Nebius Group NV (NBIS) 2014 Q3 法說會逐字稿

Presentation

Hello, everyone, and welcome to Yandex's third quarter 2014 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, Arkady Volozh, our Chief Executive Officer, Alexander Shulgin, our Chief Operating Officer, and Greg Abovsky, our Chief Financial Officer. Our call will be recorded. The recording will be available on Yandex's IR website in a few hours. We have put together a few supplementary slides which 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 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 April 4, 2014, 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 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 will turn the call over to Arkady.

Hello, everyone, and welcome to our third quarter call.

Let me start off by commenting a bit about some of the management changes that we announced in late August and which became effective on September 1st. Alexander Shulgin, who served as the Company's CFO for the last four years has been appointed to the newly-created position of Chief Operating Officer and is responsible for our main Russian operations now. Greg Abovsky has been promoted to Chief Financial Officer. I will remain as the CEO of Yandex NV and focus on the development of new products and markets, as well as overall strategic vision for the Company. On the call today Sasha and I will go through the main operational developments of the past quarter while Greg will walk you through the financial details.

Despite the challenging market economic conditions, Q3 was a very good quarter for us. Our text-based O&O revenues continued to accelerate while cost controls led us to an improvement in our overall margins. Our overall search share was largely unchanged from July levels, averaging about 60.3% during the quarter.

Our serve share on iOS inched higher to about 48% thanks to (inaudible) selecting Yandex as the default search engine in Safari and the popularity of the Yandex browser.

As you know, measurements of market share on mobile platforms are often imprecise. In the process of improving our tools, we are now estimating that our Android market share in Q2 was 49% rather than 54% that we have talked about previously. In Q3 our Android market share declined slightly to approximately 47%. However, we have a number of initiatives underway to increase our market share on mobile, especially on Android. To that end, we have recently signed an agreement with Lenovo, a large and growing Android OEM, to distribute seven essential Yandex apps, including our mobile Yandex browser, on their smartphones. These apps are preinstalled on all Lenovo mobile devices shipping to Russia.

In Q3 2014, [Mobile] with router present about 23% of our overall search queries while generating about 16% of our search revenue.

And with this, let me turn it over to Sasha who will get you into more details about our core business.

Hello, everyone.

As Arkady said, Q3 was an exciting quarter for us. The Company continued to roll out new products and technologies, including a number of mobile-focused and offline to online services. A clear example of an offline to online service is Yandex.Master which was released in September. The Yandex.Master is an online marketplace that allows users to find someone to help them with housecleaning, messenger services, small home improvement projects, consumer electronic setup and repair and so on. It is already up and running in most Moscow and St. Pete and we will evaluate whether it makes sense to roll out the service in the regions towards the end of the year.

Another of our mobile-focused offline to online initiatives is that our users can now buy movie tickets directly on our search page by clicking on the movie they want to see, selecting their receipt and paying with Yandex.Money account or a credit card. And now you can also pay for your household utility bills directly on Yandex.Search. You can even pay for your speeding tickets and other traffic violations directly in our Yandex.Navigator app.

Importantly, in Q3 we signed a cooperation agreement with the Moscow mayor's office to create new services for Moscow [wide]. Moscow government will be providing us with access to different municipal data feeds such as road maintenance, work schedules, real-time availability of parking spaces around the city and online schedule of medical services. This will allow us to get even closer to our users and facilitate services that embody the online to offline transition and that make Yandex even more essential to our users. We are very excited by all of these possibilities.

A few weeks ago we launched a major redesign of our Yandex.Taxi app. The new app is currently available for Android with the iOS version soon to follow. Yandex.Taxi continues to grow rapidly, almost tripling its revenue year over year this past quarter.

Let me now turn to another one of our online offerings. Yandex.Music is the largest legal online music service in terms of audience reach and number of streams. This past September we relaunched Yandex.Music with a new design and a proprietary music recommendation tool. Recommendations are based on user listening habits and ratings, cues from their social graphs, as well as suggestions from (inaudible) created playlists. A months after launch the average time on the service per listener has already grown by 50%. And as you can guess, the quality recommendations increases over time. As of today, this is the only music service in Russia offering recommendations and we are planning to use the same core recommendation engine into new versions of (inaudible) that we are launching soon.

