Nebius Group N.V. (NBIS) Q1 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the first quarter 2020 financial results. At this time all participants are in a listen-only mode, there would be a presentation followed by question and answer session. [Operator Instructions] I would like to also advise you the call is being recorded today, Tuesday the 28, April, 2020. I would now like to hand the conference over to the Head of Investor Relations, Yulia Gerasimova. Please go ahead.

Hello, everyone, and welcome to Yandex First Quarter 2020 Earnings Call. We distributed our earnings release earlier today. You can find a copy on our IR website as well as in Newswire services. On the call today we have Tigran Khudaverdyan, our Deputy Chief Executive Officer; Daniil Shuleyko, our Chief Executive Officer of Yandex.Taxi; and Greg Abovsky, our Chief Operating and Chief Financial Officer. Arkady Volozh, our Found and Chief Executive Officer; Vadim Marchuk, our VP of Corporate Development and Yevgeny Senderov, Chief Financial Officer of Yandex, Taxi will be available in the Q&A session. The call will be recorded and the recording will be available on the IR website in few hours, As usual, we prepared a few supplementary slides, which are currently available on the website. Now, I will quickly walk you through the Safe Harbor Statement. Various remarks that we make during this call about our future expectations, plans and prospects constitute Forward-Looking Statements. Our actual results may differ materially from those indicated or suggested by these forward-looking statements as a result of various important factors, including the impact of the ongoing COVID-19 pandemic as well as those described in the Risk Factors section of our annual report on Form 20-F dated April, 2, 2020, 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 the call, we will be referring to certain non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with U.S. GAAP. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is provided in the earnings release we issued today. And now I'm turning the call over to Tigran.

Thank you, Yula. And thank you for joining our call today. The first quarter started well for us. All of our businesses demonstrated solid performance up until mid-March when we started to see an adverse impact from COVID outbreak. Since then, our top priority has been the well being of our staff, our partners and our users. While some of our businesses such as advertising and ride-hailing have been significantly hit by this social distancing measures introduced by the authorities. The demand for FoodTech, e-commerce, education and Media Services has materially increased. Let me turn to a brief overview in Q1 trend before we discuss our COVID related initiatives. Search and portal segment was growing well ahead of our internal expectations in January and February. Importantly, we enjoyed very strong search share gains both on mobile and desktop. In March, we reached a record 55.9% share on android, growing 130 basis points from December and 430 bps from March 2019. Our overall share continue to grow strongly and approached 60% in April. Search growth has materially accelerated in April to 40%, 45% year-on-year from single-digit in the end of February. Importantly, the key driver for these was a growth of young up to 24-years old. Its share in search traffic increased by 28% compared to February while the share of school children increased by 56%, the traffic of school audience itself almost doubled for the same period. In Q1 our mobile search traffic was 59% of our total search traffic. Mobile revenues represented 50.4% of our service revenues, it was the first quarter with mobile service revenues exceeding that of desktop. Turning to Zen. We continue to see strong user growth with 14.6 million daily active users in March, while in April Zen daily active users increased further to over 16 million users in terms of engagement total times spend grew 56% year-over-year in March, while in April growth has accelerated to almost 90%. In media services the total numbers of subscribers reached 4.3 million in March and continue to grow further in April. The number of monthly viewing on the KinoPoisk AG platform has exceeded 1.5 million. Now let me walk you through our key action points in response to the COVID outbreak. Firstly Yandex is an important source of accurate and reliable information for our users, including all relevant data on COVID. Among numerous public information initiatives, we have introduced, the self evolution real-time index available on the Yandex main page. This index shows the degree of social distancing in different cities by comparing anonymous data on urban activity against, a normalized date before the pandemic. The index is currently available in 507 cities in Russia as well as eight other countries. Secondly our platforms such Yandex.Taxi, Yandex.Eats or Yandex. Lavka provide earning for hundreds of thousands of drivers and couriers. For example, we have invested significantly in expanding delivery service as well as our food delivery platforms. Third distance learning. We launched Yandex School as a platform combining all of our new and existing educational projects including a full scale online school for five to 11 grades in 15 different subjects. In April, Yandex, Textbook's daily active users increased eight times compared to mid-March and exceeded one million users. And last but not least our social initiatives helping camp with these products, we transferred doctors and deliver medicines, provides Corona Virus testing kites and distributed essential goods. We have contributed RUB250 million for this project. Overall, we have committed to around RUB1.5 billion across various initiatives including support fund for taxi drivers and couriers, advertising credits to small and medium businesses and our educational efforts. The full list of measures and initiatives is much longer. Our old teams are working really hard introducing new features and services. Frankly, I think we have never seen initiatives and improvements being implemented at such a rapid pace. Looking beyond the pandemic our key priorities to ensure sustainable long-term growth and I belief that we will emerge from this crisis stronger than ever. The current downturn coupled with the change in consumer behavior provides us with a number of attractive long-term opportunities across many verticals. In our core advertising business we expect to benefit from accelerating shifts from traditional advertising to online, higher consumption of streaming video in media services and digital content in Zen. At corporate, we are seeing operating models to include more remote works to narrow it will benefit from faster adoption of cloud services. There are also a lot of attractive opportunities in ride-hailing and FoodTech. And with these, I'm turning the mike over to the Daniil.

