Nebius Group NV (NBIS) 2017 Q4 法說會逐字稿

Good day, and welcome to the Yandex Q4 and Full Year 2017 Financial Results Conference Call. Today's conference is being recorded.

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

Hello, everyone, and welcome to Yandex's Fourth Quarter and Full Year 2017 Earnings Call. We distributed our earnings release earlier today. You can find its copy on our IR Website as well as on Newswire services.

On the call today, we have Arkady Volozh, our Chief Executive Officer; Greg Abovsky, our Chief Operating and Chief Financial Officer; and Mikhail Parakhin, our Chief Technology Officer. Vadim Marchuk, our VP of Corporate Development will be available on the Q&A session.

The call will be recorded. The recording will be available on our IR Website in a few hours. As usual, we've prepared a few supplementary slides to the story, which are currently available on our IR Website.

Now I will quickly walk 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 Factors section of our Annual Report on Form 20-F dated March 21, 2017, which is on file with the SEC and is available online.

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

During this call, we'll be referring to certain non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with US GAAP. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is provided in the earnings release we issued today.

And now I am turning the call over to Arkady.

Thanks, Katya, and hello, everyone. Thank you for joining this call. 2017 was an outstanding and incredibly dynamic year for the company, the year of fantastic developments and partnerships combined with substantial investments in our noncore initiatives, primarily Taxi, which in 2017 became as big as our e-commerce business and continues to grow rapidly in triple digits.

We grew our consolidated revenues 24% year-over-year in 2017, with strong growth in Search and Portal of 21% and expansion of its adjusted EBITDA margin of approximately 260 basis points. In 2017, we gained significant Search share on Android and reached historical highs on desktop. We notably improved our user experience on mobile with our revamped Search app and through the introduction of Turbo pages.

Our advancements in AI allowed us to further improve our products such as our core Search and Zen and to launch Alice, our intelligent voice assistant, which opens up great opportunities for the long term. Our two flagship partnerships that we signed in 2017 became a testament to our leading technological expertise in ride hailing and e-commerce. And finally, our non-Search business performed extremely well and reached 18% of our total revenues in Q4.

In 2017, Yandex celebrated its 20th anniversary. All our achievements are a result of our long-term commitment to machine learning and AI. Last year also was the 10th anniversary of our School of Data Analysis, which today graduates 120 master-level machine learning specialists a year.

We continue benefiting from our strong ecosystem, which rests on several pillars, such as expertise in machine learning, strong brand, our data analytics and monetization tools, leading mapping platform and highly motivated management teams. This ecosystem allows us to launch and scale exciting new businesses. We're off to a great 2018.

And with that, I am handing the mic over to Mikhail Parakhin. Misha, please go ahead.

Thank you, Arkady, and hello, everyone. I'm delighted with the results we achieved in 2017 and which became particularly visible in Q4. Our overall Search share increased 210 basis points year-over-year and reached 56.7% in December, despite continuous shift to mobile, where our Search share is lower than on desktop.

Our desktop Search share continued setting new highs, reaching 67% in December. On Android, our Search share increased to 46% and demonstrated 880 basis points gain on a year-over-year basis. Our Search share on iOS was 39% in December 2017 and declined 20 basis points compared to September 2017, as our ability to gain share on this platform is highly limited. In Q4, our mobile Search traffic reached 39% of our total Search traffic, while mobile Search revenues represented 32% of our total Search revenues.

Before switching gears to advertising products, I'd like to take a minute to quickly update you on Alice, our conversational intelligent assistant. Alice was launched in October 2017 as a part of our Search app and was integrated with our Search, news, weather, music and maps. Since then, we have continued to improve its functionality. Now Alice can play over a dozen games, and we are currently testing quite useful features, such as order a taxi from our ride-sharing service and order a pizza from Papa John's. Alice is now available inside our Yandex browser as well.

I'm very excited with the product. Though it's still in early stage of its development, Alice's achievements are already notable. It contributed approximately 1 percentage point to our Search share gains on mobile. It continued to boost the number of Search app downloads, which helped our Search app become the third most downloaded app on Google Play in December 2017. Alice continues to enhance user search intensity and help with user retention.

On the previous call, I mentioned that we started experimenting with Turbo pages in Search. In late 2017, we fully rolled out our Turbo pages in Search, Zen and Yandex. Direct. Today, over 20% of our Search results are offered in the Turbo format, which loads many times faster and offers monetization from Yandex out of the box.

