Nebius Group NV (NBIS) 2013 Q4 法說會逐字稿

Thank you for standing by and welcome to the fourth quarter and full-year 2013 financial results conference call. (Operator Instructions). I must advise you that the conference is being recorded today, Thursday, February 20, 2014. And I would now like to hand the conference over to your speaker today, Greg Abovsky. Please go ahead.

Hello, everyone, and welcome to Yandex's fourth quarter and full-year 2013 earnings call. We distributed our earnings release earlier today. You can find a copy of the 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. Our call will be recorded. The recording will be available on Yandex's IR website in a few hours. We've put together a few supplementary slides, which are currently available on our IR website.

And now, I'll quickly take you through the Safe Harbor statement.

Various remarks that we make during the 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 factor section of our Annual Report on Form 20-F dated March 11, 2013, 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-statements at some point in the future, we specific 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'll be referring to certain non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with US GAAP. 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'll turn the call over to Arkady, who will give you an update of our Q4 and full-year operational activities.

Thank you, Greg, and thank you all for joining us today for our Q4 earnings conference call.

The Company delivered yet another year of strong financial and operational results. I'm delighted with everything we achieved this year, so let me quickly walk you through the most important developments.

One, we grew our search share overall, as well as on mobile platforms, such as Android and iOS.

Two, we implemented several algorithmic changes to our paid search that allowed us to considerably increase relevance, and as a result, CTR of our ads.

Three, we began the revamping Yandex.Market into the marketplace in order to benefit from the growth of e-commerce in Russia.

Four, we announced the acquisition of KinoPoisk movie search, which enrich our search results with a new independent vertical, and over time will help us penetrate the Russian video advertising market.

And five, we also grew our share on the Russian TAC-based advertising market and now Yandex. Direct covers approximately 70% of all search pages in Russia. This became possible with the partnership with mail.ru to power paid search on their properties.

Now let's dive into details. As usual, let me begin by mentioning our search share.

According to LiveInternet, our overall share of searches in Russia across all platforms grew 140 basis points from 60.5% at the end of 2012 to 61.9% at the end of 2013. The main drivers for this; we've grown shares on desktop platforms, and what's even more important, on mobile. We have also increased our market share in the regions, not only in the largest cities.

Outside of Russia, we also increased our share in the Ukraine and Belarus. In Belarus, we're estimating that we have overtaken Google as the leading search engine there. This is very important. In Ukraine, we estimate that our market share there is greater than 30% now.

Furthermore, our share of queries from mobile in the overall volume of search queries has been growing. In Q4 2013, mobile was 16% of search queries and brought us approximately 12% of Yandex's direct revenues. Compare it with 15% in traffic and 11% in revenues in Q3.

I'm extremely proud that in 2013 we were able to grow our share, both on iOS and on Android. Our search share on Android grew from around 42% in December 2012 to at least 52% in December 2013. Our search share on iOS grew from approximately 30%/35% in December 2012 to approximately 43% in December 2013, and it continues to grow. Today, it is about 45%.

These share gains were driven by a combination of efforts, and one which are the quality of search technology, first of all; improved distribution efforts, partnerships with OEMs and retailers; and a strategic agreement with Apple, of course. Our own mobile products, such as the mobile Yandex. Browser that were released in the second half of 2013, also added to the gains of our search share.

Overall, our Yandex. Browser has been performing very well and it is one of the just few browsers that have gained share in Russia. In December 2013, Yandex. Browser represented about 10% of all search queries in Russia based on LiveInternet. We continue adding new features to our browser product aimed at improving the user's search experience.

Talking about text-based advertising, in July of 2013, we rolled out new formats which further improved click prediction across our paid search product. With better targeting and improved click prediction, we substantially improved CTRs and grew the number of paid clicks on our search pages. As a result, we improved our ROIs for our advertisers.

Among other successful initiatives were the new layers of ad on our search engine results page.

2013 was a remarkable year for Yandex advertising network as well. We launched a [totally new] ad format, contextual ads with images, which have now been rolled out across the Yandex advertising network.

