Nebius Group NV (NBIS) 2015 Q2 法說會逐字稿

Good day ladies and gentlemen and welcome to Yandex's second quarter 2015 financial results conference call. I will now hand you over to to begin

Hello everyone and welcome to Yandex's second quarter 2015 earnings call. We distributed our earnings release earlier today. You can find the contents of the press release on the Company's Investor Relations website and on newswire services.

On the call today we have Alexander Shulgin, our Chief Operating Officer, and Greg Abovsky, our Chief Financial Officer. Arkady Volozh, our Chief Executive Officer, will be available for the Q&A session. Our call will be recorded and the recording will be available on Yandex's IR website in a couple of hours.

We've also put together a few supplementary slides, currently available on [website]. And now I will quickly walk you through the Safe Harbor.

Various remarks that we make during this call about our future expectations, plans and processes (inaudible) forward looking statement. Our actual results may differ materially from those indicated or suggested by this 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 (inaudible) 2015 which is on file with the SEC and is available online.

In addition any forward looking statements represent our views (inaudible) and should not be relied upon as representing our views as (inaudible). Although we may like 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 (inaudible).

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'm turning the call over to Sasha.

Thank you [Katya] and hello everyone. Thank you all for joining our Q2 earnings call. I am very pleased with financial and operational results that the Company delivered in Q2 despite continued challenges with the overall economic environment.

Our top line revenue grew 14%, above the top end of our previously issued guidance. We demonstrated revenue growth across all revenue lines. Revenue growth of Yandex. Direct was driven by the increased advertising spend on healthcare, real estate and home improvement categories. Auto and financial services, however, continued to negatively affect the business during the quarter.

During Q2 we (inaudible) over 350,000 advertising clients, an increase of 17% from a year earlier. Importantly, the number of advertisers grew 9% quarter over quarter, which again demonstrates the inherent advantages of contextual advertising.

To further increase the efficiency of such advertising for our clients, today we're announcing a change to our auction system and new [renting] roles for AdBlock on (inaudible) pages. Instead of general second price auction that we are currently using, we plan to switch to a (inaudible) auction. The main rationale for the change is a desire to provide our advertising clients with a simpler bidding process which is easier to manage.

Indeed, the second price auction frequently makes advertising on higher ad positions within the chosen AdBlock less economically attractive for our clients. (Inaudible) auction on the other hand rewards upward bidding by only charging premiums for incremental clicks that an advertiser receives. Thus competing for extra traffic is more economically attractive for our advertisers.

We will also begin a plan (inaudible) for our paid search results, driving additional traffic to sites with higher quality advertising messages. This methodology has already proved effective in our organic search results and now we're bringing it to paid search as well.

As a result of these changes, we expect to see growth in the number of paid clicks on our search pages, an increase in advertising coverage and a reduction in the advertising cost per click.

Taken together, these changes will drive incremental value for our advertising clients. From a financial point of view, we expect this initiative to be revenue neutral in the short term but in the medium to long term it will lead to more bidding activity, improving advertiser returns and an increase in the attractiveness of search advertising in general.

We plan to roll out this new auction and advertising rental late in Q3. The changes will be applied to our paid search.

Now let me give you a few highlights from the past quarter. On the advertising front we continued to focus on the new advertising tools and efficient ad formats for advertisers specifically designed for mobile advertising. Following the introduction of mobile statistics coefficients in March of this year in Q2 we allowed advertisers to bid for ads on mobile devices separately from desktops. This function is currently being used by 8% of our advertisers and the results remain encouraging. More often than not advertisers switch off their mobile (inaudible) which results in higher reciprocity on smartphones compared to desktops and tablets.

We're also continuing to experiment with the number of ads that we show on mobile devices. As a result, in Q2 we continued to narrow the gap between our mobile traffic and mobile (inaudible). Share of mobile in our overall search traffic in Q2 was 23% while generating 20% of our search revenue.