Thank you Tigran and Hello everyone. We started the year in Taxi service, solid performance across all our metrics. Rides grew 40% year-over-year in Q1, with January and February growing ahead of our internal projections. We started seeing a slowdown in the second half of March due to spread of COVID-19, while in early March we were doing nearly drives per day towards end of margin number decrease significantly and adversely affected Q1 growth rates. The official lockdown was down in Moscow started March 30, so we will see a much great impact on our business in Q2. In Moscow ride-hailing was affected severely, Moscow GMV has declined approximately 60% year-on-year as of to-date and around 70% compared to early March. Our total ride-hailing GMV declined less than in Moscow as Asians are typically a few weeks behind Moscow in terms of COVID-19 impact. We make significant investments to protect drivers and couriers, we have provided hundreds of thousands of masks and few supply of sanitizers and intensified disinfection. We established support a RUB500 million plant to support drivers and couriers who have been effected or currency. The team is working is hard to provide revenue opportunities for drivers including delivers. We provide transportation services to doctors, deliver COVID test and the insets to clinics and senior citizens. We wish a number of partnerships with large hotel companies including [Indiscernible] in order to help them make delivers to the users in timely manner. On the FoodTech front, we have enjoyed significant growth in demand. The inflow of new restaurants for our platform has significantly increased and this is the unfortunate process for U.S. fronts. As of to-date over 20,000 restaurants are connected to our platform in order to support local restaurants really connected to our platform, we eliminated conditions for them. Grocery delivery has become an essential part of people's lives these days, and we have clearly benefited from having our hyper local capability store delivery model. As of to-date, we have over 100 drug stores in Moscow and St. Petersburg from which our accrual delivers 10 million to 15 million despite the significant growth in demand. Recently we expanded extended the severance coverage by connected taxi drivers to Lavka. Now it is available to approximately two-thirds of the Moscow population and over half of the people n St. Petersburg. So far, the number of users of our FoodTech service grew 73% compared to early March and this is 130% increase year-on-year. The recently lunched super app has contributed to this growth, and In recent days, Lavka exceeded [indiscernible] of its orders from Supera. All-in-all, we see multiple opportunities down the road, the crises clearly demonstrate that we are one of the most unique companies in the world is the unravel combination of logistics, technology and supply of drivers and courier to instantly become an essential part of people's lives. With this, I’m turning to mike over to Greg who will walk you through the financial.

