investments in video is an important part of our long-term strategy. Turning to Other Bets and Experiments. In Q2, revenues of Other Bets and Experiments represented by Yandex.Drive, Zen, Geo Services, Cloud and Education reached RUB 3.4 billion an increase of 203% year-on-year. Revenue growth primarily reflected strong performance of our Yandex.Drive, Zen and Geo Services. Adjusted EBITDA loss of Other Bets and Experiments was RUB 0.9 billion, primarily as a result of our investments in Cloud and Drive. Yandex.Drive, which is now the largest contributor to the Other Bets and Experiments revenues line continue strengthening its market positions. In Q2, we extended our car-sharing service to Kazan. Our total fleet is now 11,500 cars and the number of rides completed has exceeded 26 million since launch. Turning to Zen. Zen continues developing as a social platform adding new features and increasing user engagement. We believe that Zen could become a true alternative to social networks with significant content based user accounts, likes and comments. Users spend over 30 minutes daily in Zen, which is comparable to social networks. As of today, we are very much focused on developing and publisher platform, improving the content quality, as well as increasing a portion of short videos and other entertained formats on the platform. In Q2, Zen's annualized revenue run rate was RUB 6.9 billion. This is a growth rate of 63% year-on-year. Our Geo location Services demonstrated solid results in Q2, doubling revenues year-on-year for the seventh consecutive quarter. In particular, revenues from local based advertising grew four times as a result of the growing portion of SMB clients on maps and in navigator. The development of the service ecosystem for drivers is one of our key focus areas. Tigran already mentioned, our long-term partnership with Renault, Nissan and AVTOVAZ within the context of Yandex.Auto. Now, getting back to corporate matters. We ended the quarter with approximately RUB 75 billion in cash and cash equivalents, excluding the balances of Yandex.Market. This is approximately $1.2 billion of the exchange rate as of June 30th. This includes the cash the Yandex.Taxi which amounted to about $400 million as of June 30th. Turning to guidance, based on the recent solid performance of our businesses, we are increasing the outlook for consolidated revenue on ex-Yandex.Market basis and now expected it to grow 32% to 36% year-over-year. Also, we reiterate the outlook for a Search and Portal business and expected it to grow in the range of 19% to 21% year-over-year in 2019. With this, I'm turning the mic over to the operator for the Q&A session.

Thank you. Ladies and gentlemen we will now begin the question-and-answer session. [Operator Instructions] And your first question comes from the line of Cesar Tiron of Bank of America. Please go ahead.

Yes, hi, everyone, thanks for the call and many thanks for the opportunity to ask questions. And congrats on the numbers. I have two questions please. The first one is on the core search business. we saw a bit of deceleration in the CPC growth on a year-on-year basis. Can you please elaborate on that? And then the second question would be on Taxi. If you could please get back to the recent acquisition probably tell us if you expected the Mail RU, Sberbank partnership when you made up that acquisition and also probably tell us a little bit of how you thought about this acquisition versus building these facilities of call centers organically? Thank you so much.

Hey Cesar, it's Greg. Let me try to take your first question, of core search. So with respect to the deceleration in CPC, we have consistently said that our primary focus is driving higher returns on investment for our advertisers. So to that end, if we can drive more traffic to our advertising clients through more paid clicks, we will always make that trade off versus increasing prices. And the way that we do that is by increasing relevance, and targeting over advertisements, which is in the end results in higher paid clicks. And therefore can hold back the competitive pressure of CPCs. So I think we are very happy to see those trends. I think if you, if you are asking broader sort of questions around the trends in the business, I would say that the Search and Portal business is in excellent shape. While the May numbers were a bit soft, and we saw May grow the only about 17%. We are seeing very strong growth in July. And we also expect that on a kind of a two year stack basis that our rate of growth should be constant throughout the year. So I think that kind of speaks for the pace of technology innovation that takes place in the Search and Portal business. With respect to Vezet, I think that as we thought about the opportunity presented to us, we saw that there was a large untapped opportunity of bringing sort of safety and security, and using our cutting edge technologies in the regions. The acquisition of the IP and call centers from Vezet allows us to roll out sort of our kind of cutting edge technologies and improving kind of safety and security in the regions at a much faster pace than if we were to do it on our own. So I think we are very excited by that acquisition.