We also considerably increased our ad network coverage through our partnership with mail.ru. Starting with July 1, 2013, we began to power paid search on mail.ru properties. We believe that we are now starting to enjoy real synergies from this partnership, as our advertising clients are beginning to increase their budget allocations to Yandex.

As a result of all the above initiatives, as well as of the growing popularity of online advertising overall, we served 460,000 clients on an annual basis. In Q4 alone, we grew the number of clients by 30% year over year, and reached 270,000 advertisers.

Now let's turn to Yandex. Market. In late 2013, we started the transformation of Yandex. Market by introducing cost per action model, and added a unified shopping basket to the service. Later this year, we plan a number of other important additions like multi-ship integration, checkout, client guarantee service, recommendation system, and so on.

And yet another topic that excites us a lot is video advertising. Earlier in October, we announced the acquisition of KinoPoisk, the largest and most comprehensive Russian language website dedicated to movies, TV shows and celebrities. With the addition of KinoPoisk, Yandex will be able to provide more comprehensive replies to users' queries looking for entertainment; and we are also looking at penetrating video online advertising market in the future, which is currently in a very nascent stage in Russia.

Among other initiatives of 2013, I want to quickly touch upon a few more things.

We continue to improve Yandex. Maps. We now provide global maps offering with a combination of our own maps for Russia, Ukraine, Belarus and Kazakhstan, as well as global maps from our partner. And in Turkey, our navigation application has been recognized as the app, mobile app of the year by [Vibrasi] which we're very proud of.

On the back of our strength in maps, we launched our very successful taxi application, a new innovation model for Yandex. Yandex. Taxi has been extremely successful in Moscow where we've become the dominant player, and we are continuing to expand this service.

All in all, we are very optimistic about the future, and our outlook for this year proves that. We are currently expecting our revenues to grow 25% to 30% in 2014 on a like-for-like basis.

And with this, let me pass the mic to Alex Shulgin, our CFO. [Sacha].

Thank you, Arkady, and thank you, all, for joining us today.

In the fourth quarter of 2013, Yandex consolidated revenues increased 37% year on year to RUB12.1 billion. Excluding the impact of Yandex. Money from Q4 2012, our total revenues grew 40%. Text-based advertising accounted for 90% of total revenues in Q4, and demonstrated a healthy growth of 42% year on year.

Yandex own operated sites constituted 66% of total revenues, and grew 30% year on year, driven by the strength of our core search advertising business.

Our advertising network grew 94% and almost doubled year on year. This growth was mainly driven by the partnership we entered on July 1, 2013, to power paid search results on mail.ru properties. This partnership increased contribution of ad network revenues to the total revenues from 17% in Q4 2012 to 23% in Q4 2013.

Display advertising accounted for 10% of our revenue in Q4 and grew 20% year over year.

Other revenues almost tripled, but still comprised less than 1% of total revenues. Growth was primarily driven by revenues received from Yandex. Taxi.

Traffic acquisition costs related to the partner advertising network grew 118%, faster than our network revenues overall, as we added mail.ru.

Partner TAC as a percent of partner revenue was 71%. It grew approximately 120 basis points compared to Q3 2013 due to healthy growth of paid search that we power on mail.ru.

Distribution TAC grew 65%, also faster than our revenues from own operated websites. The increase in distribution TAC as a percent of [overall] revenue was about 220 basis points year on year, and 140 basis points sequentially.

The growth of distribution TAC in Q4 is explained by the increased activity of all the existing distribution partners, as well as by addition of the new partners. However, our intention for the current year is to keep percentage of distribution TAC approximately on the level of 2013. Total TAC increased 100% year on year.

Text-based revenue was driven by the growth in paid clicks which increased 52% year over year and 22% sequentially. Importantly, as in the previous quarter, considerable growth was demonstrated both on [own] operated and on the ad network.

Growth in the number of paid clicks on our own websites was driven by higher ad coverage, CTR improvements, and changes in ad layout implemented earlier this year. Growth in the number of paid clicks on the network front was in large part driven by mail.ru. Cost per click decreased 7% year on year.

Now turning to our cost structure. Our total operating costs and expenses, excluding traffic acquisition costs and depreciation and amortization expense, grew 27% in Q4. Excluding stock based [compensation] expense and contingent compensation expense connected towards acquisition of SPB Software in December 2011, our costs grew 31%.