Thank you, Daniil and thank you all for joining our first quarter earnings call today. You have seen the press release with all our three financial numbers, so I won’t be repeating them, instead let me focus in the performance and current trends across our business. Search and Portal. Search and Portal delivered solid results despite tough comps and the COVID-19 impact starting from mid-March. Revenue ex-TAC increased 14% while adjusted EBITDA margin came to 48.7%, up 130 basis points year-over-year. Given the strictly enforced lockdown policies across the country and its impact on business activity. Our ex-TAC Search and Portal revenues decline in April is in the high teens territory on a month-to-day basis. This was driven by a combination of factors such as decrease in ad budgets, pressure on CPC dynamics and lower share of commercial search queries. Importantly, our search queries in April are growing at fastest pace in five years and clicks growth is accelerating. Dynamic of ex-TAC Search revenue in the last several days has recovered to a high single-digit decline. Sector wise, IT and Telecom, food and grocery delivery, healthcare and home and garden have performed relatively better while travel apparel, real estate and auto are under more pressure. That said, I want to discuss a few things. First of all, declines clearly driven by external factors which are largely outside of our control. Before COVID, our Jan and Feb revenue growth on an ex-TAC basis was in the high teens territory. Secondly, our main goal now is to grow our market share and user base, so that when the economy rebounds we can convert into revenue growth and our progress here is impressive, especially with the younger audience. Overall, the revenue dynamic for the full-year will depend duration and severity of lockdown measures and the economic impact as well as the speed of the recovery, all of which are hard to predict at this stage. A couple of words about the cost structure of our Search and Portal business. The fixed costs account for around half of the total cash costs in the Search and Portal segment where personnel is the largest component. The variable part includes TAC and cost of sales. Moving to Taxi, Taxi revenues increased by 50% year-on-year, primarily driven by 40% growth in the number of rides, continued optimization of incentives and the ride-hailing business as well as the rapid development of FoodTech services. We have managed to expand our adjusted EBITDA margin excluding self driving cars to 7.6% on the back of improving profitability and ride-hailing offset by our investments in Moscow and the overall weakness that we saw in late March. In ride-hailing variable costs represent approximately two-thirds of our total costs including incentives, while the remaining part is fixed and consists of personnel costs, rent, certain advertising and marketing as well as other operational expenses. We see opportunities to optimize costs including advertising and marketing, supply acquisition costs and certain overheads. In Yandex.Eats, we saw further improvement in the unit economics primarily as a result of increased density of orders. We have continued investment in Lavka while being mindful of the impact of this business on total taxi EBITDA. Turning to other businesses. Media Services demonstrated very strong revenue growth of 95% year-on-year with improved adjusted EBITDA margin both in our year-over-year and quarter-over-quarter basis. In Q1 subscription based revenues of Media Services grew 152% year-on-year and we see strong trends continue in April. We are investing in the business as planned and are focusing from the retention of new users. Our Classifieds revenue increased 35% in Q1, the growth in the first two months was very strong. However, we saw materials slow down in late March after all auto dealerships were ordered to close, which obviously has a very meaningful impact on this business unit. While the pressure on classifieds revenue continued in April, the traffic in our platform remains solid. We see the formation of deferred demand, which we are planning to monetize as soon as the business activity starts to rebound. Finally, onto other bets and experiments. Our revenue is almost doubled year-over-year driven by the growth of Yandex.Drive, Geo and Zen. Yandex.Drive Cloud and Geo were also the key drivers of our adjusted EBITDA loss of RUB1.9 billion. As Tigran mentioned, Zen continues to perform strongly in April, while our car sharing business has taken a hit, especially after car sharing services were suspended in Moscow and St. Petersburg on April, 13th. With Yandex.Drive, we are now focusing on optimizing our lease agreements and the size of the fleet in order to reduce the burn rate. Guidance. Given a difficulty in predicting how long the pandemic will persist, and certainty about its effects in the economy and our businesses, we are unable at this time to reliably quantify the impact of the COVID-19 outbreak on our future financial results. As such, we are withdrawing our 2020 guidance, which we provided on February 14, 2020. Now, what are we doing to mitigate the COVID-19 impacts in our performance? We developed various stress tests that help us to define priorities. And these priorities include investments and businesses with increased activity and higher social importance in the current environment as well as strategic projects to strengthen the Company's position in the long-term. After on-boarding around 1300 new employees in 2019, and another 233 people in Q1 2020, we have decided to slowdown the pace of hiring, given the current circumstances. Partially this is because of the difficulties of integrating and training new people while we all work remotely. But we also want to ensure that we are appropriately sized when coming into 2021. That being said, we may continue adding headcount in certain limited strategic areas and look for opportunities to redeploy our personnel resources to support in-demand functions, and our strategic priorities. We have also made the decision to forfeit cash bonuses for top management in 2020. On top of that, top management has accepted a voluntary pay cut. We are cutting non-essential marketing expenses, and exercising rigorous control of our overheads. We believe these initiatives will help us to reduce the adverse impact of the pandemic and the macro headwinds on our 2020 EBITDA. In conclusion, I wanted to remind you that our balance sheet is strong. We currently have 2.5 billion in cash, including 390 million on the taxi balance sheet. More than two-thirds of this cash is in U.S. dollars. All of our debt is long-term and matures in 2025. We are confident that our strong liquidity position will help us to withstand the challenge of the current situation, while also providing us with flexibility to continue investing into long-term strategic projects. With this, I'm turning the mike to the operator for the Q&A session.

Thank you very much. [Operator Instructions] The first question that we have today comes from the line Cesar Tiron from Bank of America. Please go ahead.

Yes. Hi, everyone. Thanks for the call and thanks for the opportunity to ask questions. So I have two, I will just have the first one, just wanted to check if you could explain the significant increase in market share over the past couple of weeks, I think the last you have reported abandoned market share about 69%. What is the key driver and do you see market share to be increasing? Even resolve the health of regulations. Thank you so much.

Hi, Cesar. It's Greg. you hear me?

Yes.