Great. Thank you so much.

Thank you. And your next question comes from the line of Ulyana Lenvalskaya from UBS. Please go ahead.

Congratulation on the strong quarter. My questions will be first in Taxi. Could you please disclose the current GMV run rate if possible? And also comment on the contribution of corporate to the total at the moment?

Hi, sure. So on corporate Taxi or B2B Taxi. We don't typically disclose it. But I'm sort of happy to provide you the numbers. At the end of the day, there is not a huge difference in terms of the growth rates of revenues with B2B or without the B2B. Just as a reminder, our Taxi segment revenues increased 117% in Q2 with B2B included. If you were to strip out B2B from both Q2 of 2019 and Q2 of 2018, our revenues of the Taxi segment would have grown 110%, so not a huge difference there. At the same time, I would say, we are very excited about the opportunity presented by B2B. We think this is an excellent product for corporate clients to use for their employees. And this segment has been growing very nicely for us.

And the total GMV, Greg.

It’s just not the metric that we disclosed consistently. The last time we disclosed it was back in December, at which point it was 4.2 billion.

Okay and at this point in time, can you hear comment on the potential contribution of Vezet to ride and GMV?

I think it's too early to speak about that. The deal is still pending, as you know. But I think we are very excited about the opportunity that are presents to expand Yandex ecosystem into the regions.

Okay. Thank you. And the second question will be on the car-sharing drive. Do you see current cannibalization of taxi rides by the car-sharing? And if so, would it make sense to potentially include drives into the Taxi segment for instance?

Sure. That is an excellent question. And it's one that we think about a lot. I think the opportunity that the sharing economy represents is getting more and more people to abandon fully or partially car ownership and to shift your sharing economy. And so there will be times when they will choose to use car-sharing, hopefully Yandex.Drive and there will be times when they will choose to use ride sharing, hopefully Yandex.Taxi. Could there be sort of cannibalization between the two? Sure. I mean, they are all modes of transportation, in that sense I think car ownership also cannibalizes Yandex.Taxi. And I think overtime, it might make sense to have these businesses more closely linked. However, our goal is to overall get more and more people to abandon car ownership and to shift to a sharing economy.

And the third one would be another question, but Cesar's question. I think you didn't really respond. What is the potential impact of Sberbank and Mail JV you think on Taxi.

I'm sorry, I guess I dint hear that question. I wasn't trying to avoid it. Look, I think the announced term sheets between Sberbank and mail. I think it's a very positive development. I think in terms of food delivery competition. I think the market is very much nascent today, right. There is very little usage that occurs today for a typical Russian consumer for food delivery. And the fact that this market is still nascent is proved by the fact that we saw our share of this market grow from zero percent right 18 months ago, to around 50% today. So we were able to come into the market and take 50% of the market in 18 months. And I think we did this extremely efficiently from a cost perspective in terms of returns on investment. And I think that the Sberbank and Mail JV will just expand this market. Now, if you look at Taxi. Look, I think we have a great track record on technologies and innovation. And while you can't ignore the importance of capital, as in any competition there are different ways in winning, it's not always about capital. I think competition drives sort of any business forward, it gives consumers more choice. And it hopefully, again, kind of accelerate that shift in terms of expanding the market and substituting car ownership for sharing economy. Our focus is on quality of service, on technology, and on security and safety. And I think in terms of that, we are sort of way ahead of everyone else, and ensuring that both sides of the marketplace feel safe and secure and are happy with our service, which is a very high quality. And finally, I think you can't underestimate the importance of the ecosystem that we bring to bear, which is the fact that all of our products are united under one ecosystem, which is consistent and seamless as you move from one service to the other. So I think we are very excited about the developments in this market. We feel, we have a very strong position and I think we are very excited by the potential for market expansion that this introduces.

Thank you.

Thank you. And your next question comes from the line of Slava Degtyarev of Goldman Sachs. Please go ahead.