To remind you, in Q4 2012, we recorded a one-off amount of RUB173 million related to contingent consideration compared to only RUB14 million in this past quarter. In Q4 2013, the contingent compensation expense related to the acquisition of SPB Software was fully paid out.

Personnel costs remain our largest cost item. In Q4, we added 493 employees, of which 375 employees go in product development. Our personnel costs increased 26% year over year in Q4, and was 16% of total revenues.

On an annual basis, our personnel costs grew 29%, and was 19% of revenue. Excluding Yandex. Mining, our personnel costs grew 33% year over year in Q4, and 33% year over year on an annual basis.

Talent is the main asset of the Company, and we will continue investing in people, with an intention to keep personnel costs within 20% of total revenues.

Our depreciation and amortization expense for the quarter increased 15%.

Adjusted EBITDA grew 21% year on year, and our adjusted EBITDA margin was 43%. The decline in margin on a year-over-year basis was a result of increased TAC, both on the partner ad network due to inclusion of mail.ru, and on the distribution front. Our adjusted ex-TAC EBITDA margin was 55.6% in Q4 2013.

On a full-year basis, our adjusted EBITDA grew 32%, and adjusted EBITDA margin was 44%. The decrease of 170 basis points on an annual basis was mainly due to our mail.ru deal. On an ex-TAC basis, our adjusted EBITDA margin was 55%, in line with prior year.

In this quarter, the impact from foreign exchange effect was RUB99 million gain related to dollar-denominated assets and liabilities on our balance sheet as the ruble weakened from RUB32.3 as of September 30, 2013, to RUB32.7 on December 31, 2013.

And our effective income tax rate was 24.5% in Q4 on US GAAP basis. The rate was significantly higher than in previous quarters due to one-time effect of certain reserves we have provided for in this past quarter.

Adjusted for these reserves and allowances, our effective tax rate is 21.6%. This compares with an effective tax rate of 21.1% in Q3 2013, adjusted for a non-taxable gain on the sale of a 75% interest in Yandex. Money.

Adjusted net income grew 19%, and adjusted net income margin was 29.1%. Our Q4 CapEx was RUB1.7 billion, or 14% of Q4 revenue. On a full-year basis, our CapEx represents 12.5% of revenue. We estimate that our full-year 2014 CapEx will be between 14% and 16% of total revenue.

In connection with ruble depreciation early in 2014, we give this guidance assuming that ruble exchange rate does not fluctuate materially from the current level, as majority of our capital expenditures are dollar or euro denominated.

Turning to the balance sheet, we ended the quarter with $1.5 billion in cash and equivalents. In December 2013, we made an offering of [1 and 1/8%] (sic -- see press release,"1.125%") convertible senior notes due 2018. The notes will be convertible into cash, Class A shares of Yandex, or a combination of cash and Class A shares at the Company's selection at an initial conversion price of approximately $51.45 per Class A share.

Within this offering, we received net proceeds of $594 million in 2013 and additional $90 million as proceeds received from the initial purchase of our allotment option exercised in January 2014.

In connection with this offering, our Board of Directors authorized an increase in the Company's share repurchase program to a total of up to 15 million shares. [Inception] to date, we repurchased 10 million shares.

And now turning to 2014 guidance. On a like-for-like basis, excluding the Yandex. Money revenues from 2013, we expect our revenues to grow from 25% to 30%.

Now I will turn the call over to the operator for the Q&A session.

Thank you. We will now begin the question and answer session. (Operator Instructions). Alex Balakhnin, Goldman Sachs.

Two questions from me, if I may. The first is on the -- well, the certain divergence of the growth between partners' revenues and O&O revenues. My question is why, if you enjoy such a great paid click growth, your allocation to partners is -- was more superior. And why did your partners enjoy better revenues allocation from your advertising system overall?

My second question is you have quite a big increase of headcount in the fourth quarter. Was it more like a one-off, or you will expect that this path of additional headcount will continue throughout 2014?

Thank you.

This is Alexander Shulgin speaking. So talking about revenue growth, our [own net] revenue growth was solid at 30% in Q4 compared to 33% in Q3. So there was some deceleration of growth which we attribute to overall macro situation.

