Nebius Group NV (NBIS) 2016 Q4 法說會逐字稿

Good day, and welcome to the Q4 and FY16 financial results conference call. Today's conference is being recorded.

At this time I would like to turn the conference over to Katya Zhukova, Investor Relations Director. Please go ahead, madam.

Hello everyone, and welcome to Yandex's fourth-quarter and full-year 2016 earnings call. We distributed our earnings release earlier today. You can find a copy of the press release on the Company's IR website and on Newswire services.

On the call today we have Alexander Shulgin, our Chief Operating Officer; Greg Abovsky, our Chief Financial Officer; and Mikhail Parakhin, our Chief Technology Officer. The call will be recorded; the recording will be available on our IR website in a few hours. We also prepared a few slides supplementary to the story, which are currently available on the IR website.

Now I will quickly cover the Safe Harbor statement. There is remarks that were made during this call about our future expectations, plans and process constitute forward-looking statements. Our actual results may differ materially from those indicated or suggested by the forward-looking statements as a result of various important factors including those discussed in the risk factors section of our annual report on Form 20-F dated March 21, 2016, which is on file with the SEC and is available online.

In addition, any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. Although we may elect to update these forward-looking statements at some point in the future, we specifically are disclaiming the obligation to do so even if our views change. Therefore you should rely on 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'm turning the call over to Alexander.

Thank you Katya, and hello everyone. Thank you for joining our fourth-quarter earnings call.

We delivered another [stellar] set of resulting in Q4, with revenues up 22% and ex-TAC revenues up 24% year over year. This is a remarkable performance given the tough comps we faced with the launch of [dirvegerty] auction in September [2015].

Our full-year revenue grew 27% year over year, 3 percentage points above the top end of our revenue guidance. The [improve in megatrends] have certainly boosted our performance, but I also believe that our execution quality has improved, as we realized our operations [around three dealers], the core Search and Portal business, the three business units, and the experiments.

Within the Search and Portal business, we have been leveraging our expertise in machine learning and AI to increase the relevance of our search results and to improve quality for [after reading]. With our three business units -- Taxi, E-commerce, and Classified, we have tried to create nimble and agile organizations with equity [conversation] directly linked to value creation.

In our Experiments segments shows have proving ground for even more early-stage entrepreneurial activities. I'm excited about the prospects of Media Services, including Yandex Music and Discovery Services, which is our AI-based personalized content recommendation service.

I'm extremely proud of everything that the team has achieved over the last 12 months. In the Search and Portal segment revenue grew 21%, which is in line with the growth rate in Q3 2016.

This result was due to our focus on ad tech that Mikhail will cover in a few minutes, launch of new ad formats, and the growth of revenues coming from all properties including news, mail, weather and [certainly Zen] intelligence content [discovery fee] developed by our discovery services. We started experimenting with Zen in 2015 and rolled it out inside of Yandex browser in June 2016. Average daily time spent per user on Zen is 20 minutes.

This comparable with the average time spent on social networks globally, but still has the room for growth. Zen provides a companion suite of content based on recommendations, technologies and machine learning, as the [guest truly] personal source of information with very little user input. I, for one, am a daily user of Zen. Great user engagement with the Zen content creates [utilization] the shortest monetization.

With the introduction of native ads we saw a two-fold increase in CTR, or Zen ad books. As a result, the revenue run rate of this product in December 2016 was already RUB1.5 billion.

Now turning to business units. Yandex. Taxi continue to scale up in Q4. It is now available in 48 major cities across six countries including Russia, Georgia, Armenia, Belarus, Kazakhstan and Ukraine.

In the second half of the year Yandex. Taxi rolled out another technological improvements, many of which leveraged our market-leading Yandex. Maps and Yandex navigator products. We implemented surge price in Moscow in September introduced [wide change] where we are allowed [private sector] to new order when they're about to complete their current one. We also released a new ride dispatching algorithm that allows us to significantly increase our order completion rates.

In the regions we also benefited from the full integration of Browse and Protect the fleet management automation solution that we provide free of charge to regional Taxi [parks]. In addition, in late September we significantly lowered our minimal tariffs in Moscow. As a result of these implementations, aggregate number of rides of Yandex. Taxi grew 452% year over year in December, reaching 16.2 million monthly rides. Interestingly, while January is typically a slow month in Russia, the number of rides grew sequentially and our year-over-year growth rate actually accelerated from December levels.