On the ad tech front, I would like to highlight Search layout templates, which we started to roll out in late 2017. Templates are various ad placement formats that allow to dynamically enrich an advertisement with additional elements, such as quick links, contact information, working hours, merchant's rating and others. Such advertisement becomes more informative and visible. As a result, it increases click-through rate, which brings higher conversion rate and ROI. Today, templates are launched in the form of extended advertisement. We are experimenting with mixing extended advertisements with organic search results.

Similar to broad match, we expect the launch of Search layout templates to be gradual, and we plan to present various other ad placement formats throughout 2018. Going forward our algorithms will be choosing which format is appropriate and efficient in each particular situation.

Video advertising has become another area of our development in 2017, as we've been focusing on expanding our inventory. Our TV online button on Yandex homepage provides access to 43 TV channels and content from 30 video-on-demand content providers. Yandex ad technology powers video advertising in the NTV video player, which is installed on NTV's Website as well as across other properties on the Russian Internet. We are also broadcasting Winter Olympics online. I truly believe our technology provides more efficient and less frustrating ad experience.

With this, I'm turning the microphone over to Greg, who will walk you through operational performance of business units and our financials.

Thank you, Mikhail, and thank you, all, for joining our call today. In Q4, we delivered another solid set of results. Our consolidated revenue grew 26% year-on-year and reached RUB27.9 billion. This solid revenue was driven by strong performance of our core business as well as great performance across other segments, including Taxi, Classifieds, and Experiments.

Online advertising revenues accounted for 90% of total revenues in Q4 and increased 19% year-on-year. Yandex properties revenue grew 22% year-on-year in Q4 and accounted for 68% of total revenues. Revenues from our ad network increased 11% year-on-year and constituted 22% of total revenues in Q4. Share of ad network as a percentage of total revenues decreased 1.7 percentage points compared to Q3 of 2017. Other revenues grew 150% year-on-year in Q4, driven by Yandex. Taxi revenue, which constitutes the bulk of the other revenues lines in consolidated revenues.

Traffic acquisition costs related to partner advertising network grew 15% year-on-year. Partner TAC as a percent of partner revenue was 58.1% in Q4, down 130 basis points sequentially. However, partner TAC continued growing slightly faster than our partner revenue as a result of the change in our product mix, primarily driven by the increase of in-app advertising and mobile Turbo pages, which carry higher-than-average TAC.

Traffic acquisition costs related to distribution partners increased only 4% year-on-year and constituted 6.5% of advertising revenues from Yandex properties. This is 110 basis points lower compared with Q4 of 2016 and 30 basis points lower compared with the previous quarter.

Slowdown on growth rates of distribution TAC this Q4 primarily reflect the high base effect in Q4 2016. As a reminder, a year ago in Q4 2016, we made a one-off payment to one of our distribution partners as a result of an extension and amendment of that contract.

Total TAC increased 12% year-on-year and constituted 17.2% of total revenues, 210 basis points lower than Q4 of 2016 and 160 bps lower compared with the previous quarter. Paid clicks grew 10% year-on-year, while cost per click was up 9% year-on-year.

Turning to our cost structure, in Q4'17, total OpEx, excluding TAC and D&A, grew 26% year-on-year. Excluding stock-based comp, operating expenses increased 23%. The growth was primarily driven by personnel costs attributable to new hires.

In Q4, our headcount grew 19% compared with December 31st, 2016, and was up 8% from September 30th, 2017. Our headcount includes employees of FoodFox, the food delivery company that we acquired in December 2017. In Q4, our personnel costs constituted 20% of total revenues. On an annual basis, our personnel costs were 21% of revenue, approximately the same level as in 2016.

Stock-based comp increased 61% year-on-year in Q4 and constituted 5% of revenues, up 110 basis points from 3.9% a year ago. The acceleration of growth rates of total stock-based comp expense is primarily related to new equity-based grants made in 2016 and 2017 and due to accelerated investing of a portion of our RSUs.

D&A expense in Q4 increased 26% year-on-year. The acceleration was mainly due to our investments in servers related to the launch of our datacenter in Vladimir earlier in 2017.

Our consolidated adjusted EBITDA increased 39% year-on-year, and our consolidated adjusted EBITDA margin was 33.4%, up 310 basis points compared to a year ago and up 910 basis points compared to Q3 of 2017.

The significant improvement of our adjusted EBITDA margin on a sequential basis was primarily driven by moderation of losses in Taxi as a result of optimization of incentives to riders and drivers. Our investment in Taxi still remained heavy. Excluding both revenue and losses of Yandex. Taxi from our consolidated results, the consolidated adjusted EBITDA margin would've been 900 basis points higher.