Perfect. So I think the main drivers for the growth of market share is just that we have become, the defector standard for getting a lot of knowledge and information about Corona virus as well as providing a lot of various options for entertainment and things like that. We have launched a number of initiatives, that give people a lot more information about it. And I think relative to our competition, the breadth of information is much richer and much more tailored to the local content context. Things that we launched around education and et cetera are also important in terms of driving the younger audience as we talked about in the prepared remarks. And so the younger audience, which historically has kind of probably skewed away from us towards the competition has now shifted their usage onto the Yandex, which is great. And remember, installation, did not have any impact on this market share gains. All of these, market share gains are organic and driven by the quality by search product and the totality of our platform. The installation has now been postponed to January, 2021 and so hopefully we will have impact on 2021 results. But obviously we're extremely happy by very strong market share gains on android, on desktop, on desktop in fact in April our market share is now in excess of 70%. And our market share on android in April is 56%. All of these are, I think are quite impressive metrics. Thank you.

Greg, can I please ask just another one, just wanted to check what is the impact of the shutdown of drive, which I understand is for a better reasons on the 2Q experiments, is it as simple as assuming there is no revenue, but you still would have to pay for leasing of cars? Or how is it going to work? Thank you.

That is a great question. So we have been able to renegotiate our leasing contract to essentially offset the effects of the shutdown of the Yandex. Drive and other car sharing companies in Moscow. As a result of that, you are absolutely right that we will not have the revenue to go with, but also our cost base will be significantly reduced. I think it is too early to quantify exactly the impact, but we feel relatively comfortable about this not being just a total black hole into which money will disappear. On top of that, I think we talked about in the last quarterly call, we have already taken steps to optimize the size of the fleet to align better with the demand for the service. And I think generally we will still lose money in the Yandex.Drive segment in Q2, it is not like we were able to completely defer all of our lease payments, but it will not be the black hole that I mentioned.

Thank you so much, very helpful. Thank you.

Thank you very much. The next question today comes from Ulyana Lenvalskaya from UBS. Please go ahead.

Hi everyone, thanks a lot for the presentation. My first question will be on the core business. Could you please provide more color on the categories and the performance inside advertising, particularly at what sectors are driving this recovery you have mentioned over the past couple of days, and if you can disclose what is the contribution of actual revenues at the moment?

Sure Ulyana. It is Greg, let me try to answer those. So I will take your second question first, just because it is easy, our SMBs represent approximately half of our advertising revenues. And what is interesting is over the last a few weeks, we actually don't see any meaningful difference in the performance of SMB segment compared to the large enterprise segment within the advertising business. The important thing to keep in mind is that for SMBs, Yandex, Yandex Search, Yandex Advertising Network represents oftentimes the only sales channel that these businesses have. And, as we have seen in previous economic contractions, this is the last thing that people turn up. Hopefully that answers the second part of the question. Onto the first part of the question. You know across categories, what I said in the prepared remarks is obviously we are seeing strength in sectors like IT, telecom, e-com, home and garden, what is under pressure is things you would expect, things such as travel, things such as auto. Remember, auto dealerships have been ordered a shutdown, I think almost a month ago. So as you would expect advertising there has declined pretty precipitately. Apparel has been another again, not a huge surprise. Another category that has been under pressure. In terms of what we are seeing in terms of trends and what is leading us to actually see potentially see green shoots. As I have said performance over the course of April, has been tracking up into the right from the initial shock. We are seeing better performance out of finance insurance, we are seeing better performance at our home and garden. We are seeing better performance B2B. What is basically flat lined at almost disappeared is a category just travel. Eating out as a category has basically flat, it is not getting worse, but it is not improving. Things like healthcare is improving, IT and telecoms is improving. Building and repair services are slightly improved. Hopefully that's enough color.

Great. Thank you. And the second question will be on Taxi. The GMV trend you have provided is quite useful. But could you first comment on the take rates in particularly in transit how that is changing in Moscow across the business.

I will let Daniel take that one.

So again it is Daniil. let's go ahead. Look our gross take rate a significantly below our global peers right now. For example our blended effective take rate in Q1 was below10%. The paid assessment, show part of our growth commission to drivers in the form of different types of incentives. Overall in 2019 earnings partners of our ride-hailing platform totaled to RUB250 billion while in Q1 it was approximately RUB75 billion. Our main priorities to-date is to make sure that hundreds of thousands of drivers in periods, earning on our platform, feel safe while also doing everything we can to provide them additional income opportunities. So we are investing hundreds of millions of rubles in this effort, and this is just a part of what we are doing overall to support our drivers. Our team has also been working extremely hard to find new way and provide drivers with additional rights. So we create and launching new services, as I mentioned before, we launched a different type of partnership with big [indiscernible]. Also just a couple of hours ago we announced our new partnership with [Azone] (Ph) for their last-mile delivery and we believe this is another big thing for us. So right now they are delivering test medical profession on a different bunch of everything and for financial terms, if you look at everything that we are going together, it goes beyond that what the impact of revolution of commission. We believe that creates new income opportunities is much, much more effective and sustainable way to support our drivers and society rather than just simply reducing the commission.