But the underlying business parameters are strong. Number of advertisers grew nicely with solid increases both in the regions and in Moscow. And paid clicks were also driving growth at 52% growth, both on search, O&O search, and on partner network.

There was some deceleration in display, but this product is much more volatile because it's discretionary spend by advertisers to support their brands. Search advertising is much, much closer to the final purchasing decisions of the consumers and, therefore, must have channels for the customers as long as consumers continue to spend. And we see that consumer demand in Russia is still strong.

On headcount, so out of 493 people that we added in Q4, 82 is the result of a new approach to reporting headcount that we implemented in Q4. Now we include certain part-time employees like quality assessors and content operators in Yandex. Market in our headcount.

This is a one-time increase of headcount without any impact on expenses or margins, since cost of these people was always included in our personnel costs. So the net like-for-like increased headcount is 411 people, which is close to our quarterly hiring rate.

Most of these people were hired in the core product teams of Yandex, like search and advertising technologies. And we also beefed up some strategically important products like Yandex. Market and media services.

Starting Q1 2014, we decelerate the hiring rate and attempt to keep the ratio of personnel cost to revenue below 20%, as we did in previous years. So that's -- this hiring growth in Q4 was more like a one-off item.

But may I ask two follow-ups, one on the first question and one on the second question? For the first question, if you compare on quarter-on-quarter basis, you clearly see that the sequential increase on the O&O was slower than on the network, which is to some extent counterintuitive unless you deliberately decided to allocate more revenues to your partner network. Is this what happened?

And on the headcount expense to revenues -- I mean, your revenue line was inflated artificially by the mail contract. Shouldn't it be a lower ratio of headcount expense to the top line going forward, given the change of your revenue mix? Or how do you think about it?

Sure. So on the first question, the main growth driver in our partner network is mail.ru deal since the growth over the period of last year when there was no mail.ru deal. If we exclude mail.ru deal, then the growth rate between O&O revenue and partner network revenue is much closer.

On headcount, you're absolutely right. Since we added mail.ru, comparing to previous years, you could say it inflates our revenue growth numbers.

And you are right. Going forward in the next year on a like-for-like basis, our personnel cost to revenue might be somewhat lower. However, that said, we plan to add additional resources to couple of projects which we think are strategically important for Yandex, like Yandex. Market and media services.

And this -- we're investing in building, or extending our, let's say, product franchise to eCommerce and media, which Yandex historically was strong at with Yandex. Market electronics. We want to expand our footprint on other types of products.

And the media services, that's a completely new niche for us which we think is strategically important and also could bring us substantial revenue going forward beyond 2014.

Thank you.

Edward Hill-Wood, Morgan Stanley.

I have two questions, please, firstly just on your guidance range, 25% to 30%. Could you maybe give us an update of the phasing, the expected phasing of that? Clearly, mail's going to -- the mail revenues give you a bias towards the first half, but excluding that, would you expect the year to start faster and then decelerate through the year? Or are you expecting broadly even quarters?

I'm just really trying to get a sense of where we are in terms of current trading, particularly in Q1.

And the second question just relates to -- again, you mentioned then that the revenue gap between the O&O and the partner website was much closer, excluding mail, of course. Could you maybe give us an update on what the core O&O business saw in terms of paid click growth in Q4 relative to Q3? Was it faster or was it slower?

And within the quarter, was there any notable change and swings in the CPC growth rate? Did it decelerate at the start of the quarter and then improve at the end?

I'm just trying to get a sense of the underlying run rates going into the beginning of this year.

Thank you.

This is Alexander speaking again. So talking -- your logic about our quarterly revenue split is absolutely correct. In Q1 and Q2, we'll be -- the comps will be easier for us, and starting Q3, we'll be comparing our growth to the periods when mail.ru was already in effect. So we expect higher growth in the first half of the year and tougher comparables in the second half of the year.

Having said that, our current trading is strong and we're happy with the results that we see currently in our business.

Now talking about the underlying drivers of our O&O growth, as we disclosed in our press release, our paid clicks growth for the business overall is 52%. And like I said, at our search business, O&O, paid click growth is 49%. So this tells you that paid click growth between partner network and search is very, very close.