This quarter, the impact from ForEx was a loss of RUB0.2 billion related to the appreciation of the Russian ruble during Q4 2017 from RUB58 to the dollar on September 30th to RUB57.6 to the dollar on December 31st.

Net income was up 189% year-on-year in Q4 2017, primarily due to the increase in income from operations and higher foreign exchange loss in Q4 2016 compared with Q4 2017. Net income margin was 12.6%. Adjusted net income was up 62% year-over-year, and adjusted net income margin was 18.8% compared with 14.7% in the previous year.

Our CapEx was RUB2.6 billion, or 9% of our total Q4 revenues. Full year CapEx-to-sales ratio was 13.2%. We expect in 2018 our CapEx will be at mid-teens as a percentage of revenue.

Now turning to the performance of our business units, Search and Portal revenues grew 20% year-on-year, driven by continuing strong growth in Search and on our owned and operated Websites, but muted by moderated growth over advertising network.

Adjusted EBITDA of Search and Portal grew 31% year-over-year in Q4, and it's adjusted EBITDA margin reached 44.3%. This is up 390 basis points compared with Q4 2016, and up 210 basis points sequentially. On an annual basis, adjusted EBITDA margin of Search and Portal reached 43.7% and expanded 260 basis points compared with fiscal year 2016.

Revenues of Yandex. Market were up 3% year-over-year. Modest year-over-year revenue performance resulted from our activities aimed at improving traffic to our merchants that we launched earlier in 2017. Adjusted EBITDA margin of Yandex. Market was 26% in Q4 2017, up 220 basis points compared with Q4 2016.

In December 2017, we signed an agreement with Sberbank to form a joint venture based on the Yandex. Market platform. The parties have filed for necessary regulatory approvals and are expecting a transaction will close late in Q1 or early in Q2 of this year.

Turning to Yandex. Taxi, revenues of Yandex. Taxi were up 191% year-on-year in Q4. Adjusted EBITDA of Taxi was negative RUB1.6 billion in Q4, a significant improvement compared to RUB3.2 billion negative adjusted EBITDA a quarter ago. This improvement was mainly related to optimization of user and driver incentives that we started in September 2017. Importantly, in Q4, we reached positive gross contribution margin across all of our territories before subtracting marketing costs.

We continued expanding across Russia and neighboring countries. As of the end of Q4, service was available in 169 cities with 100K-plus population and another 56 cities with population of 50 to 100K. Total number of rides grew 250% year-on-year, primarily driven by the regions as well as by solid growth in Moscow and St. Pete.

Now let me provide an update on the stats of the combined Yandex. Taxi and Uber business. In January 2018, the two companies performed 62 million rides, up 77% compared with June 2017, and generated approximately $206 million in gross bookings, up 54% compared to June 2017. We will start consolidating the combined company from February 7, 2018, the day the deal was closed.

Now let me turn to Classifieds. Revenues of Classifieds business grew 74% year-on-year in Q4, primarily driven by revenues from listing fees and IVAS, which increased 99% year-on-year. Adjusted EBITDA margin of Classifieds was 10%.

Auto.ru continues strengthening its position in established markets. We estimate the December 2017 auto.ru generated 71% of all calls from auto classifieds to dealers in Moscow. In St. Pete, auto.ru generated 60% of all calls.

Revenues of Experiments represented by Media Services, Turkey, YDF and Discovery increased 104% year-on-year in Q4. This growth was mainly driven by Media Services and Discovery. Beginning with Q1 2018, we will break out Media Services for you as a separate business unit.

Getting back to corporate matters, we ended the quarter with approximately RUB70.7 billion in cash, equivalents and term deposits, which is approximately $1.2 billion at the exchange rate as of December 31st.

Turning to guidance, given all the moving pieces, we wanted to provide you with slightly more details about our outlook for 2018 than we usually do. We expect our Search and Portal ruble-based revenue to grow in the range of 18% to 20%, and we expect its adjusted EBITDA margin to be roughly flat on an annual basis on the full year 2018 compared with 2017. We will continue to invest in voice, maps and a few exciting products launching in 2018.

We expect Yandex. Market revenues to grow roughly at the same rate as Search and Portal. As we plan to invest into delivery and logistics, we expect adjusted EBITDA of Yandex. Market to be negative. However, just as a reminder, we expect that Yandex. Market will be deconsolidated from our results once the joint venture with Sberbank is completed.