October marked the anniversary of Yandex.Brower which turned two years old this year. Today it has 19 million monthly users on the desktop and 5 million monthlies on mobile. By generating search traffic, Yandex.Browser has become the third largest in Russia, overcoming Microsoft Internet Explorer and Firefox now. The monthly audience is up 46% year over year on desktop alone. The browser is an important platform for Yandex and we will keep investing in it to make it even better and more user-centric.

Now, turning away from consumer-facing services to developments in our core advertising technologies. At the end of September we completed the integration of Marin Software, an important online advertising management platform widely used by many of our international advertising clients. With our newly developed API, Marin customers can now optimize and automate their billing strategies on Yandex.Direct and efficiently manage their campaigns.

International clients are important area of focus for us and in Q3 approximately 7% of our revenues were generated in currencies other than ruble and Ukrainian hryvnia. Ukraine generated about 1.5% of total revenues in Q3.

While we are on the advertising (inaudible) topic, last month we acquired AdFox, an advertising technology platform that provides services for planning, managing and analyzing online advertising campaigns. It allows its more than 750 clients to automate and manage the selection of static and dynamic display ads, mobile ads and video advertising. AdFox counts a large number of premium publisher websites as its clients. The AdFox team has joined the Yandex Advertising Technologies Group and will work with Yandex experts to further develop the AdFox platform for large publishers. Over time, AdFox publisher clients will gain new capabilities, including ad targeting based on the Yandex Crypta technology and driving optimization through Yandex RTB and Yandex.Direct.

To quickly update you on our position of Auto.ru, the deal was approved and completed in late August. As a result, around 80 people joined the Yandex team. Currently, we are integrating our technological solutions into the website in order to improve overall visibility, expand Auto.ru's mobile offerings and increase monetization. A very similar focus on growing the online audience of Auto.ru as we look to make Auto.ru into a clear leader in auto classifieds in Russia.

And now, I will turn the call over to Greg who will take you through our financials.

Thank you, Sasha, and thank you all for joining.

In the third quarter of 2014 our consolidated revenues grew 28% year over year and reached RUB 13.1 billion. Text-based advertising accounted for 93% of total revenues in Q3 and demonstrated a healthy growth of 29% year on year. Yandex's owned and operated websites constituted 71% of total revenues and grew 33% year over year. The acceleration of approximately 540 basis points on a sequential basis was driven by a healthy growth of paid clicks, as well as positive CPC dynamics on Yandex's websites.

Our text-based advertising network grew 19% year on year. This decline in growth rates compared to several previous quarters was driven by the anniversarying of our Mail.ru paid search agreement. Contribution of ad network revenues to total revenues slightly decreased 170 basis points year over year and 80 basis points sequentially to 21.2% in Q3 of 2014.

Share of display advertising was stable sequentially and contributed 6% to our overall revenues. Revenues from our owned and operated display advertising were down 3%. Display ad network revenues grew to RUB 14 million and now represent 14% of our total display revenue. All in all, total revenues from display increased 6% year over year. Other revenues doubled, but still comprised 1% of the total revenues. Growth was primarily driven by revenues received from Yandex.Taxi.

Traffic acquisition costs related to the partner advertising network grew 11%, while partner TAC, as a percent of partner text-based revenues, was 66% in Q3 2014. Compared to Q2, our partner TAC as a percent of ad network text-based revenues decreased 90 basis points. As you might remember, partner TAC includes TAC both from the display as well as the text-based side of our ad networks.

Distribution TAC growth slightly accelerated compared to Q2 2014 and grew 54%. However, our distribution TAC as a percent of total text-based O&O revenue increased only 17 basis points sequentially. On a year-over-year basis, distribution TAC still grew about 140 basis points. Total TAC increased 23% year on year. Paid clicks grew 19% year on year, primarily driven by the comping effect from the Mail.ru search deal that we signed a year ago.

Cost per click demonstrated healthy growth and increased 8% year over year.

Now, turning to our cost structure. Our total operating costs and expenses, excluding traffic acquisition costs and D&A, grew 25% in Q3. Excluding stock-based compensation expense, our costs grew 24%.