CPC was down 7%, which is absolutely logical, because we provide substantially higher amount of paid clicks, [so] advertisers. And we're happy about decrease of our CPC because it makes us more competitive compared to all other advertising channels; our direct competitors and also other media channels. And CPC decline was close, both on search and partners [both] together.

Sorry. Can I just follow up on that point? So the growth in paid clicks in the O&O business was 49%, which seems quite a good number, but clearly, you've lost a lot of pricing in -- and going back to the original, the first question from -- there does appear to be some generous pricing for the partner website.

The question is do you think going to the back end of next year, and maybe 2015, that you can monetize the volume which you have created through these initiatives this year better to create a run rate which is maybe more sustainable and above into 2015 which is more volume -- price based rather than volume? I'm just trying to understand of this dynamic of the ability to maybe capitalize on some of the volume gains which you've seen in your business this year.

That's a very good question. I would agree with you. Once we start cycling the mail.ru deal, there must be a way for us to increase our pricing when we -- compared to the previous when mail wasn't in effect.

So I think that starting July, and especially Q4 in 2015, assuming our partner revenue mix remains same, we must see some increase in CPC.

Okay. That's really great. And just really to be greedy, could I just follow up on that first question again on the phasing of revenues? Is it likely that the first quarter revenues will be above your guidance range for the full year?

I'm not sure I can answer that question, but what I could say that we are happy about our performance in Q1.

Okay, great. Thank you.

Maybe one item to add. Now with mail.ru deal, Yandex becomes a much bigger player in [traditional] and overall online advertising market, and we expect that our share in total advertising spend in Russia having this view must increase, which will benefit us as well as mail.ru.

That's great. Thank you very much.

(Operator Instructions). Lloyd Walmsley, Deutsche Bank.

Thanks. You mentioned in your prepared remarks on [algorithmic] improvements in paid search. I was wondering if you can just elaborate a little bit on what those improvements might be specifically.

And then as a follow-up, can you give us an update on some of the things you're working on on the back end of the ad tech platform in terms of server clusterization, dynamic ad [creatives]; what you're focused on and what the timeframe is on expecting some of those improvements to roll out to your large customers and beyond that?

Thanks.

Yes. Thanks for the question. It's Arkady. Talking about all the [tech] improvements, of course, most of it was better targeting mechanisms. We improved our targeting, so better [machinery in algorithms] we have developed, and through involving more data and [mostly data signals] into algorithms.

As we pointed out in our review, we also changed a little bit the formats of the ads, both on search and in the network; and we also worked a lot on large customers who upload bulk amounts of their advertising. We improved tools for them and they were able to process much more advertisements with us. Those were the major improvements there, the [actions].

Boris Vilidnitsky, Barclays.

A few questions from me. First on the EBITDA margin, you guys mentioned that TAC should be in line. I'm assuming -- it's just a clarification. You guys mean in line with the second half, right, not the first half because of the mail deal?

I was mentioning full-year TAC, so we expect full year distribution TAC as a percentage of all [operated] revenues to be in line or very close to -- in 2014 to full-year 2013 level.

Okay. Next on CapEx. You mentioned 14% to 16% of revenue. Any thoughts there? Is that M&A? Like what are you looking at in there, in that category?

Our CapEx, as usual, that is completely of new data center facilities and servers that we buy for those facilities. We're currently in process of building new data center in Finland.

The project is expected to be online in Q3, I would say closer to the end of Q3, so the timing is still in place. But we were able to agree on better payment terms to extend the payments from Q4 2013 to closer to end of first half of the year 2014. And, therefore, CapEx in 2013 was 12.5%, lower than we originally expected because of the payment shift. And guidance for 2014 is between 14% to 16%. So basically there was some shift in cash outflow from Q4 2013 to Q1 and Q2 2014.

Got you. Sorry, one more question from me, actually. If you can give an update, please, on Turkey. What are you guys seeing there in terms of spending in search?

Well, last year in Turkey, we worked a lot on the product and we have achieved a lot on the product. The main achievements of last year were that our Yandex. Maps and navigator in traffic jams application has become, as I said, the model application of the year for Turkey, a Russian application which was the best application for Turkey.