Revenues of Taxi will grow in triple digits in 2018. We expect to continue heavy investment in Taxi, probably on par with previous year, as we reinvest the savings from optimization of driver and rider subsidies into further penetration of the offline market as well as substantial investments into our food delivery business.

We expect our Classifieds revenues to grow slightly faster in 2018 than we did in 2017.

On a consolidated basis, we expect our revenues to grow 25% to 30% in 2018 compared with 2017. This outlook implies consolidation of Uber starting from February 7th, 2018, but excludes the effect of potential deconsolidation of Yandex. Market. We'll obviously update this guidance once Yandex. Market transaction closes.

The slides supplementary to our earnings release include a summary of our guidance that I just provided. With this, let me turn the call over to the operator for the Q&A session.

(Operator Instructions) We'll take our first question from Goldman Sachs from Slava Degtyarev.

A couple of questions. So firstly, can you elaborate on the progress with regards to the Google-FAS resolution? And so do you still aim to reach 50 percentage search market share on Android by the end of 2018, or do you think it could be achieved earlier? And what's the progress on the pre-installation of your Search on new devices? Are those phones already shipped and sold in Russia? And maybe you could share some stats on this Search share on those new devices. And the second question is on the media businesses. So what is the most promising niches or brands within the media segment, so where you see the highest growth opportunities there?

It's Mikhail. I guess I'll take the first one, and maybe Greg will take the second. So yes, currently, the implementation of our agreement goes roughly as we were planning. We still believe it is possible for us to reach 50% on Android by the end of the year. It's an ambitious goal, but that's what we are hoping to achieve. We are -- as you know, we're talking to all the major manufacturers. And I don't think we can clearly go over nitty-gritty details, but we are obviously in very close touch with all the major cell phone OEMs, Samsung, Meizu, Huawei, ZTE and all of them. And so here, we have -- probably can sort of reinforce the guidance we were giving previously.

Hey, Slava, and this is Greg. On the question with respect to Media Services, I would say that the clearest near-term opportunity is around subscription music services. For us, I think this is a very promising segment, and it has been growing very nicely in terms of the number of subscribers and revenue opportunity there. As you know, the opportunities for illegal music downloads and streaming have been reduced over time here in Russia. And as the market is becoming -- as the market becomes to embrace legal streaming music services, I think we're in a position to be one of the leading players here. And so we're very excited about that and the contribution of Media Services to the overall Yandex ecosystem.

We will now take the next question from Cesar Tiron from BofA Merrill Lynch.

I have two questions. So first, on the core Search business, just wanted to discuss the operating leverage. It seems that half of the margin improvement in the quarter was driven by TAC. I wanted to check with you how sustainable it is to have TAC growing slower, at a slower pace than revenues, especially for 2018, and if you could repeat your margin outlook for the core Search for 2018. And then secondly, on Taxi, could you please share with us how the Uber numbers look like for 2017? And also, sorry to ask if you can just repeat what you said on the reduction of subsidies that you wanted to reinvest in 2018 and when you think Taxi would -- can become profitable on a pro forma basis.

Hey, Cesar, this is Greg. Let me try to take both of these questions. On the core Search business, like I said, we expect that the margins of the core Search business will be roughly flat. And this is similar I think to the outlook that we gave at roughly the same point last year. We see a lot of opportunities for reinvestment, primarily around Search and geo-based products, but also around some new exciting products that should be coming out later this year, which obviously do put some pressures on margins. And obviously, once we have something to announce there, we will do so. With respect to the Taxi outlook, obviously, we'll provide a little bit more details on the Q1 earnings call as we will have roughly two months of Uber consolidated into our numbers. With respect to sort of how we see the market and how we're thinking about subsidies and such, what -- as you know, what we've done between Q3 and Q4 is we managed to cut back on subsidies quite substantially. And what we've noticed is that there was essentially no real impact in terms of the growth rates that we saw. For example, if you take Moscow and St. Pete, the growth rates there were down roughly 2 percentage points versus Q3. And these are obviously coming off very, very high bases. So it's obviously quite hard to sustain high triple-digit growth rates. So we -- what we do expect to do is we expect to take some of those savings and kind of reinvest them in the business. What we're still competing with very much is either nonconsumption, i.e. people are simply taking public transportation or their own cars, and we're also competing with various offline services. And obviously, our goal as we scale up this business is to be laser focused on taking share away from both of those. In addition to that, we will also be investing aggressively in food delivery products as we look to combine Uber Eats and FoodFox brands under a new brand, which we'll announce shortly.