Our personnel costs still remain our largest cost item, but we demonstrated tight personnel cost management in Q3. During the quarter we hired 214 full-time employees, including the acquisition of Auto.ru that we completed towards the quarter end. As a result, our personnel costs increased 26% year over year, slightly lower than our revenues overall.

Our G&A expense for the quarter increased 20%.

Our adjusted EBITDA grew 34% year on year and our adjusted EBITDA margin was 45.2%, up 390 basis points compared to Q2 and up 200 basis points on a year-over-year basis.

Improvements versus Q2 2014 were driven by the tighter management of personnel costs, as well as advertising and marketing expenses, as well as by improved partner TAC. These were slightly offset by the new office space that we have taken on in Moscow, as well as other rent-related expenses.

This quarter the impact from ForEx was a RUB 1.8 billion gain related to dollar-denominated assets and liabilities on our balance sheet as the ruble weakened 17% from RUB 33.6 as of June 30th to RUB 39.4 to the dollar on September 30, 2014.

Our effective income tax rate was 24.5% in Q3 on a US GAAP basis, in line with the effective income tax rate of 24.6% in Q2 2014, adjusted for the one-time effect of certain reserves and allowances that we accrued in Q2. Just to remind you, our effective tax rate increased significantly compared with 2013 as a result of deferred tax accrual on half of the unremitted earnings aimed to be transferred to Yandex NV from Yandex LLC.

Adjusted net income grew 24% and adjusted net income margin was 30%.

Our Q3 CapEx was RUB 2.5 billion or 19% of Q3 revenue. Currently, we expect our full-year capital expenditures to be at the higher end of the previously announced range of 16% to 19% of total revenues as a result of significant depreciation of the ruble to the dollar.

Turning to the share repurchase program, we're still active in the marketplace. To remind you, our current buyback program covers 3 million shares. As of yesterday we have acquired approximately 600,000 common shares. We have also been active buying back the convertible bond that we issued in December of 2013. So far we have bought back 50 million of the bonds at about $0.91 on the dollar.

We ended the quarter with $1.1 billion in cash and cash equivalents.

And now, turning to guidance. Based on the current trends and despite a challenging macro environment, we narrow our full-year 2014 revenue guidance and expect year-on-year growth of 27% to 30% on a like-for-like basis.

Now, let me turn the call over to the operator for the Q&A session.

Thank you. (Operator Instructions). Lloyd Walmsley, Deutsche Bank.

(Inaudible) (technical difficulty)

Hello. I'm sorry, we can't hear anything.

Please go ahead. Your line is open.

I'm sorry, can you please repeat the question, Lloyd?

The line's been disconnected. We are now going to take our next question from Alex Balakhnin from Goldman Sachs.

Yes, good afternoon. That's Alex Balakhnin from Goldman. I have two questions, if I may. First is could we share your thoughts on the economics of traffic acquisitions of your advertisers? I'm just trying to reconcile the growth of CPC. And I mean in overall stagnation of the economy, what do you think the traffic conversion economics looks like for your customers?

And my second question is your SG&A decline as a percentage of revenues, to what extent this is related to Turkey and, if so, where the Company stands on the investment into the market share grab and I mean overall commitment to this market? Thank you.

Hi, Alex. This is Alexander Shulgin speaking. Thank you for the questions. So the CPC dynamics, first of all, as all is set, our customers have primarily small and medium enterprises and for them search is a sales generation channel and it is absolutely normal for them to start -- to continue to spend on text-based advertising as long as their consumers are buying services and items that they are selling. So we think it's normal situation when we see continuous spend from all customers.

Narrowing down on the PCP trends, as you know, with additional of Mail.ru search to our advertising platform, we started (inaudible) substantial higher number of paid clicks for our customers and that was depressing slightly our CPCs. Now we're fully anniversaried the period, the day when the Mail.ru contract was signed, and Mail search was added to our platform and we think now that CPC trends are, so to say, are more normalized. And our increase of CPC more or less in line with overall inflation of Russian economy is what we think is reasonable for our advertising platform and that is what we see starting from Q3 this year.

And the second question Greg will answer.