On a GAAP basis Yandex. Taxi revenues grew 91% in Q4. On a gross basis, because of certain [marketing] costs and the minimal fare guarantees from our commissioned revenues, Yandex. Taxi revenues grew 188% year over year in Q4. We are committed to [investment] in this business, [opportunity] to penetrate new geographies, to improve the service technologies, and to attract talent to strengthen the team.

Now turning quickly to Yandex. Market and Classifieds. The Yandex. Market posted 20% revenue growth in Q4. The slow-down of growth rate compared with previous quarters was driven by transition to a take-rate based marketplace model which we are rolling out [continually] since September 2016.

Today approximately 13% of the Yandex. Market orders are take-rate based. In 2017 we'll continue focusing on [expediting] the transition to the marketplace model.

Classifieds benefited from the change in the pricing model and launch of monetization in some regions. We now also operate four certification centers in Moscow and Saint Pete.

Cars which have been checked by our certification centers tend to sell two times faster than a regular car listed on auto.ru. As a result, we see increased demand for this service from consumers and auto dealers.

Now let me spend a few minutes on the usual set of stats that we provide on these calls. In Q4 our overall search share averaged 55.4% compared with 55.9% in the previous quarter.

On desktop, which constituted 69% of all search traffic in Q4, our search share was steady at 64%. Our mobile, which constituted 31% of all search traffic in Q4, our overall search share was 40% as a result of limited distribution opportunities on Android and iOS mobile platforms. Our best estimate of our share on Android is 37% in Q4 versus 38% in Q3. On iOS our share was 41% in Q4 versus 42% in Q3.

The Yandex browser continues growing rapidly. Its share on desktop was approximately 22% while the overall share including mobile reached approximately 19%. All in all I am very excited about the opportunities ahead of us in 2017 across all of our operating segments.

Now let me hand the microphone over to Mikhail Parakhin who will cover ad tech in more detail. Mikhail, please go ahead.

Thank you [Sasha], and hello everyone. In 2016 we significantly increased our pace of innovation. Throughout the year we were focused on maximization of the total economic value of clicks to our advertisers. The launch of [Visogene] in September 2015 allowed us to significantly increase the relevancy of our ads on search and to provide our advertisers with higher value clicks.

In the summer of 2016 we significantly improved our broad match capabilities, both on search and in our ad network to cover users' unspoken interest and to enhance advertisers' reach with high-quality clicks. In late summer/early fall we introduced a bid correction algorithm that either automatically reduces the advertisers bid or chooses not to show the ad at all in case expects that the [culture] of the click will be insufficiently high. While the implementation of this correction led to a slowdown in our ad network revenue growth rates in Q4, we were able to significantly increase advertisers' ROI, earning their loyalty and trust.

In 2016 we also leveraged our capital investments in servers and data centers to greatly improve targeting for our ads. Taken together these improvements helped to offset the tough comps from the launch of Visogene in September 2015.

While we're on that topic, I would like to emphasize the growing global demand for high-quality analytics as more and more ad budgets shift online. Currently our Yandex. Metrica is the second-largest traffic analytics solution worldwide in terms of coverage. Initially developed for internal needs, we succeeded in scaling up Yandex. Metrica into a truly global product which currently has access to 1.5 billion cookies that allow us to analyze traffic from over approximately 0.5 billion devices across the globe.

It is worth noting by the end of 2016 the share of traffic coming from the foreign websites overtook the one coming from our domestic markets, Russia/CIS and Turkey [in aggregate]. Yandex. Metrica provides its clients with all relevant analytics on traffic, audience, performance [KPIs], behavioral and user-centric analytics including hit maps which allow our clients to analyze and compare behavior of various audience segments. It also provides clients with a full non-sample [trough] data to solve complex analytical tasks.

In late 2016 we released ClickHouse, our open-source real-time database management system. ClickHouse powers Yandex. Metrica and allows to store, process and manage meta-data in real time, streamlines all data processing and provides instant results.

Our App. Metrica allows developers to track sources of app installations and analyze app usage, and in fact [that there are] various advertising channels. Currently App. Metrica analyzes traffic from approximately 118 million devices globally. The ability of these analytics products gives us a competitive advantage on our local market and creates lots of opportunities beyond.