We'll now take the next question from Lloyd Walmsley from Deutsche Bank.

First question -- two if I can. First question, given this is your first year really breaking out Search and Portal guidance, can you just give us some color on what's baked into the 18% to 20% in terms of further share gains, benefits from new ad units, macro, just other key factors that could drive upside or downside to the range? And just do you continue to approach that segment guidance with the same conservativism you typically use at the beginning of the year historically? And then a second one following up on some of the comments on Taxi subsidies, can you give us a sense for where you're winding back the subsidies, the magnitude of the wind backs. Are they kind of mostly gone in Moscow and St. Pete or just partially gone? And then just the timing around further reductions in I guess your more mature areas. Any further color would be great.

Sure, Lloyd. On guidance, look, this is early in the year. And this is the -- we want to provide our sort of best outlook as of today. We do expect that Android Search share gains will continue, as Mikhail said. We do see some of the benefits from the new products that we're kind of rolling out. But at the same time, we -- in the first half of the year, we're still kind of facing the headwinds from the loss of the Ukraine business, as we talked about as well as kind of slower growth on the ad network side, which we do expect to persist. You did ask about TAC I believe. And I wanted to address that. We expect that our distribution TAC will stay roughly on par with 2017 levels. And so we do not expect to see significant pressure there. On partner TAC, it's more of a tactical matter. And so it'll depend very much on which products we want to push. Some of the products do carry higher TAC rates than others. For example, and we've talked about this I think on the last earnings call, things like video or mobile ads, we tend to -- since we want to push those more aggressively, will also provide higher TAC rates to publishers. Does that answer the first part of your question?

Yeah, that's great.

Great. And then on the...

And then on Taxi subsidies.

On Taxi, so as I think I said, we pretty much reduced subsidies in Moscow and St. Pete to very, very low levels. We're still subsidizing aggressively in the regions. And that's because we feel that our market position in Moscow and St. Pete is very strong, whereas regions are still either underpenetrated, the network effect there is not as strong, or there is offline competition, which we are looking to go after. And so that's kind of what's driving that.

We will now take our next question from Miriam Adisa from Morgan Stanley.

Firstly, sorry if I missed this, but could you just give the stats on Zen, the run rate, if you're sharing that this quarter? And could you just talk about your plans for this, this year? And then also, on Taxi revenue, on your guidance, is this triple-digit growth, is that primarily driven by the subsidy reduction, or is some of this also driven by commissions increasing on the Yandex platform?

So I'll take the second part first. It includes a number of things. We do look to optimize the commission structure. It does imply that rides are still growing very, very strongly. As I mentioned, if you take our very old cities, i.e. cities where we've been from day one, they're still growing kind of 170% plus year-over-year. And so there's plenty I would say of tailwind still left there in terms of growing the revenue in 2018. And then in terms of Zen, what we're seeing is that Zen is growing rapidly. The current run rate is RUB3.5 billion roughly. And that's up 130% or so year-over-year. And our plan there is to make this a very important product for consumers. It currently has roughly 10 million DAU I believe. And in terms of usage, it's still generating like I think roughly 30 minutes of usage per person. We want to include more and more videos in there. We want to include more entertaining forms of content. And we're also trying to push a slightly new format, called Narrative, which I think maybe it's kind of similar to Instagram Stories or something like that, but it includes content from publishers which are in the form of cards which somebody can flip through, including images, text and other multimedia. So we're still very excited about Zen. We think it's a really promising product. We are obviously integrating it closely into the Search Portal in terms of our browser, our homepage, desktop, mobile and everywhere else.

We will now take our next question from Ulyana Lenvalskaya from UBS.

Couple of follow-ups on Taxi, if I may. First of all, can you confirm please that Uber also generates EBITDA loss so that the addition of Uber should at the moment make EBITDA loss bigger? And Greg, when you say triple-digit growth in Taxi, do you compare Yandex plus Uber to just Yandex. Taxi in 2017, or is it on a pro forma basis?

Ulyana, sure. So when we talked about our expectations for EBITDA loss in Taxi, that's on a consolidated basis. So obviously, that is a combination of Uber and Yandex, right? And when you asked about triple digits, well, unfortunately, this business is not growing quadruple digits, but this is on a pro forma basis. And so it's 100% plus growth that we expect to see in net revenues in 2018.

Okay, Greg. And could you please comment on your view on current market share of Taxi and Taxi market or maybe the size of Taxi market, or how reliable this Analytical Center on the Russian government data is?

