Nebius Group NV (NBIS) 2011 Q4 法說會逐字稿

Thank you for standing by and welcome to the fourth quarter and full-year 2011 financial results conference call. At this time all participants are in a listen-only mode. There'll be a presentation followed by a question-and-answer session. (Operator Instructions)

I must advise you that today's conference is being recorded today the 22nd of February 2012. I would now like to hand the conference over to our speaker today, Katya Zhukova. Please go ahead, madam.

Hello everyone, and welcome to Yandex's fourth quarter 2011 earnings call. We distributed our earnings release earlier today. You can find the quarterly press release on the Company's Investor Relations website as well as on newswire services.

Today, we have on the call our CEO Arkady Volozh and our CFO Alexander Shulgin. Ilya Segalovich, our CTO and Dmitry Barsukov, our Director of Corporate Finance, will be available during the Q-and-A session. The call will be recorded. The recording will be available on Yandex's IR website in a few hours.

We also put together a few slides to supplement this story. These slides are currently available on our IR website.

And now I will quickly take you through the Safe Harbor statement. Various remarks that we make during this call about our future expectations, plans and process 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 factor section of our [APR] prospectus dated May 24, 2011, 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 certain non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with US 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 Arkady Volozh.

Thank you Katya and welcome to our earnings call. Yandex maintained its position as the largest and leading Internet Company in Russia according to comScore with yet another quarter of strong financial performance delivering revenue at the top-end of our guidance range.

Our full-year revenue increased 60% to RUB20 billion. Our strong execution resulted in a considerable expansion in our operating margins quarter-on-quarter, bringing in full-year adjusted EBITDA margin to 46% of revenue.

From a market perspective, the Russian economy has been relatively stable and as our results show, we have not seen any adverse impact of the challenging global economy on our business. Rosstat, the Russian national statistics agency estimates that 2011 GDP grew by 4.3% in real terms.

According to ACAR, the Russian Association of Advertising Agencies, the total ad market in 2011 in Russia increased 21% with the Internet outpacing other segments and contextual advertising growing 53% and Display growing 45%.

The number of Russian Internet users continued to increase as well with the monthly audience up 17% year-on-year to 54 million in the fall of 2011 according to FOM Public Opinion Foundation. The frequency of Internet use grew as well.

The number of search queries on Yandex increased 36% year-on-year in fourth quarter while we maintained our market leadership with 59% share of all Russian searches as of today.

As past year -- this past year, our key product, search, was our main focus. We continued to enhance the quality of our search product [prioritizing] freshness and response time. We integrated several new search technologies with the release of Reykjavík, our new search platform that takes user language preferences into account.

Our suggestion feature is now tied to user location. Searches are optimized for misspelled queries and we have enhanced the social components of search by integrating data from the largest Russian and international social networks. Just this week we announced two initiatives aimed at further enrichment of our search with social data.

A better version of our people finder allowing users to view public profiles of people with accounts in Russia's most popular social networking and blogging websites and also a partnership with Twitter allowing users to find text tweets on their blog search with us in real time.

Technology partnerships in Russia and abroad forged in 2011 are a testament to the quality of our search technology. In June, we announced a partnership with Russian portal Rambler to use our search in advertising technology, and in the fall, Seznam, the leading search and informational portal in the Czech Republic started using our technology to power its video search.

Continuous product improvement that allows us to anticipate and respond to the needs of our users is essential to maintaining our leadership position in the Russian search market. We intend to do just that in 2012 and beyond.

Market share is driven by a variety of factors including search quality, user experience, content, marketing, distribution and others. Distribution, the channels by which users come to search in Yandex has seen increased competitive activity. As we shared in our prior call, last May Google eliminated the ability for Chrome users to select a default search engine other than Google.

Russia is the first market where Google took such strong action and following our -- an outcry from the press and users, Google reserved -- they reversed the action.

Yandex has a large distribution team that negotiates and manages distribution relationships with software and device-makers globally. Recently we signed distribution deals with Skype and Kaspersky Labs. Two contracts with browsers maker Mozilla and Opera expired the end of March and we are in active discussions to extend the depth of our [conversions] with both partners.

We appear to be on track for a favorable outcome, but cannot say more until the new contracts are finalized.

And now the competition. The competitive dynamics in the Russian search market have been highly unusual since late December 2011. Mail.ru launched an aggressive distribution campaign promoting their search through a custom-build of Mail Chromium browser, and so third-party (inaudible) installing Mail as the default search for users who install such corrupt software often without even their permission and without knowing what they're doing. As a result in two [adjustable] months, Mail artificially increased its share of the searches -- of searches by approximately 2 percentage points taking share from Yandex and Google, both of us.