And if you today ask about Yandex in Istanbul, the answer would be that we are mapping a traffic jams company, which is good and bad. And the second thing -- the good thing is that people know us very well from the product, and the bad thing is that maps are not monetizable as well as search.

So the second good thing was in search. The key for a search product for us, the whole experiment is in Turkey for us, is whether or not the Company is able to deliver an international product, a new product for a new market. And this year, we have [broken] out with -- in search quality, and we have reached our competitors' search quality without having access to as wide audience as they have.

We have very low market share. We had very low market share, as you know, when we started. And even without this big, huge data which we normally use here in our markets, we managed to reach the quota level in our measurement of our competitors.

And we are now continuing to work, and we hope with several launches we're going to have very soon, we will have a better quality search for this market; actually, the best quality search of all available, the same as we have on our existing markets like Russia, Ukraine and the Urals. In our measurement, we have better search quality. We hope to get it in Turkey as well, and with that, we hope to start growing much faster than we did.

So far, we continue to grow in market share. We just crossed several weeks ago -- according to comScore, we have crossed 4% market share, as you can see, which is -- again, it's good, but it could be even better if we moved faster. But it is the experiment, and so far we are happy, and we'll continue pushing.

Okay. Thank you.

Ulyana Lenvalskaya, UBS.

My first question would be about Yandex Islands. Could you please give us an update when you plan to launch the platform in Russia, please?

We are rolling out the platform right now in a few experiments. As you know, we launched it in Turkey, and the reason why we launched it in Turkey first was that we have -- had nothing to lose there and we can experiment openly without risking to lose any revenues with these big changes in the search results page design.

In Russia, on existing markets where we have real customers and a lot of real users, we need to be much more cautious. So we experiment with design a lot. We are launching it on portions of our audience and we hope to have it rolled out later this quarter.

Thank you. And my second question will be on the convertible bonds. Could you please elaborate on the reasons for the placement and potentially give us some hints on the potential users' proceeds.

Ulyana, this is Alexander speaking. So basically, this convertible bond issuance gives us additional opportunities and strategic flexibility, some potential expansion of our business. That's first. And second, the terms and incentives were quite attractive, and we decided that it's a very good opportunity for us to take this option.

I cannot say that we currently have any M&A deals in the works, so this cash is for future potential deals, but nothing in the works currently.

And dividends, you also are not considering right now?

Well, I could say that Yandex's Board of Directors is committed to return capital to share holders, but currently, we view share repurchases as a preferred approach. But dividends are not ruled out either.

Okay. Thank you.

Anna Lepetukhina, Sberbank.

Can you please provide an update on the development of Yandex. Market? It has been two and a half months, or so. Maybe you can disclose how many stores signed in for the new model.

And also, you've mentioned some additional functionalities that you plan to launch this year, like client guarantee recommendation. Can you please elaborate on this and maybe provide some timing? When do you expect the full version of Yandex. Market to be operating?

Thank you.

So again, the Yandex marketplace is a work in progress, and the rollout of the project will be later this year, as we promised. Currently, we have something like 100 shops already participating in the CPA model, including the big ones, like (inaudible), or 220 volt, or digital [route]. We have another something like 200 who are finishing testing it, the model. And of course, we don't expect early to switch the model before we launch the product itself.

We work multi-ship, as you know. This is to provide the service of tracking -- this is service both for the shops and the customers. So for shops it will be a one-stop point where they could have their logistics connected; and for the users, it will be a tracking mechanism where they can track their shipments.

Then we're going to launch recommendation engine, which we're now currently working on, and it will be very sophisticated. We're going to involve all of the machine learning technology we have.

We're going to guarantee shipments and quality of service to all users. There will be one checkout basket, checkout point for the users, and we're going to introduce it -- we just introduced it during the fourth quarter.

And what else? So far, again, we're just -- the product is not there. We're just describing the product we're building. We're building it by blocks. The first couple of blocks, two or three blocks, have been built already, and we have another four or five coming. And only in maybe late in Q2 we're going to seriously be launching the product for the users. And before users are there, it's too early to say what it is for the shops. We hope they will enjoy it.