Now turning to search. We considerably improved [crashes] and completeness in search by adjusting our crawling indexing mechanisms. We now incrementally update our index approximately10 times more frequently compared to the beginning of 2016. This became possible as a result of more efficient utilization of our existing servers.

Historically we had issues in addressing long-tail inquiries. This was a result of our one-market focus; our sample size was simply too small to train our machine learning algorithms. In Q4 we rolled out Palekh, our new search algorithm which is based on large-scale deep neural networks.

This approach allowed our search technology to understand user intent behind inquiry rather than just treat it as a sequence of words. The result was a significant increase in the culture of long-tail search, which usually constitutes up to 30% of all search inquiries.

The [down-going] uptake in mobile voice search is becoming a must-have capability, which historically didn't very serious about the Yandax speech kit and a set of our proprietary voice recognition and synthesis products. In 2016 we significantly increased our automatic speech recognition, or ASR, accuracy in Russian and now we enjoy the lowest error rate on the market. Besides Russian in 2016 we are investing in improving our ASR quality in other major languages including English, German, French, Spanish, Turkish and just started with Italian. This year we also improved the quality of our text-to-speech technology and have been working a lot on natural voice synthesis as well.

In conclusion, I'd like to highlight that despite being a locally focused Company, Yandex has been one of the few companies that pioneered machine learning, artificial intelligence, and neural networks [early on]. This exceptional expertise developed through the years uniquely positions us on the global technology arena, and we will continue to innovate on our local markets using our strong, robust technological knowledge.

With this, I turn the microphone over to Greg.

Thank you Mikhail, and thank you all for joining our call today. In Q4 we delivered another solid set of results. Our consolidated revenues grew 22% year on year and reached RUB22.1 billion. On a full-year basis our revenues grew 27% and reached RUB75.9 billion.

Online advertising revenues accounted for 95% of total revenues in Q4 and increased 20% year on year. Yandex websites revenue grew 20% year on year in Q4 driven by the technological implementations throughout the year that Mikhail mentioned earlier, as well as by the growth of ad inventory on Yandex's own properties.

Revenues from our ad network grew 19% and comprised 25% of full revenues in the quarter. This is approximately 100 basis points lower than in Q3 2016. The slowdown of growth rates of our ad network was partly due to bid correction that we implement in September 2016.

In terms of ad budgets across all advertising categories we saw strong growth in real estate and auto. Real estate ad budgets grew 25% year on year despite the high base in Q4 of last year. Auto ad budgets grew 22% despite the fact that new car sales were still down 1% in Russia.

B2B, finance and insurance, eating out, FMCG and sports all demonstrated above average growth rates. Growth rates in the travel segment as well as consumer electronics continued to be soft, but improved compared with the trends we saw in Q3.

Other revenues grew 93%, primarily driven by the growth of Yandex. Taxi which constitutes the bulk of the other revenue line in consolidated revenues. Traffic acquisition costs related to the partner advertising network grew 16%, slower than ad network revenues in Q4.

The main factors remain the same as in previous quarters, a change in our partner mix. As a result our partner TAC comprised 56.2% of our ad network revenues in Q4, 140 basis points lower compared with the same period last year but 70 basis points higher than Q3 2016.

Traffic acquisition costs related to the distribution partners increased 12% year on year and constituted 7.6% of advertising revenues from Yandex sites. This is 60 basis points lower than Q4 of last year and 50 basis points higher than the previous quarter.

The increase in distribution TAC as a percent of revenue versus Q3 was mainly driven by a one-off payment to one of our existing distribution partners as a result of an extension and amendment of the contract. In the meantime our mobile distribution TAC continues to grow as a percentage of our total distribution TAC, primarily as a result of the new contract for pre-installation of Yandex services on the second screens of Android devices.

Total TAC grew 15% year on year and constituted 19.3% of total revenues, 130 basis points lower than Q4 last year and flat compared to Q3. Paid clicks grew 12% while cost per click increased 8%.

Turning to our cost structure. Total OpEx, excluding TAC and G&A, grew 29% in Q4. Excluding stock-based comp, expenses grew 33%.

Growth was primarily driven by the growth in advertising and marketing expenses in our business units, primarily Yandex. Taxi, salary increases implemented in early 2016, and hiring. Personnel costs still remained the largest cost item.