Yandex has a history of competing and earning the loyalty of its users. We know this market better than anybody else and with no question, and area of services, we are confident that we will hold the number one position and that (inaudible) share gains can be long-lasting.

Let's turn to mobile now. Today the Russian internet market is mostly about the desktop, but the increasing availability of smart mobile devices creates an opportunity to further expand our search and other product offering to reach new users.

To capitalize on this opportunity we are investing in the development of unique applications for all mobile platforms and seek to establish distribution partnerships with device manufacturers by offering them a set of unique Yandex applications including maps and traffic, mail, Yandex.Market, Yandex.Money, texting and many others together of course with Yandex search.

Late in 2011, we signed a strategic partnership with Samsung. All devices running its proprietary Bada operating system shipped in Russia with pre-installed Yandex software at use. Similarly, we -- all Windows phones -- smartphones shipped to Russian users [search] onboard.

We are also strengthening our development capabilities for the popular iOS and Android operating systems. At the end of 2011, we acquired SPB Software, a highly regarded developer of the Android platform -- for the Android platform. As we move to 2012, you should expect more partnership and product announcements in the mobile arena from Yandex.

Now about Turkey. One of Yandex's most important milestones in last year was entering our first market outside of CIS, which was Turkey. While search and several other co-service, including mail and news were initially introduced in September, the real launch took place in late October when we rolled out our maps and map-based offerings including exclusive panoramic images and live traffic for Istanbul and Ankara.

Shortly after the launch, we started to promote our products. As a result, in January 2012 our daily audience exceeded 100 unique users a day. Of course at this stage it's too early to claim success, but we seem to be on the right track.

During 2012, we will continue to grow our presence in Turkey and as usage scales, we will start monetizing the traffic.

Now to monetization. Advertising on Yandex continued to grow at a healthy pace across all sectors in the fourth quarter 2011 when we served over a 170,000 different advertising clients representing a 43% increase over the same quarter 2010 and 10% increase over third quarter 2011.

For the full-year 2011, we served over 270,000 advertisers and saw strong growth across all advertising verticals. While SMEs remained the backbone of our contextual advertising clientele, we are pleased to see more large advertisers, particularly in automotive and financial services shifting their budget online.

As we continued our initiatives to make contextual advertising more affordable, paid click growth continued to outpace revenue growth. In the fourth quarter 2011, paid clicks grew 65% compared to the same quarter 2010, while CPC decreased 7% year-on-year. This is important concern for Yandex. We like to see effective (inaudible) per click [depressed] or even decreasing as it makes search an increasingly attractive proposition to advertisers.

As a result we have seen strong growth in the number of online advertisers and an increase in user traffic to their websites. We're keen to develop advertising technology to enhance our value to advertisers.

In summary, 2011 was an excellent year for Yandex. We continue our growth trajectory in the Russian market. We have maintained our leadership position, substantially grew the top and bottom-line. We drove improvement in all of our key metrics including advertiser growth.

As we look at 2012, our priority is the focus on search technology. We will continue Yandex's long history of innovation and technology leadership with special emphasis on the development of new products and the extension of search and other existing products to mobile platforms.

We will build on our existing partnerships and forge new ones with companies that can help us drive through growth in market share. We will continue to closely monitor our progress in Turkey and consider launching in other new markets.

And we will continue to invest across all areas of our business to support our business objectives including advertising and monetization technology.

And now I will turn the call over to Alexander Shulgin who will take you through our financials and revenue guidance before we take your questions.

Thank you Arkady. And now for the results of operations. In the fourth quarter 2011, our consolidated revenues increased 56% year-on-year to RUB6.4 billion taking our full-year revenue to RUB20 billion, a 60% year-on-year growth, at the top end of our guidance range.

Contextual or text-based advertising continues to be the wind behind revenue growth in Q4, accounting for 85% of total revenues. Yandex's own website built the bulk of text-based revenue accounting for 68% of total revenue, while ads on the Yandex ad network accounted for 16% of total revenue.

Yandex advertising network grew 131% year-on-year, driven by the same factors as in Q3. Improvements in ad-serving technology as the year-on-year effect on the addition of Rambler search to the partner network. Display advertising in Q4 grew faster than overall revenue as quite a few large advertisers, local and multinational alike, maintained or even increased spend on their online advertising campaigns, contributing 13% of total revenues.