Sorry. And just a follow-up. Do I understand correctly then in your guidance you don't assume any revenues from these new models, from this new model?

Anna, this is Alexander. I would say that the guidance was given on the current perimeter of the business.

Thank you.

David Ferguson, Renaissance Capital.

Just two questions, please, firstly on -- you talked about video, online video, as being an important focus going forward, so maybe you can go in to a bit of color on some of the initiatives that you're working on and what you hope to achieve in that area.

So that's the first question.

And then secondly, on mail's call this morning, they talked about decision to pursue listing in Russia, so I wonder if that's something that would make sense for Yandex to do also in a reasonable time period.

That's it. Thanks.

Okay. Talking about video. We consider it the next strategic point, potential point of revenues, because more and more people are watching videos, movies and TV shows online and we need to follow those eyeballs and serve them well.

Advertizing; there will be a lot of work on the product itself because the product will be different from -- the user experience should be different from what we are accustomed to have in regular television. So we're working on the product. We're working on the advertizing model, on the targeting mechanisms, and there will be a lot of work with contents providers.

The first step was with KinoPoisk. Recently, we integrated our banners, our apps banners technology into the product. We actually -- in Q4, we actually finished integrated KinoPoisk team into Yandex team and procedures, and we're working on the product which we're going to launch later in 2014.

And, David, this is Greg on lifting on the MICEX question. Look, our Board, I'd say, is generally supportive of a MICEX listing. We see three main benefits for being listed here locally. One obviously is we are a Russian company and we therefore think that it makes a lot of sense for us to have a secondary dual listing on the Moscow exchange as well. Furthermore, we believe that it benefits our employees. It allows them to transact our shares on the local market. And then, finally, we think that there could be positive benefits from indexation as well, such as inclusion in various exchange or other indices.

Great. That's perfect. Thanks a lot.

Alexander Vengranovich, Otkritie Capital.

My question is actually about your cash on the balance sheet. So first, what I have mentioned that the proportion of the cash, which is actually just the cash and cash equivalents, versus the share of term deposits, has increased dramatically year over year. So I'm just wondering whether it was done specifically so you want to have the cash available for you at any time. Or is it just a matter of timing, so probably you're planning to put this cash on the term deposits for a time being just to get some additional yield on that? Or maybe I'm missing something here.

Thank you.

Alexander, this is Alexander speaking. So you're absolutely correct. We're currently moving from the previous instrument that expire to a new structure of our cash, and we're also in process of changing the currency mix, and gradual change which will take several months or quarters to complete. And that's why we've temporarily increased number of cash available on the balance sheet.

Yes. Should we (multiple speakers) --?

Just to maybe add to that -- this is Greg. I was going to say in terms of our currency mix, I think we're about 60% to two-thirds US dollars and about one-third rubles. And we're, as Alex said, in the process of increasing our allocation of funds to US dollars. And obviously, the convert allowed us to put more cash on the balance sheet in terms of adding strategic flexibility, not necessarily for anything M&A specific, but generally for rightsizing the capital structure and deploying capital in a more efficient manner.

Okay. Should we expect any changes to the effective interest rate which you are getting on that cash you have in hand?

The effective interest rate will probably be lower than what we had in 2013 because since our cash structure now has changed, especially after the convert deal, in favor of US dollars. And interest rates on dollars are, of course, lower than on rubles.

Thank you very much.

Mitch Mitchell, BCS.

Just two quick questions. The general guidance that you'd given for us was for about 100 basis point margin on this year, largely on the mail.ru effect, but your actual results were about twice that. So I'm just wondering, can you comment is there something that happened in your cost structure that you weren't anticipating that led for that slightly larger margin decline?

And the second question is I've just noticed that you made a point of highlighting that you -- that Yandex had passed Google in search share; I guess in Belarus, you said. You made a point of highlighting that, so I just wonder if you can give us a bit more color on that.

Thanks.

I will take your first question. So speaking about next year EBITDA level, [exactly] we expect our next year EBITDA margin to be about 100 basis points lower than 2013 level.