Sure. Hi, Alex. On SG&A decline, I would say that it was spread both between our core Russian operations, as well as some savings in Turkey while we are working to improve our search quality there. And Arkady can address Turkey in more detail.

Well, on the Turkey progress, we still maintain more than 4% of market share. By (inaudible) score it's 4.5%. As you'll remember, we reached 5% in spring and then we switched off some of our most expensive distribution channels. We still maintain our market share. We reached 2 million monthly unique users of Yandex.Money. This is the most downloadable dual application in Turkey now.

We are continuously working. Actually, the whole focus now is on the search product quality and we're achieving some results there. We are planning to start sales later this year or in the beginning of 2015. And we've got some management change there. As you may heard, the new Chief Operating Officer in Turkey is now Milena Djuricic who, before that, was heading Google Double Click in Russia CS, Turkey, (inaudible) and Africa. She now runs our product in Turkey.

Thank you. Like if I may, may I just follow up on my first question on the CPC dynamics and the traffic conversion economics. I mean, for your advertisers now the click is 8% more expensive than it was a year ago and they buy more paid clicks, right, as goes from your statistics, 19% more. In the same time, we see the order statistics, the consumer loan statistics and so on. So your statement is, for your customers, basically, is that the trends which we see in macro overall are not applicable and they're different from the average statistics tells us? Is this what you say?

I think, Alex, the way you should think about it is that CPCs are an aggregation of a lot of different services that are all sort of combined into one static number. It's a combination, obviously, across all of our platforms and services; everything from Yandex.Market to Yandex.Search to Yandex.Contextual to our advertiser network to the Mail.ru search properties. The end result of all of that aggregation is the number that you see. And I think there's no much more I can say about that other than we believe that advertisers are still turning to search and to contextual advertising generally because it's an effective marketing channel for them. It's a sales channel for them. And as long as the economics for them hold up, they keep investing in further search spend. That's just kind of how it goes.

Okay. Thanks so much.

Lloyd Walmsley, Deutsche Bank.

You guys hear me now?

We can hear you.

Great. So looking at the second quarter in a row of acceleration in the O&O search revenue, if you kind of go back to last quarter you said on your call that some of the ad tech initiatives weren't a big contributor last quarter but you expected them to be this quarter or moving forward. So looking at this quarter, can you guys give us a sense for how much of that acceleration was coming from larger customers taking advantage of that? And then just give us a sense for where we are in kind of the roll out of some of those new features around server clusterization, APIs, and are we in the third inning or are we kind of seeing the run rate contribution already? Kind of frame it up for us.

Sure. Thank you, Lloyd, for the question. You saw some of that this quarter, although I would say not as much as we hoped. We're still a little bit behind in terms of the implementation of the new API 2.0. That should still happen this year, though it did not happen in Q3. The acceleration that you saw obviously reflects obviously excellent economics of search. Back to Alex Balakhnin's earlier question, it reflects sort of the robustness of the model itself. It does reflect some of the improvements that were put into place on the overall ad stack side, such as the integration with Marin Software, for example, as well as some of the other changes that we've made to search.

So, it's obvious that the market environment is challenging and that the overall macroeconomic situation is not great, but we continue to operate in the market. The trading conditions are still sort of okay and not much changed from the previous quarter. So that's kind of what it amounts to in terms of changes in O&O growth.

Okay. And then I guess as a follow up, are there any conversations you're having with clients in a real-time basis around budgets and how they're shaping up for next year in a slightly worse economic environment? Do you feel like search will just continue to kind of power through this period of slower economic growth as people kind of turn off the search budgets last, or do you have any good sense for kind of real-time budgeting trends among your clients?

Hi, Lloyd. This is Alex speaking. Let me try to answer your question.

So the trends that we see now are reasonable good. And talking about next year spending commitments or indications from the customers, I think it's a bit too early to say because their budgeting cycles are still running and they are not ready yet to tell us on what their expectations are on spend yet. Actually, the same as ours. We are still in process of business planning for next year and following years and this is a very similar situation to all other companies.

Okay, thanks. Well, congrats on the new roles for you guys, Alex and Greg.

Thank you.

Thank you.