Turning to our non-search business, in Yandex. Market (inaudible) and Yandex delivery, a one-stop solution for small e-commerce merchants to provide regional delivery. (inaudible), our online classifieds business, is successfully continuing to grow its mobile usage and strengthen its position in (inaudible). Yandex expects it continues to outperform. We see exciting growth in the two (inaudible) and we're also expanding the service into the regions.

In Q2 we launched Yandex. Radio, a laidback approach to music based on our proprietary recommendation system targeting a younger audience. With Yandex. Radio we're beginning to experiment with the new audio advertising format.

Now to search share, our overall search share in Q2 averaged 57.3%. The decline was primarily driven by decline of our share in Chrome and increased market share of Chrome. Continued growth of Yandex Browser helps us mitigate this effect.

On the mobile front, in Q2 our search share on IOS was at 46% compared to 48% a quarter earlier. The decline is driven by changes in IOS8 (inaudible) that we have talked about previously.

Our share on Android based devices declined three percentage points sequentially and in Q2 stood at 39%.

We recognize the challenges we face in the current environment of ecosystems and remain focused on improving the quality of our search product, both on desktop and on mobile. We will continue to invest into development, distribution and advertising and marketing of our products, including Yandex Browser, which we think is essential to maintain our search share on the Russian market.

Before turning over to Greg to discuss our financials, I want to provide a quick update on our antitrust case in Russia which is related to Google's practices over distribution of third party applications on Android devices.

As you probably know, in early June the Federal Antimonopoly Service (inaudible) Article 10 of the Protection of Competition Law. This Article covers the use of dominant position leading to foreclosure of competition. Initially FAS opened the case under Article 14 which prohibits unfair competitor action. The next hearing is scheduled for September 4 this year.

With this I will pass the microphone over to Greg.

Thank you Sasha and thank you all for joining our call today. In Q2 2015 our consolidated revenues grew 14% year over year and reached RUB13.9 billion. Text-based advertising accounted for 91% of total revenues and increased 13% year on year. Yandex's owned and operated website contributed 67% of total revenues and grew 9% year on year. The slowdown in revenue growth in Yandex's websites was primarily due to tougher comps that we experienced given the changes that we made (inaudible) Q2 of the previous year.

Yandex. Market demonstrated moderate signs of improvement compared to Q1 and grew slightly slower than our total (inaudible) text-based revenue. Our text-based industry mix has remained diversified. Q2 trends were mostly unchanged as we continued to see weakness in ad spend in auto and financial services. Excluding these two segments, our text-based revenue would have grown (inaudible).

Our advertising network grew 24% year-on-year. As we continue to add new partners for our ad network, the contribution of ad network revenue to total revenue increased 180 basis points compared to Q2 of last year but remains fairly stable compared to the previous quarter.

Display advertising revenue increased 9%, contributing 6% to our total revenues. As you know, revenue from display is highly volatile and I would not jump to any conclusions in respect of the overall macro environment based on (inaudible). Other revenues tripled and comprised 2.6% of total revenue. The main driver of growth for this segment was Yandex [Tech].

Traffic acquisition cost related to the partner advertising network grew 17%, slightly slower than our text-based partner network revenue. Partner tax as a percent of partner text-based revenue was 63.2% compared to 64.6% in Q2 of last year. The decrease was mostly due to changes in our partner mix.

Distribution tax increased 7% year on year and constituted 9.7% of text-based revenues, 40 basis points lower than Q1 of 2015. Total tax increased 14%, in line with our overall revenue growth. Paid clicks grew 12% year on year while cost per click remained flat.

Turning to our cost structure, total operating costs and expenses including TAC and D&A grew 43% in Q2 versus the previous year. Excluding stock-based comp, expenses grew 39%. Growth was primarily driven by increases in office rent and salary increases. Personnel costs will remain our largest cost item. In Q2 we reduced the number of employees by 145 people as a result of our efficiency review exercises and a decision to reduce activities in certain areas which we do not consider (technical difficulty).