The remaining 2% came from the Yandex.Money and other sources. The increase in traffic acquisition cost primarily reflects growth of our partner networks, and distribution tax increased in-line with text-based revenue on our own website. As a result our total ex-TAC revenue increased 50% compared to the fourth quarter of last year, of 2010.

Text-based revenue was primarily driven by paid clicks which increased 65% year-on-year. Accelerated growth in clicks were evident on our own site and network sites alike as we continued to see the beneficial impact of our advertising technology initiative announced on our previous quarterly call.

And as anticipated, in Q4, the effective CPC declined about 7% year-on-year as we opened up both our own and partner websites to new advertising.

Now switching to cost. Our total operating cost -- effective operation cost shared-based compensation expense and depreciation and amortization expense increased slightly faster than total revenue at 54% year-on-year. As discussed on our previous earnings call, we should have slowed down our hiring rate.

In Q4, we added 149 employees with our total headcount reaching 3,300 people by the end of December last year. As a result, growth of our personnel cost in Q4 at 41% year-on-year was slower than revenue growth.

Our depreciation and amortization expense increased 70% in excess of revenue growth rate, primarily due to recent additions of server farms in our data center, and share-based compensation expense increased 50%. As a result of all items discussed above, our adjusted EBITDA increased 48% and adjusted EBITDA margins for the quarter was 51%, up from 45% in Q3, but below the 54% in Q4 a year ago.

And as you may recall, last quarter we saw a considerable Forex effect on our net margins. This quarter the impact from ForEx was quite minimal and as we continue to rebuild the currency structure of our portfolio of strong deposits held in Russian banks towards more ruble, we expect to further minimize the effect of ForEx on our P&L.

Our effective income tax rate in Q4 at 21.3% is lower than in Q4 2010 reflecting management's intention to continue to reinvest cash generated in Russia without up-streaming dividend through our parent holding company in the Netherlands. As a result, our net income increased faster than operating income at 51% and our net income margin was 33%.

Adjusted net income stripped of the effect of share-based compensation expense and foreign exchange gains and losses grew 50%, and adjusted net income margin was 34%.

Now turning to CapEx, we earlier guided that our CapEx for the full-year will be under RUB6.3 billion, as we continue to invest in construction and [out-seeking] raw data center equipment. However, implementation of our CapEx plans was delayed in part due to floods in Thailand, shifting some expense to the first half of 2012.

Accordingly, our full-year CapEx was RUB5.6 billion. And finally, turning to our balance sheet, we have the equivalent of RUB20.7 billion in cash, cash equivalence, term deposits, and other investments and debt instruments held in US dollars and rubles, including $345 million in IPO proceeds held in the Netherlands.

As Arkady mentioned, at the end of 2011, we acquired SPB Software, a leading developer of the software for mobile devices. We agreed to pay $38 million for 100% of the company. Of this $38 million, $14 million is contingent upon continuous employment by Yandex of certain key managers of SPB Software for two years following closure.

Accordingly, US GAAP accounting rules require us that the contingent consideration of $14 million be recognized as an expense evenly spread over 2012 and 2013. So starting Q1, we plan to show our adjusted EBITDA and adjusted net income metrics adjusted for the respective portion of this $14 million.

And finally turning to guidance, we expect our revenue growth rate for the full year 2012 to be in the 40% to 45% range. This forecast is based on advertising patterns we have been seeing over the past few months and reflects our best view of the expected business trends as we see them today.

In 2012, we will see CapEx spends [resiliently formalized] (inaudible) range of high 10% to 20% of the forecasted revenue. And we will not be giving specific ruble guidance on CapEx going forward.

I will now turn the call over to the operator for the Q-and-A session.

Thank you. We will now begin the question-and-answer session. (Operator Instructions) Edward Hill-Wood, Morgan Stanley.

I've got three questions, please. Firstly, just looking at revenue guidance, I was wondering whether or not you construct that from a bottom-up point of view looking through advertisers, CPC, and click rates, or are you making also an assumption about market share overall?

Secondly, on mobile, could you just tell me what proportion of search is now derived from mobile and also what portion of revenue is derived from mobile?

And thirdly, on margins, could you just tell me if -- what the pace of hiring is in the first quarter -- of new staff in January and February because looking at the run-rate of the staff hiring and the pace of other investment, given your revenue guidance it would suggest that you would need to significantly step up the pace of investment in order not to achieve margin growth in 2012. Thank you.

Thank you for the questions. This is Alexander. I will take the questions.