(Operator instructions) Boris Vilidnitsky, Barclays.

Hi. Good afternoon, guys. Great margin expansion. A couple of questions for me. First of all on the number of advertisers. We've seen slight growth quarter over quarter. I don't know if you could comment on that. Is that because of macro or are advertisers a little more hesitant to start spending now?

And then the second question, the slight decrease on the share of Android. Are you seeing Google being more aggressive or have you guys changed any of your algorithms there? Thank you.

Hi, Boris. This is Alex speaking again. So on number of advertisers, yes, the absolute amount of customers did not increase compared to previous quarter and then there was no substantial change. Obviously, economic environment becomes more challenging for the customers, but what we see now in our advertising technology in this system, that with those 300,000 customers that we have, they're increasing their overall average spending per customer. I don't think that the growth number of customers is over. We will continue to grow the number of customers, but in this environment it will be more difficult for new businesses to open and operate.

I see. And on Android?

Yes, yes. On Android share, as we have always said, measure and switch market share on mobile devices is more difficult because live internet does not show the completely full picture. So we are using our own analytical tools and they're not ideal as well. This quarter we improved the quality of our measurement and that resulted in technical change of our search market share on Android about 6 points, out of which about 2 points are real. We see Chrome is gaining share on Android versus embedded browser on Android devices and this growth of Chrome is partially compensated by the growth of our own search application and also the Yandex.Browser on Android devices, especially on tablets.

I see. I see. And does that explain the overall slight decrease in search from about kind of 61 -- not to split hairs, but close to the 61, 62 level to about 60 in this quarter?

Yes, hi. This is Arkady. This decline is partly due to purely technical factors. For example, with our new design on the Yandex Islands we experienced less clicks, although not less users. There was also a continuity in distribution of competitive browsers and (inaudible) across platforms which we expected and predicted.

We do not rule out a slight decrease of our market share, maybe another 1% or something, but we feel comfortable to maintain our clear leadership in search market overall. And just to remind you that in the first half of this year our (inaudible) based advertising market was almost 75%.

Right. Thank you so much.

Anna Lepetukhina, Sberbank.

Yes, hello. Congratulations on strong results. I have two questions, if I may. My first question is on some reports that you are increasingly selling to foreign advertisers your inventory. Can you please elaborate on this and say -- I mean what exactly are you doing and if it is true and where the share of foreign advertisers currently stands?

And my second question is on growth in search queries and paid clicks. I mean if we look going forward, would you expect that initiatives that you plan to launch will boost growth in both search queries and paid clicks, or basically what we hear right now is the growth that is sustainable? Thank you.

Hi, Anna. This is Alex speaking again. So first of all, on the foreign advertisers, currently the share all revenue coming from foreign advertisers is about -- foreign, I mean those who do not have operations in Russia. So the revenue contribution is 7%. It is slowly increasing because we are expanding our sales efforts primarily in Europe and possibly will be looking to other countries. We also have some sales in United States. We definitely see demand from the Russian users for foreign goods and for some foreign services like hotels, for example, or travel to outside of -- or tourism outside of Russia, and we are definitely looking forward to better serve advertisers who want to advertise to Russian users.

Now, switching to the second question about dynamics of search query growth and paid clicks, overall it is number of users in the Russian internet who are online is more or less (inaudible) for growth in the regions. And the next growth going forward will be coming primarily through increase in usage of the Internet and search, especially, and we see lots of opportunities for that growth. On paid clicks that's a slightly separate system from search. Of course there is some correlation between growth of search and paid clicks and queries, but it's not one to one.

The things that we do to improve ROI for our customers, to improve targeting and to improve conversions for our users, they have a substantially high impact than the growth of search queries. On top of this we are also trying, and effectively trying, to improve effectiveness of our partner network. So overall, I think there is still a lot of opportunities for us to continue to grow in paid clicks and thus drive revenues for our customers.

And just to add maybe one quick comment with respect to the growth in search queries that we saw in the quarter, I think the headlines sort of mask the underlying growth in Russia, which decelerated by a very small amount from the previous quarter, only about 2% or so. And a lot of the decline was actually driven by the other regions in which we operate. So the core operations of the Company are still experiencing very solid query growth.