However, we continue viewing the current economic situation as a good opportunity to add talent. We're focused on strengthening the mobile team as well as the team working on Yandex Browser. In Q2 our personnel costs totaled 24% of revenue compared to 27% in the first quarter. Stock-based comp, which is part of personnel expenses, increased 116% (inaudible) new grant and the exchange program that we executed in Q2 of this year.

Our D&A expense for the quarter increased 68% due to ruble depreciation as well as increases in our data center spend. Our adjusted EBITDA decreased 4% year on year. Adjusted EBITDA margin was 34.6% which is down approximately seven percentage points. Adjusted EBITDA margin contraction was mostly due to office rent expenses, (inaudible) personnel expense and advertising and marketing spend (inaudible) products and services.

This quarter impact from ForEx was a loss of RUB1.9 million. The latest dollar-denominated assets (inaudible). Our effective income tax rate was 44.7% on US GAAP basis due to non-deductible stock-based compensation expense and valuation allowance for operation (inaudible).

Adjusted for these expenses and allowances, our effective tax rate was 22.3%, in line with the effective tax rate (inaudible). Adjusted net income was down 16% and adjusted net income margin was 20.1%.

Our CapEx was RUB4 billion, or 29% of Q2 revenue, as we continue to invest in data centers and servers. As you know, a significant part of our capital expenditures is denominated in US dollars, therefore adversely impacting the CapEx to revenue ratio. And as I mentioned on the previous call, our CapEx this year is very much weighted towards the first half of the year.

We continue to buy back convertible bonds that we issued in December 2013. In Q2 we bought back another 24 million at face value of bonds and since the inception of the purchase program from the end of Q2 we've bought approximately 200 million face value of bonds.

We ended the quarter with approximately RUB825 million in equivalents using exchange rate as of June 30. Currency split was approximately 35% rubles, 65% dollars and euros.

Now turning to guidance. Given that we're beginning to see certain signs of stabilization in the overall economic environment, we are going to return to full year revenue guidance and provide you with the outlook for full year 2015.

As of today, we expect full year revenue to grow in the range of 11% to 13% in 2015 compared to 2014.

Now I'll turn the call over to the Operator for the Q&A session.

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

Thanks. I guess first question Greg, your comments on guidance and starting to see signs of stabilization, it sounds like you're generally feeling more comfortable about the environment. But maybe you can just give us a sense for the second half outlook. It implies a little bit of deceleration. Do you think that's mostly conservativism in light of the more visibility you feel? And then can you just give us some color on specific categories that are giving you that sense of stability? Is it finance and auto starting to stabilize?

And then the second question I guess, if you could just elaborate a bit on what's driving the mobile bids to be adjusted upward and how it's impacting overall budgets from the advertisers who have adopted separate bidding strategies? Thanks.

Hey Lloyd, it's Greg. Thanks very much for your questions. Let me first address guidance. I think it's very premature to say that the environment's getting better. I think we're trying to see certain bottoming here we think and we see certain first signs of stability and given that we felt comfortable enough to return to full year guidance. Clearly we wanted to be cautious as there's still a lot of year left to go and, as you know, second half is always the bigger half for us. So we wanted to be prudent in that respect.

With respect to your question about categories, the two primary areas of weakness are, as I said in my prepared remarks, autos and financial services. Both of those categories are still down year over year for us. Just about every other category is growing. Some more so, some less so. As I've said, if you exclude autos and financial services, our growth would have been in the high teens.

There's certain areas that are obviously growing a little slower, but that's okay. Hopefully -- it's starting to look like, if you look at auto sales, that those perhaps have bottomed out, right? By June, they were only down 30% year-over-year, as surprising as it is for me to say only, and that compares to 43% back in March.