Thank you.

Thank you very much. The next question today comes from the line of Vyacheslav Degtyarev from Goldman Sachs.

Yes, thank you very much for the call. The first question is on search margins. They were quite strong in Q1, I’m wondering how much of that was affected by the one of factors if any or if there is any elements that will be Q4 margin weakness and basically how sustainable are those margins would be if there was no COVID impact for the full-year?

Hey, Vyacheslav, it is Greg. Let me try to take that. So, in terms of one offs, obviously the decision that top management has made to forego cash bonuses as well as to voluntarily cut their salaries will have an impact, a positive impact on margins throughout the year as you obviously start to accrue for them from January 1st. The other positive impact is on the back of CAC and this is some distribution tax specifically. And if you remember, this is something that we talked about on the Q4 earnings call where we said we expect to see benefits from distribution tab in 2020 and you are starting to see that come through. Other things that we will be offsetting that will be investments and things like content and so on, both within the Search Portal segment. Remember, we have content in the Search Portal as well, where we show videos in Yandex Live service. With respect to margins overall, I think it's just very much a function of revenues and they are very hard to predict at this point. And obviously we're trying to do everything we can to reprioritize projects to cut costs where we think it is prudent to do so. And to reallocate our investments towards things that we think we have the highest returns for our shareholders.

Okay. Thanks for that. And second for me, can you describe competitive strengths across different business units? Maybe you have observed any market share opportunities across certain sub segments? And generally, would you envisage the crisis to create such opportunities? Can you elaborate on that please?

Sure, Vyacheslav. I think, I hope it will prove to be a real blessing in disguise. We are seeing incredible strength in terms of gaining share in just about every vertical, which we compete. We gain share and ride sharing in Q1. We have done very well in food delivery. We have had a lot of success with our hyper-local grocery initiative, Yandex.Lavka. And we have also gained considerable share in search, as I talked about, and then if you look at something like the news feed product Yandex.Zen, clearly, that is growing incredibly strongly. And last week we were teasing with 17 million daily average users, which was up quite a lot since December. And the trends there really strong. So I think while obviously it is hard to predict how everything will shake out, we will certainly face headwinds with respect to advertising revenue. And other things. I think that this crisis will really demonstrate the strength of the platform that we have built.

Okay. Thanks very much.

Thank you very much. We seem to have lost the Q&A queue. [Operator Instructions] I will hook up the line of Vladimir Bespalov from VTB Capital. Please go ahead.

Hello, congratulations on the number and thank you for taking my questions. First of all, I want to ask you, what is the revenue run rate was then, in March usually you provided numbers. And I would like also to maybe clarify on the advertising trends, correct me if I'm wrong. But as far as I understand, you mentioned that you see some improvements in clicks. But what about pricing? And so what about the general revenue trend? If we look at the April situation, how it develops, right now? Thank you.

Hey Vladimir. So Zen run rate was down a bit compared to December, the annual revenue run rate was around RUB8 billion in March, compared to RUB8.8 billion in December. And that is obviously on the back of the impact from COVID-19. While the engagement trends have been extremely solid, total time stamp was up 56% in March, and in April, this growth accelerated to 90%. And then, people are spending in April almost 13 million hours per day with Yandex.Zen and then with respect to clicks, and CPC. Obviously, what we're seeing is that while peak clicks growth is rapid CPC did decline. And that trend will likely continue with CPCs, which is just the result of overall advertising, being weaker this year than it was last year. And having kind of a full month impact of that as opposed to just the two weeks that we saw in Q1or so. But what is important to keep in mind is that I think today search is barn on the highest ROI platform for advertisers. And as a result of that, the trends that we are seeing in search, which is recovering faster than other forms of advertising, I think is what is driving that. It is the highest ROI platform for advertisers, both form large enterprise clients as well as suppressed SMBs. That is why they keep turning to it.

Okay. Thank you very much. But you couldn't call them from the revenue plan price at the moment. That is not clear for advertising.

Well, it is just what I have said in the prepared remarks, which is in April overall advertising, saw a high teens decline. And then if you look at the last few weeks, the decline, especially in search has now been reduced to high single digit decline. In fact, there are some days when we are seeing flattish to slightly positive advertising trends on search in April.

Okay. Thanks a lot. One more question on the life saving business. The partnerships that you have currently with many retailers, let us say eCommerce, split and things like this. Are these partnerships and business models built on this partnership, sustainable for the development of this business going forward. After the lockdown period is over. Do you see like fresh opportunities and what is the stability on this business and maybe potential if not the current one. Thank you.