Thank you.

Ulyana Lenvalskaya, UBS.

Good afternoon and congratulations on quite strong numbers. I have a couple of clarification questions. First, maybe follow up on Sasha (inaudible) question on SG&A. SG&A in total as percentage of revenue reached actually a historical low for Yandex. Do you see this level as sustainable for at least maybe next quarter or what other drivers are behind this improvement in SG&A?

Hi, Ulyana. Yes, I'll comment a little bit on SG&A. Look, generally speaking, we tend to advertise when we have something new or something different. For example, we do plan to invest in marketing of our classifieds product when we think its ready, the Auto.ru acquisition that we recently did. So far, for example, Auto.ru is showing excellent dynamics since we bought it. Already we're able to dramatically increase the usage on mobile, as Alex said. We've really increased monetization. We've increased our market share in Moscow and we're now I think three times the size of Avito here, more or less.

And so when we have something to market against we will invest heavily in marketing and we will be focused on gaining leadership positioned there. When there's less things to advertise, obviously we'll try to control our SG&A spend more fully. So I think that's kind of the way to think about it. I don't think there's a change of religion here, it's just a question of when we have something that we want to support with our advertising spend or not.

Yes. Thanks, Greg. And maybe a related question. Given how strong the EBITDA margin was, do you see any upside risk for the EBITDA margin guidance for this year? The last time you said it was down to the 300 basis points year on year for full year.

No real change. Obviously, as you can imagine, the situation's still very fluid and so the guidance that we've left out there obviously implies a decent level of uncertainty in the marketplace. So far we haven't seen any adverse changes, but obviously the situation is a challenging one in terms of overall rate of growth. I'd say that our overall guidance more or less fits. It will very much depend on the level of revenue that we're able to drive and the cost structure will be what it will be.

Thank you.

(Inaudible), Morgan Stanley.

Hi. Good afternoon, everyone. I have a few questions. Firstly, just on the partner network. Did mail search operations grow above or below the group average? And I'd also like to know what about the changing market share between the growth on search and between mobile and tablets?

Hi, sure. I didn't catch the first part of the question with respect to mobile. So as we said, the share of queries that mobile represents is about 23% now and the share of revenues that it drives is about 16%. And that's up from 20% and 14%, respectively, in the previous quarter so we're able to monetize mobile quite well still. We were actually able to drive pretty solid improvements in monetization on phones while tablets declined slightly. So overall, we view that as a positive development since there's many, many more smartphones than there are tablets out there.

And what was the first part of your question?

The first question was about the partner network. I wanted to know if mail search operations grew above or below the group average.

Well, I would just say that our partner network growth was probably slightly higher than what we were able to drive from some of the large search properties that we service.

Okay, great. Thank you.

David Ferguson.

Hi, everyone. So two questions, please. Firstly, could you update us on how many merchants you've now signed up to the CPA model on marketplace ahead of sort of the key Christmas period? And more generally, are you happy with the progress you've made with that product and platform over the last 12 months? That's the first question. And the second question would be for Yandex.Taxi, what do you see as your market share versus that of your closest competitor? That's it. Thank you.

Hey, David, I'll take the second part of the question. It's -- obviously we have no idea. The other competitors in the market that are present do not disclose their figures. Our market research estimates that we're probably three times the size of our next closest competitor.

And Sasha will take the first part of the question.

Hi, David. This is Sasha. So CPA adoption -- CPA model adoption in the Yandex.Market unfortunately is not as good as we expected it to so we now have to think more about making it much easier for merchants to connect to the CPA platform, maybe connecting with the ERP or whatever system merchants are using to operate their warehouses or maybe introducing some online solution to make this connection very, very easy. So we have low hundreds merchants connected to the CPA model. Some of them are sizable merchants and some of them are smaller guys, but the Yandex.Market remains primarily a CPC comparison shopping platform.

Okay, great. Thank you.

Sergey Vasin.

Hello. Thank you for taking the question and well done for the good results. My question probably related to the share repurchase program. Could you just update us what's going on there? I mean how many shares do you still have left which you can purchase back again? Thank you.