Yes. Thanks very much for the call, a couple of questions. How to envisage past of profitability of Taxi, Q2 was quite strong despite weeks seasonality and the ride-hailing, where there any one-off maybe you expect accelerators investments into the self-driving international expansion of the food delivery in the coming quarters? And secondly, the level of investments into the experiments declined quarter-on-quarter, can you elaborate on that? Is there any seasonality here should we expect to pick up in the coming quarters?

Hi, Slava. So profitability of Taxi, as we said, our Taxi segment really encompasses a number of sort of different businesses with different underlying dynamics, you have the ride-sharing business in Russia for the core business, you have our international markets for which we are currently present in 17 other countries outside of Russia. You have food tech business, which includes both food delivery as well as meal kits. And you have the autonomous business, which I think has great promise as Tigran talked about in his prepared remarks. And in Q2, we didn't have any one-offs, but what we did have is sort of very strong operating performance of the core ridesharing business, which was able to offset the investments that we are making in autonomous, in food tech and international expansion. And so, I think that we will continue to make investments, at a pace that we think is appropriate, going forward, and those will obviously be driven by a whole host of things, things like timing, in terms of investments in autonomous, timing in terms of international expansion, and obviously other market dynamics, but we feel that we are in a very strong position with a great technology stack and excellent team. And, I think it's just going to evolve overtime. And then with respect to experiments, also, I think no one-offs. What that shows is the improved unit economics of the Yandex.Drive business. Nice growth that we are seeing in Geo. As I mentioned, their revenues increased pretty dramatically year-on-year. And this has been a consistent story now for a number of quarters. And finally, we are starting to see some very early traction cloud business. I think as we have said, cloud is a kind of a long-term opportunity that we see, I think we are investing for the long-term with cloud. But we are very excited about it.

Thank you. That is much clear.

Thank you. And your next question comes from the line of Masha Kahn from HSBC. Please go ahead.

Hi, thanks for the opportunity and congrats on the great quarter. I had a question around your food delivery economics, you said they improved significantly? Could you give us a little bit more color around kind of the order density? How much unit - has improved delivery fees? Anything you can give us a color on? And the second question is on drive. Are you seeing the path to profitability there, has that improved, if you could give us some color there as well? And I'm glad if you could provide us a run rate for them that will be great too. Thanks.

Sure. So in terms of improved unit economics in food, they definitely improved. What we saw is we saw improved revenue growth. So we grew 13%, quarter-on-quarter in Q2. And sort of the run rate of our each Eats excluding new Meal Kits is now RUB 3.3 billion as of June, which I think is a very nice improvement. What else can I say about it? We are seeing definitely benefits from higher density. We are also seeing benefits from adding more QSR onto the platform. As you recall, we had McDonalds on the platform historically, we have recently added Burger King, to the platform and we have also recently added Subway to the platform. And we currently have 11,000 restaurants on the platform, and we are in 24 cities, primarily with an own delivery model. So I think from a food delivery standpoint, I think we feel really, really good about where we are. Turning to the Drive business, and tactic profitability, we definitely see a profitability in this business. We saw very good trends in unit economics there. And based on those trends that we are seeing. We are looking to accelerate the pace of our investments there.

And, Greg, can you comment on Zen as well?

I'm sorry. Yes. On Zen, what we saw is that we have a revenue run rate of RUB 6.9 billion based on Q2 numbers. And the revenues grew 63% year-on-year. In terms of Mao and Dow. Currently, Dow is 10.6 million and Mao - one second, Katya is pulling it up. She will get back to you on the Mao number.

Okay. It’s just great. Thank you so much.

And your next question comes from the line of Lloyd Walmsley of Deutsche Bank. Please go ahead.

Thanks. Hopping around calls this morning. So sorry, if this has already been asked. But can you just give us a sense for how the ad business is looking kind of into the third quarter? Going back to last quarter, there were some real promising new product, you talked about Yandex.Direct on the homepage and templates. So wondering if you can just help us think about how those products may help, and how a digital environment is shaping up for the second half? And then the second one, if I can. Just on the Taxi business as you push into the regions. Can you talk about how the product is used differently? And then aside from just having to invest to stimulate adoption. Are there any structural differences in unit economics or long-term contribution margins in these markets differently than say Moscow and St. Pete? Thanks.