Hi Vladimir it is Daniil. So look, we see that the trends overall will change, as well as the people buy online much more often than it was before. That is why we believe that this is sustainable business model for us in the go forward perspective. For example, we are right now optimizing our cost structure for the delivery to you know in some cases choice number one in terms of cost perspective for the company with whom we signed the partnership deals.

Thank you very much.

Thank you very much. The next question today comes from the line of Miriam Adisa from Morgan Stanley. Please go ahead.

Hi, thank you for the call. Greg, during on what you just said now about Search being the highest ROI platform advertisers, just wondering how you are thinking about Search growth avenue that have locked down and seem to a recession. There is a lot of talk that digital could decline this year for the first time. Would you agree with that assessment and how are you thinking about how such growth in a recessionary environment compared to 2015, because obviously now is the high share of market, so just wondering how you are thinking about how the business performed in that environment.

Hi, Miriam. I wish I had a crystal ball. I don't, I don't know how digital advertising would perform. I think it is certainly possible that digital advertising will be down in 2020, but first of all digital advertising still offers one of the highest ROI opportunities for advertisers. I think that advertisers will keep turning to it ahead of other forms of advertising. Now, obviously this crisis is different from 2009. It is different from 2015. Digital is much larger as a percentage of total pie. So there is not a secular tailwind, as much of a secular tailwind behind it. Plus you will have the combination of COVID and GDP contraction from lower oil prices and weaker ruble. And so, all we are trying to do and all we are focusing on is delivering high ROI to our advertisers, delivering quick high quality clicks to our advertisers, developing new ad formats for advertisers and getting them the best tools that we can to go after their audiences. Now, whether or not search will be down or not, too early to tell whether or not digital advertising will be down, too early to tell, but we are certainly modeling all sorts of scenarios. And so when we do run various simulations and scenarios, we do think that it is possible for it to be down.

Okay that is clear, thank you. And then my second question just on the taxi margin for the core ride-hailing and food delivery. And I just want to know how we should think about the sequential margins progression in the second quarter given I guess you have a larger impact from that stuff.

Hi Miriam, its Yevgeny. So let's talk about ride-hailing first. In Q1 we had very solid growth, but going forward, our base case scenario sort of assumes the peak of decline and rise in the second quarter. And again, I also don't have a crystal ball like Greg, but we see some gradual recovery in the third and fourth quarter. As we mentioned earlier in ride-hailing variable costs, two-thirds of our total costs including incentives. And in terms of fixed expenses, when we are looking at our business in the next quarter and through the rest of the year, we have made significant cost cuts primarily in advertising and marketing, but also in the supply acquisition costs and certain other operational costs. And we are de-prioritizing or deferring certain projects, that are not essential at this point. Obviously we will have significant additional costs related to the pandemic, including our RUB500 million fund to support drivers and also expenses related to the purchase of various masks and disinfectants, costs related to the transport of medical personnel and COVID tests that we are doing. And also support to new restaurants where we are waiting commissions to new restaurants that didn’t have certain initiatives. So it is difficult to make any projections at this point, but for play around with numbers, in case we have a 60% year-over-year decline and ride-hailing GV in the second quarter, most likely we will post an EBITDA loss in ride-hailing that particular quarter. In case our consolidated ride-hailing GV is down 40% in the second quarter, I think we are going to be breakeven with the current cost structure. And that Is a cost structure that is geared to rapid recovery and regaining the volumes post quarantine. So if we compare second and a half of 2020 to the first half, we expect our right hailing business to be profitable on an annual basis. And if you look at Taxi overall, of course it will - overall kind of results will depend on our investments in self driving cars in the rapidly growing FoodTech business. So we continue to invest aggressively in our each business. We see some improvement in unit economics and it is a area of focus for us unit economics of these business. So, for the year we expect a significant improvement in EBITDA loss margin of our Yandex Eats towards the end of the year. And Lavka, our hyper-local delivery business is an investment stage. We have grown Lavka significantly from 50 stores at the end of last year to over 100 stores currently, as already was mentioned I think, but our average daily orders grew 350% versus December of last year. And GMV grew in this year 550%. And when it comes to Lavka, we will continue evaluating growth opportunities and sort of the intensity of investments will be a function of our success in the format for the rest of the year. And we will continue to invest in as we see, because we believe it is a strategically important area of investment for us, for the Company. And the one thing I would like to mention was already mentioned but to highlight that we have a very strong balance sheet. We have $393 million, most of it is actually in U.S. dollars. So we think we are in great shape to go through the current situation and very well positioned to continue growth once we are pushed pass that.

That is great. Thank you.