So talking about revenue guidance and growth rate, our model is valid as long as we maintain leadership in the search market. There is a little index on our revenue from search share fluctuations.

So -- and another point of reference is the latest ZenithOptimedia forecast which expects the Russian online ad market to grow at 35%. Historically, ZenithOptimedia was conservative with their forecast. For example, in April last year they forecasted 42% growth for 2011 while actual growth rate according to ACAR was 56%. So our estimate of the revenue growth is 40% to 45% this year.

Well, talking about mobile, mobile is still a small share of our revenue while growing fast. It's in high -- in mid-single digit percentage of our total revenue.

And talking about margin guidance, as a matter of policy we do not give margin guidance, but what I could say is that we intend to be broadly in line with the last year margin level, while keeping prudently invest in our priorities such as continuous improvement of the search technology in Russia, to maintain leadership and expansion of Yandex's footprint in mobile devices. Unfortunately, we cannot give specific guidance on hiring rate.

Okay.

But what I could say on payroll maybe is that historically our payroll expense is about 20% of revenue, and there is nothing that would suggest that it will change.

Okay. Could I just say on your original guidance, that you provided around your IPO you just say I believe that you would expect margin growth over a number of years without being specific in the near term. Is that still a -- is that something you think is possible?

Yes, our long-term goal is EBITDA margin of 46% to 50% and we (inaudible), but this was a goal that we had over several years.

Okay, that's great. Thank you very much.

Jeetil Patel, Deutsche Bank.

A handful of questions here. So I guess first to kick it off, you validated your technology in [UI] and Russia versus Google quite successfully, increasingly Turkey. You've done deals with the likes of Navteq and Twitter.

When you think about the business over the next, say, three to five years, how do you think about extending your platform, your technology and what you built up across the global landscape? Is there a room for Yandex in markets such as Western Europe as you think about the next three to five year planning and what are the pushes and takes against that?

Second, I guess, when you look at the CPCs coming down, the paid clicks going up, can you talk through whether ROI for the advertisers remains essentially the same or has there been any changes with that -- with price with CPCs coming down? And a quick follow-up.

Okay. This is Arkady. I will pick up on the first question. Hi, Jeetil.

Hi.

So on extension, yes, again we have our home Russian market which continues to grow and our goal here is to maintain our market share which we are actively doing. While market saturates, we will need to find the new areas of growth. And in our view, it could be our technology proposition for other markets. And we here have two different approaches which we are currently testing.

One is -- what we call [trans-local] approach is when we believe that on markets where there's no competition in search, there is space for a second player, and what we're doing in Turkey is exactly testing this model.

We launched in Turkey with a good enough product and we are trying to prove that the audience will be receptive to the second offering on the market and the market shares will redistribute like the distributors on the markets where we have this competition like China, Russia, US, Korea and the same.

Another approach could be offering our search technology and other technologies to global -- to different global players, and here I need to say that there is not so many search companies experienced in delivering search, not too many search companies in the world. And of those five, six, seven, there is only three or four who try to offer international search.

It's -- Google of course has been and it's us since for a year-and-a-half already. We have our first version of the global index which we were extending in last year and continue to extend this year. And we hope to be able to deliver a product which will be more than just a Russian search or a Turkish search, will be some international index and service which could be applied elsewhere.

It could be applied either on the markets where we are going because we need international search for Russians, we need international search for Turkish people, as well as it could be used in different vertical, global vertical services. And there is some hope for us here.

Now talking about CPC, well, at this stage we see CPC inflation as a negative factor for our business particularly because we want to provide the best possible ROE to our customers. And lower CPC makes us more competitive versus [CS] and versus other advertising shareholders.

So last year in Q3 and Q4, we improved our ad targeting technology which approximately had 65% more clicks than -- compared to the same quarter last year, 2010. This year 2012, we expect the effective CPC still continue decreasing slightly year-on-year for Q1 and Q2 until we start taking quarters where we implemented technological improvements which you can see in 2011.

So we expect most of our growth to come from growth in paid clicks and by increased budgets of our customers.

And just a quick follow-up. If you look at -- your network business performed quite well and maybe to -- to a less extent at the expense of O&O -- I guess, how many more distribution deals are left out there that you see on the horizon which may help us understand the variations between O&O network for this year?

The main reason for segmental growth was a substantial improvement in [ad relevance]. We also increased number of partners substantially, but again the main reason was technological improvement.