So, yes, I think autos are starting to bottom out. Hopefully financial services should start to normalize as well as the Central Bank reduces its lending rates. I'll turn to the call over to Sacha with respect to mobile CBC bits.

Hi, Lloyd. This is Alexander speaking. So the question is on mobile CBCs, there are two trends. One is, say, structural trend. More and more customers now have their mobile websites. Therefore, they are willing to bid for clicks on mobile devices, because their website to land those clicks on (inaudible) to sales.

Second is that once we have introduced this function (inaudible) of campaigns targeted specifically on mobile, now customers have more tools to optimize their mobile campaigns and therefore they are otherwise going up and they're willing to bid more for mobile clicks.

Okay. Thanks, guys.

[Alex Blackman], Goldman Sachs.

Yes. Good afternoon. Two questions from me, if I may. One is on a display advertising revenue (inaudible) revenue growth volatility, I mean, the magnitude of swing is quite substantial, suggesting there was some irregularity to that. Could you provide some background why it was poised to grow from fourth quarter and then decline in first and grow in second?

My second question would be, okay, you mentioned on the strategy to address mobile share erosion, you mentioned the (inaudible) investigation, but can you walk us through the internal action plan. I mean, what do you do inside Yandex? Maybe how to engage with the distributors of mobile devices with the OEM with the (inaudible) system. How do you position your product development to address the decline of the mobile market share? Thank you so much.

Hi, Sasha. It's Greg. On display volatility, yes, look, I mean, it's just a very volatile category and it remains so. We have a hard time forecasting it, because it's concentrated in the hands of maybe 50, maybe 100 large clients. It just depends on how they feel about the economy; what else they have going on in their marketing budgets. It really is impossible to forecast.

Right now, display is kind of running down again, but I think that's okay. It was volatile even inside the quarter, I think, as I've said it many times in meetings with investors. One month could easily be up 10% and the next month could be down 10% and then something else happens again.

So, look, I don't think that's a good indicator of the overall economic situation. I still think we are somewhere hopefully near the bottom. Hopefully we're stabilizing, but I don't think the fact that display grew in Q2 should really be read into all that much. I'll pass the mike to Sasha for your question of around mobile.

Hi, Alex. So on mobile, our first priority goes on products that we create specifically being the Yandex browser that we develop for all platforms and mobile specifically with a focus on Android phones, where we see is (inaudible) share, like many other competitors on Android platform.

Other investment goes behind the Yandex search app and that we are planning to roll out soon and we will support it with performance market and possibly some other (inaudible) campaigns in Russia. Android (inaudible) is also one of the priorities, because it will remove limitations imposed by Google on us being able to make deals -- distribution deals with manufacturers of phones.

Also, we work with OEMs, but as I said, our possibility to install our apps, specifically (inaudible) and browser is limited, because of the Google's restrictions imposed on OEMs. So to summarize, majority here of our focus goes behind product and also behind marketing of our products on mobile platforms.

Thank you, Sasha. I just wanted to ask a quick follow up to what you have said. I see the statistics of the application usage search by statistics and it seems that the Yandex applications do not screen particular five top, top 10 apps used by the Russian users. Do you think the product development you now have in house will help you basically move upwards towards the leadership in terms of the number of people using your mobile browser and mobile maps and son?

Yes. Exactly. We think so. We are now hiring more people in our mobile development -- mobile engineering team and we have put our best resources behind search quality and mobile products, browser and search app, so that I think it will deliver growth to us in the second half of this year and in 2016.

Thanks so much. That's very clear.

Thank you. Could we kindly ask participants to limit themselves to one question each with one follow up question. Cesar Tiron, Bank of America.

Yes. Hi. I have a question on the margin. So the margins were down probably 7.5% in H1 and I assume there was an exception related to the severance. Do you expect margins to be down more than that in H2 versus last year? You mentioned on the previous call some investments for Yandex (inaudible). Does it still stand? Thank you.