In Q4 our headcount was up 15% compared with December 31 of last year and up 6% from September 30 of this year. In Q4 our personnel costs constituted 20% of revenues. On an annual basis personnel costs were at 21% of revenues.

Stock-based comp decreased 3% in Q4 and constituted 3.9% of revenues. Decline of stock-based comp was due to significant appreciation of the Russian ruble from RUB72.9 rubles to the $1 on December 31, 2015 to RUB60.7 on December 31, 2016.

G&A expense for the quarter increased 6%. The growth was driven by our investments in servers and data centers in 2015 and 2016 but was partially offset by lower D&A from our finished data center due to the strengthening of the ruble.

Our adjusted EBITDA increased 2% year on year. Our consolidated adjusted EBITDA margin was 30.3% as a result of the increased investments in business units, increase in advertising and marketing spend of our core services, and growth in headcount.

Yandex. Taxi was the main area of investment. Excluding both revenues and losses of Yandex. Taxi from our consolidated results, our adjusted EBITDA margin would've been 37.4%, 710 basis points higher than what we reported, and our adjusted EBITDA would've grown 22% year on year. On an annual basis we delivered adjusted EBITDA margin of 34.4%, 70 basis points lower than in the prior year.

This quarter the impact from ForEx was a loss of RUB1.2 billion related to the dollar-denominated assets and liabilities on our balance sheet following the appreciation of the ruble from RUB63.2 on September 30 to RUB60.7 on December 31. Net income was down 57%, primarily due to ForEx, and net income margin was 5.5%. Adjusted net income was down 11% in Q4 and adjusted net income margin was 14.7%.

Our CapEx was RUB2.9 billion, or 13% of Q4 revenues. On an annual basis CapEx constituted 13% of consolidated revenues due to the postponements of server and network equipment deliveries related to our [Vladimir] data center. Taking into account these postponements we expect our CapEx to be in the mid-teens as a percent of revenues in 2017.

Turning to the performance of our business units. Search and Portal revenues were up 21%, driven by the growth of revenues on our own websites and the ad network. Our own websites revenues include search revenues and revenues generated on other Yandex property such as news, weather, mail and Yandex Zen.

Adjusted EBITDA of Search and Portal grew 14% in Q4 and an adjusted EBITDA margin reached 44.4%. In Q4 adjusted EBITDA of Search and Portal was adversely impacted by a one-off accrual of RUB0.5 billion of VAT primarily related to the prior year's tax audit. Excluding the impact of these VAT provisions, adjusted EBITDA of Search and Portal segment would've been up 21% and our adjusted EBITDA margin would've been 42.9%.

Revenues of Yandex. Market were up 20%. The slowdown of Yandex. Market revenue growth compared to previous quarters was due to our accelerated transition to the take-rate base marketplace model.

Our adjusted EBITDA margin of Yandex. Market was 23% in Q4 as a result of our investments in advertising and marketing, as well as hiring. On an annual basis Yandex. Market revenues grew 39%, while adjusted EBITDA margin was [30%].

Turning to Yandex. Taxi. Revenues at Yandex. Taxi were up 91% year on year in Q4. The slowdown of revenue growth rates in Q4 was driven by the implementation of minimum fare guarantees accompanying the introduction of lower tariffs in Moscow in late September.

Remind you, we use contra-revenue approach to book Yandex. Taxi revenues, and in this approach negatively impacts reported revenue growth. On a gross basis before subtracting marking cost and minimum fare guarantees from our commission revenues, Yandex. Taxi revenues grew 188% in Q4.

The current development of Yandex. Taxi business makes us more than ever confident in our willingness to continue investments in this exciting opportunity. As a result of our increased investments in this business related to advertising and marketing as well as new hiring, adjusted EBITDA of Yandex. Taxi in Q4 was negative RUB1.3 billion.

Revenues of Classifieds business grew 52% year on year in Q4, primarily supported by a change in the pricing model in Moscow and the beginning of monetization in selected regions. Adjusted EBITDA of Classifieds was negative RUB97 million as we continued to invest in this business.

We are also making investments in our Experimental businesses, represented by Media Services, Yandex Turkey, YDF and Discovery which includes Yandex Launcher and Zen International products. In Q4 revenues of Experiments grew 99%, primarily driven by the growth in Media Services, while the magnitude of investments in this segment significantly decreased.