And this technological improvement is expected to have a long-term effect and we will continue to drive the ad network revenue at a faster rate than total revenue of our business. But there are still partnerships to be made, but unfortunately we cannot quantify this amount.

Thank you.

Alex Balakhnin, Goldman Sachs.

I have two questions if I may. First I just wanted to get a better understanding on your margins comment if you say that labor expenses will be around 20% of sales and given the growth rate expectations for revenues basically your hire cost to keep margins at 2011 levels may come from either higher TAC or higher rental expenses or higher margin expenses.

Do you expect a massive acceleration of TAC or marketing or do you plan to substantially expand your premises? So what is behind your thinking that margin will be at around 46% given how fast the growth is? Probably a little higher granularity here will be helpful.

And second question is probably related to the first one. Your partnership agreements you're signing, what drives partners to join you? Is it revenue-sharing or is it anything else and what is this? Thank you.

Okay. Well, we're not giving guidance on our P&L structure, but I will try to give you some color on our cost items. First of all we expect the partner ad network to grow faster than total revenue due to the reasons I described before which would mean that part of the acquisition cost will be growing slightly faster than total revenue while distribution element of text is expected to grow at approximately same rate as total revenue.

In cost of sales, since we had high CapEx last year in both quarter of our search index, so cost of sales driven by distribution will grow slightly faster or faster than total revenue, again with the depreciation expense.

On product development cost, it will probably grow at approximately same rate as total revenue and SG&A, sales and product development and SG&A combined will grow at approximately same rate of total revenue. This is our current view at the moment.

How about in the same time you will have lower added costs because you will probably don't have another IPO and basically you also had quite an aggressive marketing campaign in the second quarter last year, do you expect probably higher margin expansion?

Alexander, this is Dmitry Barsukov. I just maybe wanted to clarify a bit that we're not trying to give specific guidance on EBITDA here and -- but that's essentially half the explanation. And the -- some of the drivers Alexander already mentioned, so that's changed the revenue structure towards higher share of partner network.

But talking about marketing expense, it's a low part of total OpEx sales to -- within single, mid-single digit and we do not expect any substantial increase in advertising and marketing expense.

(Operator Instructions) Jean Kaplan, HSBC.

The press release obliquely mentioned the clicks through rate and financial calculations. It looks like there's been a dramatic improvement in the fourth quarter.

On the search products specifically, could you talk more about the expense to which this was due to the technology improvements you've discussed previously versus what part of the growth in CTR might be coming from a kind of improvement in the search inventory [fill] ratio?

And I have a second question which is on your global index which you mentioned you started building, how do you think about that project? Does it -- is it bundled in development or does it have its own separate ROI and separate -- its own separate business plan considering the high server costs involved? Thanks so much.

There were two factors that -- it has to go with CTR. There are two factors in technology improvements on CTR. One is the advertising network and -- in which we had a greater improvement and introduced new technologies and new algorithms.

And in other words the base on the -- and another one in the search clicks, and here we've been expanding the number of advertisers who are using additional relevant keywords during the year and we are adding new technologies also there. So there was a quite steady growth during the whole year. So I would say those two main factors in terms of technologies.

Talking about the global index, again, we're just extending what we have -- previously have. All the cost of this is already built into our P&L. That's why you -- this is one of the parts of our increased CapEx last year.

We -- this is a product we need anyway to serve our customers. You cannot be competitive without providing the global search and we need to pull our own markets where we operate anyway. And this just opens us -- having it just opens us some new perspectives, but we must have it anyway and of course it's built in.

Fair enough. On the first part, could I ask a follow-up, which is could you give an indication about the direction or the speed of uptake in the fill ratio? I'm just trying to understand how much is currently already being used and how much there is left to go potentially? Just kind of big picture?

Average -- there is some room to grow in terms of -- to get improvement on the search. And of course even bigger room in advertising because advertising has -- advertising network because there is more -- how to say, way to know more about the contacts and users. And so we expect growth in both areas. I cannot tell like how far we are currently, but there is room definitely. Hard to tell that number.

Okay. Thanks a lot.

Anastasia Obukhova, VTB Capital.

My question is actually a follow-up one. You were saying that you were -- you might look for the [captivation] with some global players in terms of your search technology. How do you see it, as a partnership, or are you looking to become a part of such global players who currently lacks the search technology? Thank you.

Again, take away the -- we don't have anybody specific in mind. We're just developing the product which we need for our home market anyway. And we've just opened us up -- few opportunities for us and we don't have anybody specific. But the product will be there and we will offer it to whoever is interested.

Okay. Thank you.