Hi, Cesar. It's Greg. A very good question. Thank you. Yes. As you recall, back in February in our Q4 earnings call we said that we expect margins to compress by about 900 basis points.

As we went through the year and as we began to execute upon the cost reduction plan, we were able to bring the internal budget down and our margins looked like they were going to be better than down 900 basis points. At this point, we are investing more. We will invest more behind Taxi, behind Yandex.Market, behind Turkey, behind Classifieds.

Margins will not be down 900 basis points. Maybe they're down 700 basis points. Maybe a little better than that. Maybe a little worse. But that's kind of the magnitude that we're talking about after the incremental investment in marketing spent in the second half.

Thanks, Greg. Can you please disclose the severance? I mean, any exceptional.

Yes. It actually was not as big of an amount as we thought. There's some amount in there, but it's not material. I would not focus on it. It's in the 10 of bps, not 100s of bps.

That's for Q2?

Yes.

Thank you.

Thank you. Ulyana Lenvalskaya, UBS.

Thank you and good afternoon, gentleman. Most of my questions were answered. Could you please also -- could you please talk about the market share. Because I see certain stabilization in July, even a bit of improvement in Yandex search market share, according to Live Internet. Do you see this as a sustainable trend before the decision by (inaudible)?

Hi, Ulyana. This is Alexander speaking. So on total our search declined, but it was primarily driven by growth of mobile platforms where our search market share is lower than on desktop.

On desktop platform alone, which currently generate 80% of our tax based advertising revenues, our market share declined only by about 70 basis points (inaudible) year ago, primarily due to decline of the Yandex share in Google Chrome browser.

We're mitigating this by supporting an innovation into Yandex browser, to increase in headcount in this -- in both on desktop and mobile. The Yandex browser is clearly a number two browser in the Russian market and the browser gaining share in this market. Both on desktop and on mobile platforms.

But would it be fair to say that given those investments, you don't expect further decline in the market share?

Well, it's difficult to comment about the future, but I think that the actions that we plan to execute on desktop and on Android will help us to grow and possibly increase our market share. It's -- again, these are comments about the future (inaudible).

Thank you. The second question will be regarding the head count again and this recent law on the Right To Be Forgotten, how many people do you expect to hire, if anyone, in order to comply with this new regulation and how does this could potentially impact (inaudible).

So maybe to give some background on this Right To Be Forgotten Law. It was signed in July 2015 and became effective in January 2016. It's applicable to all -- for all search engines operating in Russia, including foreign, so it applies both to us and to Google.

From a practical perspective, we -- the law will require us to consider request from individuals with a -- if we can take down of their links, provided that the search created has a name or is your name. So we'll have to put in place some procedures that are needed to (inaudible) this procedure.

We think that we will need to hire some people in our search team and some people in the legal department to work to be in compliance with the law, but I don't think it will be substantial and will have any much an impact.

Thanks.

Boris Vilidnitsky, Barclays.

Hi. Good afternoon, everyone. A couple of questions from me. First, could you please comment on the growth in search queries. We saw the growth come down to about 2% year-over-year. You guys believe this just a function of the macro or is this just some sort of a market saturation already?

The second question, could you please give us -- now that you mentioned classified is one of the area that you guys were investing in. How it's going there? Maybe, traffic data and so on. One of the competitors reported the quite strong second quarter numbers, albeit slightly lower traffic numbers. So I'd be curious to hear if you believe you were the ones who were gaining the traffic and the clicks. Thank you.

Hey, Boris. It's Greg. Let me answer classifieds first, I guess. On -- if you look at classifieds broadly. I mean, we're only exposed to a portion of it, right, with auto.ru.

As you can imagine, the entire auto thematic, right, the auto industry is in a state of decline, so it's not surprising that the number of pages for, perhaps, (inaudible) is growing not as rapidly for that category as it is for others. We do believe that we continue to gain share against (inaudible) in Moscow and in St Petersburg. We're also starting to gain share in certain other regions.