Hi, Sergey, this is Greg. So we've repurchased 600,000 shares, as I said in the prepared remarks, under our share repurchase program. Our total share repurchase program that's been renewed is 3 million shares and that comes on top of the 15 million shares that we already executed under our previous program. So inception to date, when we started this program in March of 2013, we've bought back 15.6 million shares and there are 2.4 million shares remaining under the program. And we'll continue to be active and try to buy back stock at attractive levels to drive shareholder returns. As you know, we've also started to buy back some of the converts at levels that we think are attractive and we've bought back about 50 million of the bonds at $0.91.

Alright. Thank you very much.

Thank you.

Mitch Mitchell, BCS.

Actually, you got my question already. I was looking for more of an update on Yandex.Market and how you were progressing with it, or if you can give us anymore broader color on how you see that playing out over the next year that would be great.

So on Yandex.Market, Yandex.Market is primarily popular for electronics and home equipment and this category of consumer growth is not doing as well as other categories of things consumers buy. So the growth rate in Yandex.Market this year are slightly lower than on contextual advertising on owned and operated premises. Our plan for Yandex.Market is to expand categories that Yandex.Market offers for sale, promotions, and also to make it easier for users in the regions to shop online on Yandex.Market. So that's the focus for the following years. And as I said, CPA model adoption is not as far as we hoped for and we are looking now for things we can do to improve adoption.

Thank you.

Alex Balakhnin, Goldman Sachs.

Yes, good afternoon again. I have a quick follow-up question. I just wanted to better understand the potential impact of FX weakness on your cost base. I mean obviously most of your costs are based in rubles but -- are nominated in rubles but there may be some linkage to the USD like with, I don't know, real estate expenses or indirectly your headcount expenses as the market for the programmers has increased into global. Can you share your thoughts on how you think about the potential pass-through effect of ruble weakness versus USD? Thank you.

Alex, thank you for the question. This is Greg. You're right. So the biggest area of FX slippage that we have in the P&L is related to our office rent for our Moscow headquarters. We have -- luckily we have extremely nice offices which are quite expensive and are linked to the US dollar. And so as the ruble has depreciated, the rent that we recognize for our headquarters has increased in ruble terms.

Other than that, other areas of slippage, if you will, would be business travel which, as you can imagine, is also very closely linked to US dollar. On personnel expense, that effect is probably much less felt, I would say. And then turning to the cash flow statements, obviously all of our purchases of servers and the construction of the data center in Finland are essentially US dollar or euro denominated. And so as I've mentioned in my prepared remarks, our CapEx guidance is probably at the higher end of our range now of 16% to 19% of sales as a result of that increase in costs. Essentially, if a server costs X dollars then it's still going to cost X dollars, but the ruble cost of that server has obviously gone up. So that's -- those are the main areas where FX tends to affect us; office rent, business travel and CapEx.

Thank you. That's very clear. Thanks.

Alexei Gogolev, JPMorgan.

Hello, everyone. I had a question with regards to the search ranking algorithm that, as I understand, you have introduced this year. Could you discuss the impact it had on the business or possibly on revenues in the third quarter? Thank you.

I'm sorry, could you just clarify what you're referring to, Alexei?

I'm referring to the search engine optimization that, as I understand, was launched this year. As I understand, it should be--.

Yes, yes, yes. You're talking about cleaning up the links from sort of Black Hat SEO. It's starting to have some impact as well. I would say that impact is somewhat limited. I don't think there's much of it built into our improvements in our core operations, especially the acceleration of O&O search. It's there, but it's limited. As you know, it takes some time for it to be fully implemented.

And could you remind me when was it introduced?

We began introducing it in the Moscow region for certain industry categories in January of this year.

And these would be--?

(Inaudible - multiple speakers)

Automotive? Probably real estate?

It's whatever search results are -- or whatever queries are most commercial in nature and those therefore tend to be most spammed by Black Hat SEOs. And what we try to do is we try to clean those up to make the results to our consumers much more relevant rather than artificially inflated through SEO optimization.

Understood. Thank you very much.

There are no further questions in the queue.

Thank you very much and we'll speak with you soon.

that will conclude today's conference call. Thank you, ladies and gentlemen, for your participation. You may now disconnect.

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