So we think we are in a very strong position. I can't obviously comment on our market share, as those figures are not readily available. We think the market is expanding still and will probably continue to expand as people do substitute public transportation and personal car usage for ride sharing. And we are trying to address those opportunities from a variety of angles as we are now starting to experiment with both carpooling type products as well as sort of other forms of ride sharing, which tend to lower the average fare for an individual consumer. And so we think that this is obviously just a better way for cities to address their transportation needs, and it's better choice for consumers. And we want to make this service obviously ubiquitous.

Okay. But if you take total Taxi market, is the growth rate single digit or double digit, or how to think about the total market growth?

I wish I knew. We just don't know. What we're see -- like I said, I think the most interesting way to think about it is, if you take an established market like Moscow, the fact that we grew in Moscow 170% plus in Q4, seven years after launching the service, should tell you something about the opportunity to expand the total size of the market.

We will now take the next question from Vladimir Bespalov from VTB Capital.

So I have also sort of follow-up questions on the Taxi business. First would be number of cities currently covered. Do you still see a lot of opportunities to expand geographically? Do you hear me? Hello?

Yes, we hear you.

Okay. With the Taxi business, do you still see opportunities to expand geographically after the large number of the cities which are covered now, or it's just more the growth inside those cities where you operate now? And the other thing is, how should we look at the minority stake which you're going to report in your accounts following the merger with Uber, which was completed this year? Should we just rely on that valuation number which was done for the purpose of the deal to derive that? And the other thing about Taxi is on food delivery. Could you maybe elaborate a little bit about the strategy because FoodFox is currently mostly concentrated within the third ring of Moscow? So how aggressively are you going to expand this business, and what kind of investment it will require and how this might affect the Taxi margins?

Hi, Vladimir. In terms of geographic expansion, the answer is yes. We will continue geographic expansion. Obviously, this will be primarily into smaller cities. So the amount of population covered will not be growing as rapidly as it has in the past. However, we still see ample opportunity to grow the business within the current perimeter, just as the network effect tends to develop, the ride times decline and the fares are attractive for consumers. In terms of how are we reporting this from a -- the adjusted net income number essentially will back out Uber's minority interest in this business. And so whatever losses we generate in this business will -- some of -- a portion of those losses equal to their ownership of the new co will be backed out, so roughly 36% or so. The adjusted net income numbers we'll report will be net of those. And then when I talked about our expectations for EBITDA loss, obviously, that's aggregate. And that includes sort of all of the initiatives. And absolutely, the answer is we do want to take FoodFox and Uber Eats outside of this core perimeter. We see very large opportunity here. And we do want to invest aggressively. And so when I talked about the EBITDA loss for Yandex. Taxi to be roughly equal to the 2017 levels, obviously, a large portion of that is for extension into other categories, such as food delivery. Hopefully, that answered all of your questions.

And in terms of balance sheet value of the minority stake, how should we approach this related to this Uber deal?

I'm happy to follow up with you offline.

We will now take our next question from Alexander Vengranovich from Otkritie Capital.

From my side, a couple of follow-ups. So first one on Android Search share in fourth quarter '17, so look like it was pretty strong actually. And can you please share some thoughts on what were really the drivers behind this increase outside of Alice, which I think was one of the contributors, because like previously I think you were expecting some sort of a stronger boost than the first quarter '18 once new Android devices are shipped to Russia, the new widget. So that's the first question. And second question on Alice I think, so how should we look like about -- how should we think about the evolution there, service? Should we look at some products similar to Echo, Amazon, which is like Alexa based, and which might bring some additional benefits for our e-commerce business? So please just share your thoughts. And last thing, some quick follow up on Taxi. I think I haven't heard any number for gross revenue growth on fourth quarter. That would be also (inaudible).

Hi, it's Mikhail here. I guess I'll take the first two questions. So in terms of the clear share growth in Q4, yes, as you correctly pointed out, was one of the big additional drivers that it contributed strongly to our result there. Aside from Alice, of course, we still have lots of help from the choice dialogue that is being shown on devices, on existing devices, and as well as continued improvement in our Search quality. And according to our measurements, we believe we increased the gap with the main competitors in terms of the quality of the results we are showing. As we go forward, Alice -- of course, we have -- we are very ambitious, and we -- turn Alice into the whole big ecosystem of things surrounding users everywhere in offline world. I don't think we are ready to share all the details as of now, but we are obviously investing a lot in that area. And we see very, very strong growth rates in Alice, and we want to capitalize on that. So yes, we will not stop pushing there.