Getting back to corporate matters now. In Q4 we resumed the repurchase of our convertible bonds and ended up repurchased $59.7 million in face value of the bonds for approximately $57.4 million. Since the inception of the program we have bought back approximately $357 million face value of the bonds, and today there are approximately $333 million of bonds that remain outstanding.

We ended the quarter with approximately RUB63 billion in cash and equivalents which is approximately $1 billion at the exchange rate as of December 31. We are also currently exploring hedging options for our US dollar-denominated lease commitments related to our Moscow headquarters.

Now, turning to guidance. Taking into account that we are still early in the year, we're currently expect our revenues to grow in the range of 16% to 19% in the full year 2017 compared with 2016. And with this, let me turn the call to the operator for the Q&A session.

Thank you.

(Operator Instructions)

We will take our first question from Cesar Tiron from Bank of America. Please go ahead.

Hello, everyone. I have two questions.

The first is on the OpEx. You mentioned on the 3Q call that you delay expenses into Q4, and I was wondering if it is both for Search but also Taxi? Particularly, I want to understand how wrong it would be to multiply the Taxi OpEx by 4 [by what you spent in] Q4 2016 and forecasted in 2017? My second question would be on the bid correction mechanism. Can you please share some light on how negative impact it had on your revenues in Q4? And whether it would help to increase [CPT] over time? Thank you so much.

Hello, Cesar. it's Greg.

Let me take the first part of the question related to Taxi. Clearly, the magnitude of our investment in Taxi over the course of the year will depend on the speed with which that business is growing. As Alexander mentioned in his prepared remarks, the business is accelerating meaningfully already. It grew faster in December than it grew in all of Q4, and it grew faster in January than it did in December. And so the magnitude of investment in that business will obviously depend on how fast we are able to scale it up.

On the other hand, we believe that, as the business becomes more and more mature, the magnitude investment will actually decline as certain cities reach their maturities as monetization begins, and as minimum fare guarantees are amended. I would say it's not something that we can predict, given the rapid scale that the business is evolving in, and we will obviously provide more updates as the year goes on.

Then I will pass it on to Mikhail to discuss bid correction.

Mikhail here.

Again, as I said in my statement, we did implement and rolled out bid correction 100% of publishers, mainly due to the reason that we are getting more and more traffic from mobile properties; and in fact the pace of monetization of mobile properties was exceeding the pace of traffic increase, actually. So what was happening is the mobile traffic for the advertisers was becoming more and more pricier compared to desktop traffic. We did implement bid correction to equalize the situation, and it did slow down the growth in the network, but it was basically growth that could not be sustained over time. It is still growing very rapidly, and we still on a yearly basis see the increase (inaudible) higher than increase in traffic. So I wouldn't say the impact is materially negative.

Thank you so much. If you allow me, just a very quick follow-up, Greg.

Would you say something on the core search margins for 2017?

Sure. On core search margins we are aiming to balance, once again, the pace of investment in core search and the various things that we are doing related to core search, such as the voice technologies that Mikhail talked about or the investments that we're making in location-based services and monetization of those, as well as the investments we are making in our relationships with automakers such as the integration of Yandex. Maps and Navigation into the head units of a number of OEMs in the Russian market. What we want to do, essentially balance off the natural operating leverage in the Search and Portal business against the investments that we are making. The net of that is, we expect that the Search and Portal margins will be roughly flat year on year in 2017. The other businesses will receive investment over the course of the year as they prove themselves out.

Thank you.

We would take our next question from Miriam Adisa from Morgan Stanley. Please go ahead.

Hello, everyone.

I want to ask you about the trends that you are seeing so far in Q1. I grant that it's quite early, but how do things compare to the 20% growth that you did in the advertising business in Q4? You mentioned things like real estate and ad budgets were up in Q4. Have you seen any indication that they are also growing in the first quarter?

Sure, Miriam, it's Greg. I'll take that.

I would say the trends that we are seeing year to date in Q1 are broadly in line with the trends that we saw in Q3 and Q4. The core growth of the Search and Portal business remains largely unchanged.

Great, that's helpful. Thank you.

(Operator Instructions)

We will take our next question from Vladimir Bespalov from VTB Capital.