Sure. Hey Lloyd, so on the ad business, what you missed and I'll kind of repeat it is I think the ad business is in good shape. I think while the environment is a bit softer overall, it's in good shape. And what we expect is that we expect revenue growth to be a fairly flat from a two year stack perspective throughout the year. We saw weakness in May, due to the long May holidays, and in May, our Search and Portal businesses grew only 17%. And now we are sort of in the low to mid-20s in July. So I would say overall, the environment is okay, a bit softer than before, but okay, and we feel confident that we will be able to deliver sort of a constant to your stack over the course of the year. And obviously, things like templates that you talked about, or big correction, are all the things that helped drive that for us as a company. On Taxi and regions. So the main difference obviously is that the average checks are lower, frequency is a little bit higher. Net-net, you are probably making less rubles per ride. But overall, I'd say from an LTV standpoint, they are more or less comfortable.

Got it? Thank you.

And Tigran is going to add a few more observations on that market.

So the significant difference between what we see into capitals and in Russian regions that the quality of public transportation is significantly lower. So, even there are some cities when you cannot find a bus after 10 p.m. So that is why in some cities, ride-sharing is a key part of transportation in the city, and this apparently that drives the frequency of the users in the city.

Okay. Thank you.

Thank you. And your next question comes from the line of Miriam Adisa of Morgan Stanley. Please go ahead.

Two questions for me. Firstly, especially on Taxi with the ride growth being 50% which is the first quarter that we have seen a proper like for like growth. Could you talk about what we should expect for the rest of the year? And what is essentially a normalized level of growth for Taxi now? How fast you are growing in market in Petersburg versus region? And then secondly, on the media services business, could you talk a bit more about the drivers behind the acceleration in n growth there? You mentioned the uplifting use of subscriptions and you also mentioned perhaps the number of subs on Yandex.Plus as well and any other drivers of growth there? Thank you.

Hey, Miriam, it's Greg again. On Taxi ride growth. Yes, so we saw rides growth of 49% in Q2 of 2019. And I think the interesting thing is if you looked at Q1 of 2019 on a like for like basis, it’s essentially adding an Uber on a full-year basis in Q1 of 2018, you would have seen 53% growth in rides in Q1. So about four points of deceleration from Q1 to Q2 on a like for like basis. In terms of sort of our expectations going forward, we do expect that the rate of growth is going to slow down somewhat, but at a modest pace were similar to what you have seen thus far in the year if you did on a like for like basis. And then in terms of drivers of growth for media services. Certainly it has been the rollout of Yandex.Plus subscription, which is going quite well, which unifies our ecosystem together. It offers a bunch of benefits to consumers from streaming music to streaming video with KinoPoisk to discounts on Taxi and on Drive, and other benefits such as free shipping in Peru for free online Cloud storage with the Yandex.Disk. And finally, we have also kind of rolled out a co-branded debit and credit card offerings with Tinkoff Bank and Alfa Bank. So those Yandex.Plus co-branded cards are also driving additional subscription and usage of all of our products.

Okay. Thank you.

Thank you.

And your next question comes from the line of Sebastian Patulea of Jefferies. Please go ahead.

Good morning everyone, thank you for taking my question. I have got three please. First one is regarding Yandex.Taxi. And as reported in the media that you are reviewing ride prices for consumers and increasing the commission for driver business in some regions, which we also see in the numbers today. How likely is it that the overnight emergence of a large one billion capitalized competitor will stop you from rising prices? As we have seen in other markets this time, online ride-hailing players are running on 10% commissions, and still struggling to gain market share from the 25% to 30% commission guide? That will be the first one. The second one is still regarding Taxi. Sberbank is highly incentivized economically to make the Mail RU entity [indiscernible] JV work. However, Sberbank’s CEO is also on your Board and sometimes is not actively taking part at least over healing some strategy discussions and learning Yandex.Taxi. How will this relationship work? And lastly, can you please segment device growth according to growth due to new city expansion and growth coming from existing markets. Thank you very much.