Hey, and, Alexander, on your second question about gross revenue growth rates, in Q4, gross revenue grew at the same rate as net revenue, [under 191%] (corrected by company after the call).

We will now take our next question from Svetlana Sukhanova from Sberbank.

May I please make a step back to Search and Portal business and/or advertisement business overall? Can you please elaborate why ad network is growing so slowly? And I understand that you introduced bid correction in Q4 2016. So Q4 last year was already a low base, while looks like, even from this low base, ad network revenues are still declining. Can you please elaborate? And second question, let me shoot it at you at once, would be on Search revenues. Why the Search share gain which you have seen in Q4 is still not translating into the Search ad revenues growth?

Hi, it's Mikhail again. So yes, it's actually a similar answer to both of the questions. Like there are a number of factors that work against faster growth. One is, of course, Ukraine. And that's probably one of the major ones we're still fighting as the comps and Q4 was when Ukraine completely gone offline with -- last year with all the -- yes, last year, when all the contracts was wound down. We -- and on ad network side, as we were talking about it last call, on the last call, our internal ad network on our Yandex properties continues to grow very strongly. And as we take overall time span away from other Websites, external network a little bit in that regard suffered that it grew slower. There's a little bit of the transition effect. There were certain things that we -- that got a little bit delayed in the end of Q4. So as we were talking previously, we have the new ad technology called Templates that we started rolling out. Unfortunately, the rollout was -- in fact was slower than we anticipated. And it will continue because it's a multistage process. We will keep on working on it, but rolling it out bit by bit. So that didn't help the comps. And on the -- especially on Android side, I just wanted to remind you that search portal includes everything. So search is only roughly half of our search portal revenue. And mobile is roughly a third of that. And Android is roughly two-thirds of that. So overall, it definitely did help. It just is not as visible against other factors as it could've been.

(Operator Instructions) We will now take our next question from Sergey Libin from Raiffeisen Bank.

First one is on personnel. So you had quite a significant increase in the number of employees throughout the year actually, but the increase in the personnel-related costs was much smaller than that. So I just wanted to understand whether the new employees are lower paid, and are you going to somehow increase their -- so is the personnel cost going to increase going forward, or given that the increase in number of employees was that significant, do you think you will need probably new premises in the near future? So that's first one. And secondly, I would like to ask whether you're going to air World Cup 2018 as well as Winter Olympics? And is it somehow included in your guidance?

Hi, Sergey, I'll take the first part of the question. So we're hiring aggressively. Most of the growth in personnel in 2017 was in our business units in terms of specifically within Taxi. That's where, as you can imagine, most of the growth in headcount was, but we're also hiring aggressively for our mapping efforts as well as for our Classifieds. As I mentioned, Classifieds seem to be a very promising segment. The revenue growth rates there have accelerated in Q4, and we expect that they will accelerate further in 2018. And so we obviously want to support growth in Classifieds with more headcount. The growth in headcount in Taxi, like I said, shouldn't surprise you either. And so it's not like we're hiring less expensive employees. It's just going to take a while to work its way through. And so keep that in mind, please, as you model out the business. And I'll take -- I'll pass the mic to Micha for the second part of the question.

Yes, on video streaming and translation, so we are streaming Winter Olympics right now. You can see it on our main page. I cannot yet comment on the World Cup and other similar issues because, obviously, we are interested in streaming high profile events as they drive users and some of them stick afterwards. By themselves, those events I wouldn't say impact materially our bottom line. Their main importance is in the fact that new users coming, they are -- more of them are becoming accustomed to watching TV on our properties. And that drives our video advertising revenues. So I wouldn't say that factoring or not factoring, say, Winter Olympics streaming would have much a real impact on our numbers.

Right. I got it. And sorry, maybe while Arkady is on the call, may I take the opportunity to ask about the business in Turkey, for example, or some other things, like Yandex data factory, which are normally not widely discussed on these calls, but could be interesting to the audience, please?

Yes, hi. So Turkey's still there. We now have basically one product which is still in the market, which is Yandex. Navi, which we extended just a couple of weeks ago. We switched to our own map, our own map of Turkey. So we are a mapping company in Turkey completely now. We're creating our own maps. This product has -- it now has its own monetization. And we cut the -- all other investments for now in Turkey. And we're very close to be profitable there. On the other things, we have dozens of different Experiments, which we report regularly. And some of them become our business units, like Media Services has become a business unit. We are considering a couple of others to transform to business units soon. So Experiments come and go. There's many of them.