There was margin -- and in Q4, our margin decrease compared to last year level was a bit higher than that, but we expect that on a full-year scale, 2014 to come back to close to 2013, the gap will be much lower than that.

In Q4 specifically, we had a couple of items which were pressing on our EBITDA margin. One was mail.ru, and this item will remain going forward as well. And also the activity of our distribution partners was higher than usual. But, as we discussed, we expect that in 2014, full-year distribution TAC as a percentage of O&O will be at the same level as in 2013.

And also in Q4 we added incremental personnel resources to some strategically important products like search, like advertising technologies and Yandex multimedia services, and the impact of these additional personnel will be less visible on a full-year scale in 2014.

Yes. On Belarus, first, it could be viewed from two points of view. First of all, it's a small market on one hand and it's -- if I discuss it, it's immaterial, and there are not so many measurement mechanisms available there so we cannot tell you the exact numbers. But at least today, LiveInternet shows that we have something like 44% and Google has 41% market share, and it was opposite some six months ago. So we crossed them, according to LiveInternet; whether or not it's correct.

So it's not material, but I think it's very important that -- it's an independent country, and actually, our competitor has lost maybe the first independent country market in their history. And it just proves that with focusing, with better search quality, with attention to the details, you can beat the market, and this is a very important fact for us as a company and this gives us a lot of hopes.

Okay. Thanks.

Sergey Libin, Raiffeisen Bank.

Just two questions as well. First of all, given your performance in Turkey, do you still consider expanding elsewhere? I think you made your global maps product, so shall we expect any new launches abroad?

No. As we said, before we learn how to beat the markets, how to win the markets in Turkey, we're not investing in any other markets.

Talking about our maps global product, just like global search, you might know that Yandex serves our markets with global search results on a regular search, web search. We did the same with maps. We serve our local audiences in Russia, Ukraine, the Urals, Turkey, with global maps. They need to use global maps from time to time. Of course, the majority of use is local, but sometimes they need global maps, and in these cases, we must provide them with global information. That's what we did.

Thank you. And secondly, about your recently launched Yandex. Kit, how much do you think it will cost to operate it on a year-on-year basis; I mean operating costs?

It's a continuation of our regular work in this area. If you remember, several years ago, we bought [a steady] software. We have a team working on this. It's not any additional cost, it's just a continuation of the work they were doing.

Okay.

And, of course, actually, this launch which happened just yesterday, I think again it's very important that we're talking here about existence of alternative Android ecosystems. And if such ecosystems will exist, like they are in China or with other vendors, then we will find our place in this world. And I think they really do exist.

Thank you.

Alex Balakhnin, Goldman Sachs.

A quick follow-up to Alexander. My line was bad. Did you mention that the TAC as a share of revenues in 2014 will be at the level of 2013? Did I understand you correctly?

Alex, we were speaking about distribution TAC as a percentage of O&O revenue.

Distribution, but not the share, the revenue share?

So if you're asking about distribution TAC, what we said is we believe we're modeling for distribution TAC to be roughly equal year on year between 2014 levels and 2013 levels. Obviously, we're stepping up TAC investment in Turkey, which is the thing that's pushing it slightly upward.

If you're asking about partner TAC, obviously, it will go up in the first half of the year as we keep absorbing the mail deal. And as we start to anniversary it, it should be less of a headwind. In fact, it's not a headwind at all.

And then, obviously, our partner TAC overall is a process that we try to manage on a constant basis in terms of balancing off more expensive and less expensive partners.

There's also other initiatives that we have internally such as our own display network, which obviously comes with its own TAC, but that's more of an accounting issue than a real investment one, right?

And just a quick one. Can you update us? You tend to give the numbers of share of traffic from mobile and the share of revenues from mobile for the fourth quarter (multiple speakers).

Sure. We said that it was 16% of queries and 12% of revenues. So it's continuing to grow at a pretty much linear fashion. We're adding approximately 1 percentage point more or less per quarter.

Thank you.

That was our last question. I would now like to hand back for any closing comments.

I wanted to thank everybody for dialing into the call today and we will be doing our Q1 call later in April. Thank you so much.

Thank you very much. That does conclude our conference for today. Thank you for participating. You may all disconnect.