Hey Sebastian. So I would say on Yandex.Taxi, the way to think about pricing is, as I said many times before. Our ultimate focus is on getting consumers to abandon car ownership, and shift their sharing economy. So we are not interested in increasing prices, if anything else. What we would like to do is make ride-sharing more affordable for our consumers, while at the same time delivering fair wages, if you will, fair earnings to our driver partners, which we think is extremely important. And that kind of is a out flow of the efficiencies that we build into our technology platform. In fact, if you looked at pricing, since the Uber combination, they have been constant, right, constant since the combination with Uber closed, which is pretty remarkable, I think, right. You would think that, here, there is a massive price increase and the landscape is going to completely change. But the reality is, we want to make rides more affordable while delivering fair earnings to our drivers. In terms of conflicts, as you can imagine, there is always times when you will have conflicts of interest on the board. And in those instances, what you have is you expect to have Board members recuse themselves from discussions around sensitive topics. And I think our case is no exception. And finally, with respect to growth of new markets versus existing markets, both are contributor, but we are continuing to see very, very strong growth in our core markets.

Thank you very much.

Thank you.

Thank you. Your next question comes from the line of Vladimir Bespalov of VTB Capital. Please go ahead.

Hello, congratulations on good numbers. And thank you for taking my questions. First, a very technical one, could you provide the growth rate for Taxi growth revenues in the second quarter? Then the second is also pretty technical. Could you please comment a little bit on the slowdown that we see in your advertising network revenues? What happened in the second quarter? And was it one-off? And one more technical on the classifieds business. We see a good improvement in the margin of this business, but my assumption was to your comments before, where that you reinvest all returns into the development of this business? So how should we look at this 20% if the margin that you recorded in the second quarter going forward? Plus one more other question on the headquarters. I just want to ask you, do you have a plan B, because the current lease expires in 2021. And it looks like you haven't started duty and you want. So what will be the solution if you fail to complete a new headquarters before the end of 2021? Thank you.

Hi, Vladimir. So on ad network trends, I think that overall it's the same impact driving the ad network is driving the Search and Portal business overall. So there isn't anything specific with respect to the ad network business there, which is different from the rest of the Search and Portal business. With respect to classifieds, we are seeing obviously, very, very good growth in that business on the advertising side, kind of the core business and classifies as we said in the prepared remarks. Growth is excellent. We do expect to continue to invest in the classifieds business and what we see is we are taking, continuing to take significant share from other players in the market. And our plan is to continue to do so going forward into the second half of this year and into 2020, and so on. Because we just feel like really good about the business that we have there. I think we kind of cracked the puzzle there. Finally, with respect to Korston or alternatives and plan B's for our facilities. We are certainly working on alternatives and we are looking at other sites that we are planning, potentially to lease to kind of hold us over in the interim period. If we are not able to start construction appropriately. In fact, we are looking at plans B, C, D, and E, so, that is kind of under control. And finally, I think on your question about a gross commission revenue. In Q2, we saw gross commission revenue, which kind of exceeded rides growth by about 10 percentage points.

Thank you very much.

Thank you. The next question comes from the line of Catherine O'Neill of Citi. Please go ahead. Catherine O’Neill: Thank you. Hi, a couple of questions. One which is going back to the cloud business which you seem to be very enthusiastic about. So I just wondered if you could talk about the competitive landscape in cloud and perhaps a bit more detail about how you see that opportunity evolving and the revenue model there? And then on the on the Taxi business, you mentioned you are in 17 other markets, are there any particular markets where you are seeing the most potential and do you have ambitions to push in to anymore or are you spacing down what you have right now?

Hey Catherine. On the cloud market. In terms of the competitive landscape, I'd say, sort of we are the clear leaders from a technology standpoint in this market. Obviously, you have players like Microsoft and Amazon, who are much further along. But currently, they are not offering products here in Russia. The reason that we are excited about this business is that we believe in the underlying trends that drive people to move their test and development, as well as their production systems from on-premise setup to a cloud based setup. Because we can do that much more efficiently than any enterprise. If we look at the data center footprint that we have, we are probably the only player in Russia with web scale data centers able to accommodate loads of almost any size. And I think, the ability to take technology that was developed for Yandex' own services, where we serve 0.25 billion queries per day, in real time without downtime, and being able to offer similar technologies to our consumers, is what makes us excited about it. And that market may develop slower than it has developed in the U.S. or Europe but it will develop. it's just a question of when not if and the pace of the transition. And then with respect to markets that we are excited about outside of Russia. The service is doing very well in places like Kazakhstan, Uzbekistan, and it's doing very well in places like Africa. So there is a lot of a lot of opportunity there. It's doing really well in Israel, it's doing really well and in Romania. So there is definitely potential for Yandex.Taxi outside of just our core Russian market. Catherine O’Neill: Thank you very much.