Gene Munster, Piper Jaffray.

Just a quick question looking out on the paid click growth potential. I know we've seen Google accelerate their paid click growth and just thinking about your product pipeline for paid search, do you think it's sustainable for you to have mid-double digit paid click growth the next three-plus years? Thanks.

Well, it is difficult to forecast for three years ahead. What we think that is definitely sustainable for the next year and we believe that paid click growth will be the main driver of our revenue growth in 2012. But it's difficult to comment for several years ahead.

David Ferguson, Renaissance Capital.

Just two quick questions please. Firstly just on the tax rate for this year, should we assume 21% consistent with the fourth quarter? And secondly, just on Turkey, maybe you could give us a sense of 12 months from now what Turkey would look like to you or what would you call success in Turkey, how would you describe that? That's it. Thank you.

Hi David. This is Alexander. Let me take the tax-rate question. So we expect ETR to stay at the level of the 2011 unless there are any significant changes in our business or the tax registration. The only thing now that will have an impact on the effective tax rate is the expense of contingent considerations related to our acquisition of SPB Software that I talked about. This effect is estimated as less than half of a percentage point on ETR.

Talking about Turkey and the success there, we measure our success there by audience now, and we measure it in logarithmic scales. As we launched we had 1,000 active users a day, then we had 10,000, and then we came to a 100,000 actives a day.

The total, a 100% of search market in Turkey would be in the range of 10 million a day. This is the range that Google or Facebook has there. So we would consider it a success growing to the range of a million users a day, which is roughly maybe 10% of the market share or something which would allow us to open up our monetization model to start sales. And if we are there by the end of this year we think it's a proof of concept.

Thank you. Maybe just a quick follow-up. So for someone that is a 10% to 20% market player in search what margin do you think that number, that 10% to 20% player can have?

This is Alexander. At this point it's too early to talk about margin for the total share, total business. No comment on this.

I will just maybe add that adding a market is not developing the market from scratch. All of our Turkey investments in terms of product -- creating this as a product took just less than 2% of our expenses, less than that.

So opening up a market and maintaining a market doesn't require the same amount of investment as your first market. And since we have quite good margins, we -- currently we already have at least one market where we are the number one player with very decent margins, it's in Russia.

And those margins are enough to allow us to launch in other markets and hopefully to get even lower -- to have -- I can't say which market, still don't know, don't make these estimations, but the general understanding is that this is an incremental cost and just additional revenue.

David, this is Dmitry Barsukov. I may add, it is also our intention to first see how things progress in Turkey before we actively seek to open up the new markets in the same way as we did in Turkey.

Okay, that's clear. Thank you very much.

Zoltan Palfi, Credit Suisse.

Just one follow-up question regarding your revenue guidance. Putting together all the comments you made it seems like that you are expecting growth to be driven by the growth in paid clicks rather than a change in CPC. I'm wondering how feasible it is given that it feels like on your chart that [E-rail] flowed places behind you the number of paid clicks in the first quarter of 2011 was already fairly high.

Thank you for the question Zoltan. That's -- this is Alexander. Based on current trends that we see in the business, we believe that it's definitely possible and current growth plus improvements in technology that we plan to make definitely -- I can believe that growth through paid clicks is possible for 2012.

Okay, thanks.

Hello, are we still online?

Yes, I don't have any more questions. I suggest you jump to the next question.

Alexander Vengranovich, Otkritie Capital.

So I have a question regarding the development expenses. So if you look at the number of developers in your Company, it seems that the expenses for each developer increased only by 4% in 2011. What do you think of that growth rate in 2012? Do you see that there should be some higher inflation of the sellers or developers next year?

What I could say in answering this question Alexander is that again our payroll to our revenue ratio was -- it's between high 10% to 20%. And we think this trend will continue going forward. It is difficult to comment on (inaudible) ratio especially in one department, so I cannot (inaudible) on this, but maybe one thing to consider is that we have inflow of new people with lower salaries and at the same time we compete globally and we increase salaries for the high professional people. But it's difficult to say on the blended average.

Okay, and in this respect, do you need to hire -- to increase the hiring at the same pace with the increase of your revenues -- I mean developers?

This is Arkady. Yes, actually if we had the freedom we would hire much more people because we have so many things to do, because we compete with companies which are 10 times larger than us in headcount. And of course if we could afford we would hire much more people.

Okay, thank you.

Thank you ladies and gentlemen. Now this concludes the fourth quarter and full-year 2011 financial results conference call. Thank you all for participating. You may all disconnect.