Hello. My first question is on your cash [flow]. It's looks you keep accumulating cash. Are there any limits when -- how are you going to use this cash? Because this is not the most efficient way to have this cash on the balance sheet, especially given that your debt capacity is pretty good and the situation looks like more or less stable and the [ambix is trustable].

The second question: could you give an update on how the situation with your market share and such is developing? Because based on the numbers you provided, it looks like you are still losing your market share in mobile, but it looks like you have stabilized your market share in total at the expense of desktop, by increasing the desktop market share. Is there any progress in improving your market share on mobile in the first quarter, for example? Thank you.

Hey, Vladimir. It's Greg. I will answer the first part of your question relating to the cash, and I will hand it over to Alexander to discuss our market share.

With respect to cash, what we said before is that, certainly, dividends is one of the options that we would consider. Obviously, on the one hand we have an opportunity to invest some of the cash that we have on the balance sheet in very highly attractive return opportunities such as Yandex. Taxi, and that is the investments we have been making. On the other hand, we do see that the situation in Russia is starting to stabilize, with exchange rates which look broadly favorable, with the overall macro environment which is starting to stabilize as well and potentially improve. I think, while the decision is up to the Board, I would say that it's not unlikely for the Board of Directors to revisit that question at the next Board meeting or two.

This is Alexander. I will take the question about search share.

So our share on desktop is stable at 64% and on mobile platforms we lost about 1 percentage points compared to Q3. So, for example, on Android, it's 37% as of the end of Q4 compared to 38% in Q3. As we discussed in the previous call, we added several distribution deals that we expect to have positive impact on our search share, but it takes time for devices to get sold through the retail chain and eventually start getting used. What we saw in Q4 was actually expected, and we believe, through a combination of product investments and the distribution opportunities we will be able to stabilize the share in mobile and potentially grow it again.

All in all, what it takes to grow share is a high-quality product, which we have, and unrestricted distribution possibilities. Here, actually, a lot depends on practical implementation of the FIS [program]. And just to give you a quick update on FIS status, the FIS prescription to Google is in force since late August, but Google hasn't complied so far and continues to appeal. The case is now at [cassation] stage. We believe we are confident that FIS will take the necessary actions to bring competition back to the market.

Thank you.

(Operator Instructions)

We will now take a follow-up question from Vladimir Bespalov from VTB Capital. Please go ahead.

Thank you for taking my follow-up question.

I would like to ask you about Yandex. Market. First, could you provide some numbers with what is the [blended] average commission on the [DCTC] model and under the [take-rate] model? What is the schedule of transition? Are you going to follow the same schedule you announced some time ago? Or are there any changes in the schedule following the departure of the former CEO of Yandex. Market? Could you just update us on the strategy for this line of your business? Thank you.

This is Alexander speaking again.

First of all, I have to say that we are committed to continuing the shift to a take-rate based marketplace model from the current CTC-based (inaudible) model. Our annual growth rate in Q4 has slowed down, and you could view this is an investment in platform transition. We are sacrificing the revenue growth in the short term by building a viable, robust marketplace in the Russian e-commerce. While revenue growth has slowing down because we intentionally set the marketplace commission, CPA commission, substantially lower than the effective commission on CPC model. CPA commission is between 2% to 3%, while effective commission in CPC model is over 6%. Over time we believe these commissions will eventually equalize, but currently we're incentivizing merchants to transact by offering lower take-rate commission in marketplace model.

When are you planning to complete the transition of these models, like schedule for when this is going to happen?

It's difficult to make commitments in this area, but I think bigger part of the Yandex. Market will complete transition by late 2017 and early 2018. Rest of the marketplace will transition when we see the need to do so.

Okay, thank you.

We will take our next question from Cesar Tiron from Bank of America. Please go ahead.

Could you please give us some update on the process with (inaudible) with any new handset manufacturers where you reach agreement to install your apps? Also probably tell us if, on the smartphones, the market share is still around 50%? Thank you.

This is Alexander.

On FIS, as I said, the prescription is in force since August last year. Google hasn't complied so far; partially complied, but not on the key things that they have to do. We believe that FIS will eventually bring competition to the market by making Google implement whatever the prescription is. On distribution deals, I don't think I will be able, due to commercial reasons, name the exact OEMs that distribute Yandex, but there is definitely improvement in midsized OEM manufacturers.

And then your market share on those smartphones, is it above 50%?