Thank you. Your next question comes from the line of Vladimir Bespalov of VTB Capital. Please go ahead.

Yes. thank you very much for the opportunity, congratulations to the result. Just a quick question. One of your competitor stated that they have a veto right on the innovation to Taxi, the veto right on disposal the Vezet assets. So they consider this is at risk for completion of the deal with Vezet? Thank you.

Hi, this is Vadim speaking. Let me take you this one. So look, I think we previously stated that we do not believe it is appropriate for us to comment on the relation between the other two companies. What we can say is that in their official statement Vezet has already said that it does not violate the terms of the convertible loan and intends to comply with the agreement with Mao Data Group.

Thank you. And you do have a follow-up from the line of Ulyana Lenvalskaya of UBS. Please go ahead.

Thank you, hi again. My follow-up will be on regulatory environment in Taxi segment. We are seeing some news and discussion locally before Do you have any view how the environment is evolving?

Hello Ulyana, thanks for the question. May I take it, this is Tigran. So there are constant conversations around the world around various approaches to regulation on the newly created ride-sharing businesses in the world. And we believe that there are three fundamental things that are important for all the stakeholders. Number one is earnings for drivers, drivers need to earn sufficient amount to support themselves, their families. Number two is safety and security on the platform, which means monitoring fatigued, driving styles, numbers of hours of works, making sure that aggressive passengers, aggressive drivers are removed from the platform. And number three, the affordability of these platforms for our customers. We do believe that there is a fundamental shift taking place around the world where are people moving from car ownership to showing the economy as Greg several times mentioned today. And these services are already considerably cheaper than car ownership. And it will become even more affordable as people continue to shift to sharing economy. So we are working along all these redirections and discussing that with regulators to ensure that we create a stable sustainable and profitable business model.

Okay. And if I may another one on Taxi, like more strategic one. Can you comment on logic on the market selection when you go somewhere internationally? Like, I understand the benefit of having ecosystem in Russian-speaking communities of people knowing Yandex. But how do you decide on other like completely new markets and what is the competitive advantage of Yandex there?

Yes, thank you for question. It's again Tigran. So I think it’s more or less obvious how that we are market leader on all serious countries today and of course, so it is the problem with the - hard is the biggest question how to choose the next countries. So our way, how we are thinking here, is the following. We have two key competitive advantages. First is technologies, which we have in ride-sharing. The second is the Yandex.Maps, so we are able to draw local Yandex.Map who are able to have our own mapping routing in country. And the third quality of the countries also which we imported these competitive landscape there. So when for example the countries that we choose before we think that all our [Technical Difficulty]. Yes. Sorry, something wrong with connection. I took another phone. Do you hear me?

Yes, we do now.

We can hear you, sir. Please go ahead.

Sorry again. So all that together, our Yandex.Maps technologies, navigation, improved efficiency on market. And so we are choosing countries when the impact could be significant and of course competitive landscape is important.

Okay thank you. And technically just to confirm all the international expansion is within Taxi business, which is owned together with Uber, right?

Yes.

Yes. You are right.

Okay. Thank you.

Thank you. That was your last question. I will now hand the conference back to Katya Zhukova for closing remarks. Please go ahead.

First of all, I wanted to follow-up on Masha Kahn's question about the Zen's monthly audience. It was 46 million users in June. All-in-all, we asked very grateful that you joined our call today. We are looking forward to follow-up with you either in person or by phone or on our Q3 call in October. Good bye.

Thank you, ladies and gentlemen. That does conclude your conference for today. Thank you for participating and you may now disconnect.