That's why we want to support it with incremental marketing spend. We feel really good about the product and how much we've come forth in the last 12 months. It's almost hard to believe that we've only owned it for 12 months. If you look at the evolution of the product, how much we've made it friendlier to the consumer, how much it's easier to list cars, to sell cars, to search for cars, it's really night and day.

The difference between us and [Aveda] is that we are ultimately focused on the consumer experience, right? We are trying to make the process of buying a car and selling a car as simple and transparent as you can make it. So we feel good about the classifieds.

We'll continue to invest there. On your other question of search share, look, clearly you do have search market share declines which weigh on your total number of search queries. I would say that it's generally an area of concern, although I would not pay all that much attention to that particular data point, as I think there is probably more noise in there than one should extrapolate from.

Understood. Thank you. If don't mind, one more question from my end. The number of new advertisers grew very substantially. Very nice growth.

Could you comment on those kind of news guys that are coming to advertise with Yandex, never advertised before online and how sustainable do you think that is, if the macro actually improves? Or do you think they'll go back to the print or TVs? Thank you.

Hi, Boris. This is Alex speaking. Our learning from the (inaudible) crisis in Russia, the new customers that typically in the crisis period (inaudible) increase the number of customers accelerate and this customer stay with us, because they understand how these (inaudible) and (inaudible) first of all, it's very measurable and otherwise (inaudible).

So I suppose that these customers will stay with us and it will accelerate our revenue growth when the economy gets better.

Thank you so much. That's it for me.

Thank you. [Alexander Van Granavich] of (inaudible).

Yes. Hi. Two questions, please. So first is a follow up on this new advertiser's for joining the network. So basically I see that for average revenue -- average advertising revenue per advertiser is accelerating. It's around minus 4% in this quarter versus minus 2% last quarter. So does it mean that basically new clients that you acquiring are bringing you much, like, lower budget than existing clients and this is the main reason why the average revenue per advertiser is going down? Thank you.

Hi, Alex. Thank you for the question. So, yes, the new customers which come into contextual advertising, they typically have lower budgets when they start using Yandex (inaudible) but then over time, they learn how to use the system, how to generate traffic to their websites, how to convert them into sales and their budgets increase.

This is absolutely typically normal behavior, so we're absolutely happy with these customers coming into our system.

So basically previously the ARPU was growing because existing clients were increasing the budgets, but now you see that existing clients are not increasing. The budgets are stable and for the new, you see that the budgets are lower. Yes?

Existing clients do increase their budgets and that's the main driver behind our revenue growth, but in this particular quarter, the growth rates of customers has -- was surpassing the growth rate of the budgets of the existing customers.

Okay.

I guess, over time, as I said, when the economy gets better, this trend will be different.

Okay. Another question is on the Yandex Delivery, which you announced recently. Can you please clarify whether you really expect any material impact from that service this year and probably next year? Also, can you please clarify the impact on your working capital, because as far as I understand, this service will assume that you will take the responsibility for the payment and that would require some pressure on your working capital. So whether it's material or not. Thank you.

Hey, Alex. Let me answer your questions on working capital. Yandex Delivery is still in its (inaudible) stage and it's -- I would sort of look at it as an experiment really to see how far we can take this kind of service. So I would not expect it to have a material impact on our working capital.

Then I just wanted to throw out a data point to you with respect to top clients. If you look at the top 20 clients in Q2 versus -- of this year versus last year, the revenue from those clients increased materially higher than our overall revenue growth rate. So it's -- our existing clients are spending more with us, but there's also a lot of new clients which spent very little as they're ramping up their businesses.

Okay. Thank you.

Thank you.

Vladimir Bespalov, VTB Capital.

Hello. Most of my questions have been answered already, but I would like to ask you a question of (inaudible). As I briefly looked through the things, it looks like the advantages of the (inaudible) auction are not proven yet. Maybe you can provide some color why do you expect this to be beneficial for Yandex.