Thank you very much. The next question today comes from the line of Sebastian Patulea from Jefferies. Please go ahead.

Hello, everyone, and thank you for allowing to ask questions. So I like two please. Firstly, it appears that the information users are turning away from small smartphone screens and more towards larger ones such as laptops and desktop PCs. This is the kind of behavior we are seeing as of April and should we expect some margin seldom from benefits as a result? And secondly, between March and June this year, Yandex will appear in the default search engine selection window in Estonia, Columbia, and Latvia is again column. Can you please talk a bit about the initial results of this action and some of the trends you are seeing here? Thank you very much.

Hi, Sebastian. In terms of the mix of desktop versus mobile devices, I would say it hasn't changed dramatically. I would say the mix has changed a little bit in between the days, right. Where, for example, on weekends, we are seeing slightly more desktops than we ordinarily do. But I would say it is not a huge change. So I wouldn't build into the models a huge impact from one way or the other. And if you look at where we are tracked in terms of the percentage of search queries, which are coming from mobile, those are still up in Q1, right. In Q4, approximately, 57.5% of our search traffic came from mobile, in Q1 it was 59%. And then with respect to the European Union choice screen that will apply to new devices. So if you recall, this is similar to how it worked with the antitrust element in Russia. It impacts new devices. So it takes quite a long time for amount of devices, which contained the choice screen to actually penetrate into the installed base. So it is something that will take awhile to show up in the data.

Thank you very much.

Thank you.

Thank you very much. Next question today comes from the line of Lloyd Walmsley from Deutsche Bank. Please go ahead.

Well thanks. I guess both for Greg. Greg, I know you don't explicitly break out search versus display anymore, but can you give us a sense for how core search trends look relative to display? And then the second one would just be on the FX move. I think you guys have moved the least volatility off the P&L that is a cash flow statement. But should we expect any changes in personnel costs around the currency weakness given the kind of global competition for talent, anything you can share that would be helpful.

Hey Lloyd. So, you are right that we don't break it out. But I could just give you some color. Display is certainly getting hit much more than contextual advertising and performance advertising, the reason for that is most of the purchasers of display advertising are large enterprises and those tend to react quickest in the most severe form to external events. And so, that was down more than other forms of advertising in Q1, and we expect to get worse in Q2. And then with respect to your second question, just remind me what it was again. I’m sorry.

Did the FX impact to kind of personnel costs or other areas we should be keeping an eye on?

Well, right and then also immigration. So given that most countries are shut down with COVID right now, so far we have not seen any meaningful impact from FX devaluation. The way that effects will impact our P&L are not as great now as they were back during the last crisis. We hope that we have learned some of our lessons then. The impact will come in the cash flow statement where the server purchases are still U.S. dollar denominated and we still need those servers as we continue to invest in our various platforms. So for now, we are reprioritizing our cape and we are attempting to optimize it in such a way such that the ruble denominated amount for aggregate CapEx in 2020 isn't significantly different from our initial budgeting under the previous FX regime.

Okay. Thank you.

Thank you very much. The next question today comes from the line of Anna Kupriyanova from Gazprombank. Please go ahead.

Hello, thank you very much for presentation and opportunity to ask question. My question is kind of regarding your online advertising, as far as I see your costs a share of Yandex purchases, online advertising has declined. It is now about 11%, if different is sustainable. Also, my question is regarding share of Yandex purchases and online advertising, if I can assume that it is going to be on the same level, as we see now in first quarter right here? Thank you.

Hi, Anna. On the TAC front, we certainly do expect that distribution TAC should be a bit of a tailwind. As we talked about in the Q4 earnings call, where we said that we expect that distribution TAC will grow materially slower in 2020 versus 2019. So that kind of answers the question on distribution TAC. On partner TAC. It is still TBD, we are working with our advertising network partners. And we are trying to find what the optimum point is there. But it is certainly possible that will reduce as well. And then, finally, your last question was about - remind me.

It is about share of Yandex growth which is online?

Right. So we are certainly hoping that we will get more traffic and we have certain more revenues out of our properties. We are investing quite a lot into them. I think, the quality of our properties is going up. We are integrating them better into our products. For example, the way we have integrated Zen, I think, much better into the search app, and the Yandex homepage. And so our expectation is that Yandex properties should grow well, and should continue to increase like, as a percentage of total.

Thank you very much. And very quick follow-up question. Are you guys in your buyback of shares any changes since buyback, please update us?

Sure. So you know to-date, we have bought back 4.5 million shares. And we have spent around to half of the $300 million buyback program. Our sort of decision between buybacks and investments in the business sort of whatever brings the highest return to shareholders. And so right now, there is kind of no specific update, but we will be expect that we would be buying shares back from time-to-time at attractive prices that we have done before.