[Absolutely]. We are able to pre-install Yandex (inaudible) in the same manner that Google does, our market share on these devices is substantially higher than 50%.

Thank you.

We will now take our next question from Alexander Vengranovich. Your line is open. Please go ahead.

I have a question on Classifieds business segment. One of your competitors have recently reported fourth-quarter numbers, and basically there was some significant slowdown of the revenue growth and some negative impact on the margin, and they explained it was the growing competition. Do you have the similar feelings, that there were some [exploration] of the competition between the players in that market? And do you think it will put some additional pressure on your profitability of the segment in 2017? Thank you.

Hey, Alexander. This is Greg.

Let me comment a little bit on Classifieds. Obviously, I don't want to comment about a competitor or what they are experiencing. From where we stand, we see very little competition in our core regions from other players. We are the leading resource for automotive sales of new and used cars, and we offer what we believe are the best tools for a person to buy or sell, including things like the certification center that Alexander talked about. We do not play in general classifieds, where some of the competition may be coming from, from players like mail.ru, which have released obviously a very good product which is aimed squarely at the general classifieds segment. Within, like I said, the auto vertical, what we found is that our competitive position in our core markets is strengthening and we are gaining share in some of the new regions. So we feel pretty good about the outlook for that segment.

Thank you.

We will now take our next question from Kirill Panarin from Renaissance Capital. Please go ahead.

I've got a question on EBITDA margin in 2017. Obviously, investments in Yandex. Taxi are difficult to predict, but where do you feel happy for consensus expectations to sit at this early stage in the year? Thank you.

Kirill, hello. This is Greg.

On margins, I will just repeat what I've said before. We think that we can keep the balance of investment and harvest within the Search and Portal business such that core margins will be, in the Search and Portal business, will be roughly flat year on year. And at the same time we are committed to making substantial investments in the other business units. We feel very good about the outlook for Classifieds, for Market, and especially for Taxi. So we will make those investments. I don't think it's prudent for me to comment specifically with respect to what the consolidated margins will look like. Maybe the best way to model the business is on a sum of the parts basis, where you will make judgments about what each of the businesses should grow at and what the margins of that business should be.

Thank you.

We will take our next question from Dmytro Konovalov from HSBC. Your line is open. Please go ahead.

Hello.

I have a question about your real estate projects, like you're trying to switch the offices, and I think you wisely decided not to go for it in the past. I also understand there are some new projects in the hopper. Could you please give a little more information on your plans to get better terms in terms of your leases?

Sure, Dmitry. This is Greg again. Let me answer that question.

In terms of our real estate footprint, you may have read some speculations in the press, which I can confirm. We have taken some additional office space in a business park not far from our headquarters, which will house some of our divisions. It covers about 10,000 square meters of space; it's where we'll base, and it's substantially more attractive terms than our existing leases. With respect to our existing leases for our headquarters, as I mentioned in my prepared remarks, we are currently evaluating the potential of hedging out the US dollar leases related to those headquarters, such that we are may be isolated from further FX shock down the line. Then finally, beyond the expiration of our current headquarters lease, we are exploring options for a new home for Yandex, which would potentially be at much more attractive rates than our current facilities.

Thank you.

We will now take our next question from Sergey Libin from Raiffeisen Bank. Please go ahead.

Hello. Thanks for taking the question.

It is about your expectations on the growth rate. As you said on this call, year to date you see growth similar to last two quarters of the last year, suggesting that advertising is growing about 20%. So why do you expect a slowdown in the coming quarters? Or is it just you're trying to be conservative again?

Hello, Sergey.

Obviously, we are very early in the year and it's most prudent to be conservative. As you recall, in 2016 our initial guidance called for growth rates of 14% to 18% and we ended up delivering 27% revenue growth. So given how early we are in the year I would like to be conservative again, and the revenue outlook is based on what we see today. At the same time, as I mentioned earlier, in the question that Miriam had raised, the growth rates in the core business are probably similar to what we saw in Q4 and late Q3. So the business is essentially trending as expected.

Okay, thank you.

There are no further questions in the queue at this time. I would now like to turn the call back to Katya for any additional or closing remarks.

Thank you very much, everyone, to join our Q4 and full-year 2016 earnings call. If you have any follow-up questions, please feel free to reach out to me. You'll hear back from us in late April when we report Q1 results. Thank you so much, and goodbye.

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