In particular, I notice in some publications that it can result in lower revenues in the short term. Is this also the reason why your guidance for the second half of this year is quite cautious? Thank you.

Hi, Vladimir. Thank you for the question. This is Alexander speaking. So on (inaudible) Auction, I wouldn't completely agree with you that it's unproven. It's used by big companies like Facebook and Google as well and our modelling of [VCG] based on our past trends because it is possible to model it, shows that CPCs in general for the customers will probably be lower, but we expect this to be compensated with incremental paid traffic.

Because now we will charge customers for the incremental -- we will charge lower prices for the incremental clicks on higher acquisitions in our advertising on social [network] pages. And this will give our customers more opportunities to generate more traffic to their websites.

And we expect that activity of the customers and competition for traffic will increase and therefore (inaudible) will compensate lower (inaudible). In general we think it's very good for our customers that our lives will improve and more new customers will have opportunity to gain traffic from Yandex (inaudible) advertising system. In the long run we expect incremental customer activity to accelerate revenue growth for Yandex.

Thank you.

[Stan Kondratyev] Goldman Sachs.

Hi guys, (inaudible) again. Just a quick follow-up from me. You mentioned the increase of traffic acquisition cost as a percentage of the partner revenues sequentially. I was just wondering what would prove that.

Did you have any change in the partners mix with the higher traffic acquisition cost revenue share, or what was behind that? Thank you so much.

Hi. Hi Sasha, it's Greg. There was a little bit of a change in mix. Basically our partner network is growing rapidly, the non-search part of that business, and some of that is slightly more expensive than overall. I think that's pretty much all that's really going on.

Could you just provide an example of the departments that are more expensive than search? If you can, obviously.

None of them are more expensive than search.

Okay. Thank you.

Cesar Tiron, Bank of America.

Yes, hi. My question relates to the context advertising growth on the Yandex networks. It seems that it slowed down versus -- of course, the overall context growth is solid but it seems that the growth on the Yandex network is just 9% and it was I think 13% or 14% in Q1.

Can you please say if you think that the slowdown is basically the reflection of the market share loss on the search queries and therefore if you think that overall the context market grew more than 9% or 10% in Q2? Thank you.

So if I understand you correctly, Cesar, you're asking about the slowdown in the growth rate of Yandex websites from Q1 to Q2?

Yes, exactly.

Got it. No, look, this is exactly in line with our budgeting. It just reflects slightly tougher comps due to some changes that we made a year ago on our SERP, so Q2 of 2014.

Do you think you've lost market share of context in Q2, of contextual advertising?

Well, our search market share -- our overall search market share came down so I think it's reasonable to assume that our overall contextual advertising revenue search share came down a little bit as well.

Thank you.

But obviously it's really hard to actually know that since --you see our revenues but we don't see what Google's Russian revenues are like.

Thank you.

Ulyana Lenvalskaya, UBS.

Thanks very much for this opportunity. Greg, could you please talk a bit about Yandex.Taxi performance? The revenue growth was quite impressive, so what were the drivers and what should we expect for the second half?

Sure. Look, it actually is an exciting business for us. I think it's an exciting business pretty much everywhere you look in the world as people are looking at on-demand transportation as a really attractive segment. If you take a step back I guess and look at what the Moscow market looked like a few years ago, anytime you wanted to get a cab you had to essentially go out on the street and hail down a gypsy cab.

And they drove around in old [Silvia] dilapidated cars and they drove around recklessly; they gouged their passengers on fares. And so even though legal taxi cab companies existed it would take you like 30 or 40 minutes before you'd pick up the phone, call them up and then have a cab show up for you.

And so we came on the scene and we completely changed the system. So from the get-go we only used licensed taxi cab companies, right. We leveraged smartphones, we leveraged Yandex [apps], Yandex traffic to create a product that gives you a ride anywhere in Moscow at this point, or Saint Petersburg within three, four or five minutes.