Thank you very much.

Thank you.

Thank you very much. The next question is coming from the line of Maria Sukhanova from BCS. Please go ahead.

Yes. Good afternoon. I want to talk about your M&A activity. I wonder now with macro weakness, whether we should expect from you accelerating - activity, especially considering your cash pile on the balance sheet? And also second one, on Lavka, with the boost in orders that you have seen recently. Other indications that are already profitable or something, or you are going to needs to improve further for the locations to become profitable?

Sure, Maria. Yevgeny will answer about Lavka and I will try to answer about M&A activity. So obviously having about $2.5 billion of dry powder is extremely helpful in this environment because it provides us with strategic flexibility to do deals opportunistically. And so we are looking at various assets out there and evaluating them. But it is a question of, how strategic are they, is the price attractive and is this the highest return to our shareholders. Yevgeny maybe can answer some questions on the Lavka.

Yes, Maria, hi. Well, I wouldn't give you an exact number, but yes, we do have locations that are sort of pre overhead, so EBITDA contribution positive, but we are just to point out that not only we are growing the top line at Lavka but we are very focused on improving the margin picture and that is actually improving month-to-month and maybe even week-to-week. So yes our goal is to have of course EBITDA profitable stores and we are seeing significant progress towards that.

Understood. Thanks.

Thank you very much. The next question today comes from Anna Kurbatova from Alfa-Bank. Please go ahead.

Good afternoon. Thank you very much for the presentation. I have, two questions, first of all, while the self driving cars and the media investments, so both projects or business lines are in a active investment stage. So I wonder whether you in current condition tend to stick to your initial investment phase, in self driving cars and media content particular video or you have also mix or are going to make some kinds of budgets adjustments in going forward. The second question is on Yandex market, would be great to understand, to have any indications from you whether you have negotiated with your partner. Also any adjustments in the Yandex market budget for this year. So any transcend developments at the Yandex market? A - Tigran Khudaverdyan Hey it is Tigran, let me take that question about what we see in media services? So on media services side, we are going to continue to invest in content hunting the service. We see that especially during this COVID situation it became significantly more attractive than ever. And this service is one of the beneficiaries of that situation. As this we are still committed to develop this technology. So we more or less planning to continue to increase the size of the fleet and the team size. So independent on how revenues we are going to see for all our business and how station will be by the end of the year, probably we will adjust our plans. But this is long-term investment and we believe that in long-term we will be able to provide full level five sort of running technology.

And then you obviously in media services, I think it has been a great beneficiary of this pandemic. Plus, we have had some content, original content that we develop ourselves, which was released on the platform fairly recently. And it is performing extraordinarily well. And we are very happy with that. And I think that you know media services, as part of this big Yandex plus ecosystem is a very important strategic asset for us. And finally, in the Yandex marketing, again, it is another, massive beneficiary of the tailwind from a pandemic. So we are continuing to invest in e-commerce. And obviously, we are also investing in Yandex.Lavka, which is outside of the joint venture. This was specifically carved out from the joint venture as a hyper-local convenience store model and where we are seeing incredible demand, as I said, sales in Lavka grew about 550% from December to April.

Thank you very much. The last question we have today comes from the line of Vladimir Bespalov from VTB Capital. Please go ahead.

Thank you for taking up my follow-up. Since I would like to ask you about the structural price in your ride-hailing business, how it differs from global peers, if we look at your peers, and whether this structure will be helpful to a fast recovery in life saving, while lockdown, - there just a lifted war or elsewhere. How do you see the situation here? Thank you.

Sure, well, if you actually compare with our global peers, I think first of all, we have a relatively small portion of rights to the airports. So in Moscow, it is mid-single digits and very low single-digits in Russia overall. Of course, I'm talking about three COVID situations. We did not have pool services that are not currently used that are offered by Uber and our competitors. And then just to say know that right now, we had before quarantine restrictions. We had a very rapid growth in usage of our premium tariffs, which are currently restricted. So overall with a small portion of airport rights, return of the premium tariffs , I think we are very well positioned to recover once the lockdown restrictions are withdrawn. And also I want to highlight that is any other business core writers of healing who use the service frequently generate substantial portion of the GMV and once the quarantine restrictions will relax we will see the majority of these writers resumed to their normal usage pattern.

Thank very much. Very helpful.

Thank you very much. And there are no further questions and Yulia would you like to conclude.

Yes, thank you very much. Thank you everyone for joining our call today. If you have any further questions, please contact the IR team, we will be happy to help you and thank you very much. Bye, bye.

Thank you. That does conclude the conference for today. Thank you for participating. You may now disconnect.