We will now take the next question from Olga Bystrova from Credit Suisse.

You gave guidance on overall your Search and Portal business growth. Can I ask you how you see overall online advertising market in Russia developing in 2018? When you talk to advertisers, do you see acceleration in budgets, either in general or, let's say, taking share from TV? And also, how do your clients think about allocating budgets on desktop versus mobile? Is it an incremental budget for them, or this -- they sort of reallocate within their current budgets? And I guess the second question, I'm not sure if you can or would be willing to talk about it on the call. When you think about your food delivery business, can you maybe elaborate a little bit on what business model you're planning to undertake and your expectations for growth? Are they mostly built on expansion of the online food delivery market, or you have some material market share ambitions as well?

Okay. Mikhail is here. So I'll take the first one. So in terms of the overall advertising market, we basically can see continuing taking money from the offline world to online world. We do not see dramatic changes in the pace of growth there. We do see, of course, the effect of our properties getting more time spent on things like Zen and stuff and in general growth of services like that. We do see faster growth in terms of the which areas tend to overperform -- outperform. We probably see video as another area which grows faster than previously and taking budgets from TVs into online world. Yes, in terms of redistribution of the budgets, as usual, advertisers in general tend to be a little bit cautious and apprehensive taking money from desktop to mobile. So gains there always tend to lag the gains in traffic. It takes a while for advertisers to adjust their split of the budget. We expect this lag to continue, but eventually, they do redistribute. So yes, I think those are the main probably trends that we are seeing. And the second is for Greg.

Yes, hi, Olga. On the food delivery question, so at this point, we do like the own delivery model, where it is our couriers as opposed to the restaurant couriers who are delivering the food. We think that that provides superior experience for consumers. But importantly, what we do want to utilize with respect to food delivery is the significant synergies we see both from the search business, where quite a number of consumers are coming to search first before deciding what food they want to order. And secondly, we also see significant synergies with the ride-share business, which we also are very much interested in exploiting, as you can imagine.

That's really helpful. And I don't know if you can talk about sort of market share ambitions or in general how you think about growth in this business for you specifically.

The way we see growth in food delivery business is it's just a very, very nascent market. And we're very, very early here. Consumers don't understand in many cases that this is something that's even available to them. That's number one. Number two, the previous experiences have been so poor, right, where the wait times were extremely long, the food came in -- by the time it arrived, it was already cold. Selection was poor that consumers weren't returning as much. And so what we're obviously aiming to utilize and leverage is, like I said, our position in Search, our ride-sharing business, our knowledge of maps and routing algorithms and the fact that it's just -- we're all very early, and consumer preferences are likely to change.

We'll now take our last question from Vladimir Bespalov from VTB Capital.

I would like to ask you about the Classifieds business because it has been overshadowed a little bit lately by developments around Taxi and the Market. But we see very good growth rates here. And could you maybe elaborate a little bit on your strategy regarding this business, let's say, on a three-year horizon? How do you see this developing? Are you going to build a fully fledged horizontal Classifieds business platform, and when we can expect margin improvements here, and what would be the drivers for growth in 2018 that you anticipate?

That's a very good question. Yes, we are very excited about the Classifieds business. Our view is that a very tailored vertical player has extremely good chances competing against horizontal classifieds players because what they can provide to consumers is very much a tailored experience. And we tend to utilize all of the scores of Yandex technologies, everything in machine learning and other parts of our ecosystem, to improve the experience for a Classifieds consumer. For now, Classifieds is overwhelmingly focused on the auto segment. And I think that will be the case for some time, although we are also interested in real estate. That has been growing very, very nicely for us. We have no real appetite to get into the horizontal business. Our focus is one of being just a highly, highly useful vertically optimized tool to serve a very specific consumer need, i.e. when you're looking to buy or sell a car, you're going to do it on auto.ru. Oh, and I'm sorry. You asked -- margin outlook. Look, on the margin front, we're not focused on generated significant margin in the Classifieds business in the near term. Our feeling is that we still see hyper growth ahead of us. And we're more focused on investing here rather than harvesting.

That will conclude the Q&A session. I would like to hand the call back over to your speakers for their closing remarks.

Thank you all for joining our call today. Sorry for the fact that the line disconnected, but hopefully, we were back pretty quickly. Please feel free to reach out to us in case you have any follow-up question. And we'll happy to host you on our Q1 2018 earnings call in April this year. Thank you. Bye, bye.

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