And it all comes to you at the press of a button, completely seamlessly with -- your credit card is stored and it's completely transparent. You get out of the car, you never have to pay; you get a receipt emailed to you a couple of minutes later.

If you think about what we're focused on, right, we're focused on delivering the best customer experience, right. We are constantly performing checks on our taxis, we make sure that there's no dents, that they have working seatbelts, the drivers have valid licenses, that the overall vehicle appearance is good. And so we view customer safety and convenience as our top priority.

If you think about where can this go I think there's still a huge upside for on-demand transportation in Russia. It has a massively positive impact on the economy. It creates jobs, it increases disposal income for consumers because they now have to spend less on transportation than they did before. It decreases city congestion, decreases parking woes and it generates incremental tax revenues for the government because all of a sudden that black market revenue all of a sudden is back on the books, it's taxed and it's collected.

So we think that there's a huge runway. We see our business accelerating in many regions in which we're in and it's growing steadily in Moscow. It's 200% -- 150%, 200% year-over-year. So I think our expectations for this service are very high.

This is very clear, thank you. My second question will be about Turkey. Could you please update us on the market share and the expected positioning of the Company regarding the Turkish project?

Hi, Ulyana, it's Arkady. Maybe my turn to join the call. We proved -- actually we had three stages, as I said, in coming to the market. One, you need to deliver product which is good enough; then you need distribution and then you need organization. Organization is more or less obvious in our model, as you can guess.

What we have achieved in Turkey after nine months of big effort, it was the product quality. I think it's maybe the first or maybe one of the few times when you can see a new product in search coming to a new market. And we can demonstrate the product quality which is the same or better than a competitor.

Just recently, actually this week, a new independent report was issued by [Ixus] which shows that 64% of users choose Yandex over Google on their (inaudible) side-by-side [tests], which is amazing. And this shows the Company's ability to deliver the technology and the product to a new market.

Now we're in the second stage where we need to distribute this product. Our experience with Firefox as we previously said shows that the product is distributable. It means that if a partner changes their default to our product, Firefox changes from Google to Yandex, the users stick with us. More than two-thirds of them stayed with Yandex, they didn't switch back.

So it is a distributable product. Now we're building our distribution channels and this is what we are focused on. In terms of budget we do not -- we scaled back just like the whole Company did in this economic environment so it will -- it is still a reasonable experiment we say, we don't spend too much on this. Thanks.

Thanks. Can you hint probably on the -- still the investments (inaudible) percentage of revenue approximate (inaudible) is very difficult, you have no revenue but just costs?

It's similar to what we've talked about in the past. It's about [300 basis points].

(multiple speakers).

Yes. Or given the FX probably closer to 3 at this point.

Okay. Thanks.

Boris Vilidnitsky, Barclays.

Hi, good afternoon. One more question from me. It's a topic that I think we haven't discussed in a couple of quarters is the big data projects that you guys mentioned in the past and how things are going there. Is it somewhat on the backburner or are you still pushing it ahead? Thank you so much.

Well, on the Yandex data sector it's another experiment, as you can guess. We have (inaudible) called the (inaudible) which we launched just last year.

This year is the first commercial year of this new start-up. They started to grow; they have a solid pipeline. They started getting first revenues. There was some news recently about this but this is just part of the picture and they have much more in their pipeline. And we think this is yet another model of reutilizing all of the efforts we have.

Expanding Turkey more as a model is one way to expand Yandex data (inaudible) another way to expand where we take what we already have and we improve by our natural business anyway and try to apply it elsewhere. It looks like it will have some business merit as well as from what we see, how they go now. '

Great. Thanks so much.

As we have no further questions, I would like to hand the call back to the speakers for any additional or closing remarks.

Thank you again for joining us today. Please do not hesitate to reach out in case you have any additional questions. Goodbye.

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