Nebius Group NV (NBIS) 2020 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the third quarter 2020 financial results call. I must advise you, this conference is being recorded today, Wednesday, the 28th of October 2020.

We now like to hand the call over to your first speaker today, Yulia Gerasimova, Investor Relations Director. Please go ahead.

Hello, everyone, and welcome to Yandex' Third Quarter 2020 Earnings Call. You can find our earnings release and supplementary slides on our IR website. The key speakers on our call today are Tigran Khudaverdyan, our Deputy Chief Executive Officer; Daniil Shuleyko, our Chief Executive Officer of Yandex.Taxi; and Greg Abovsky, our Chief Operating and Chief Financial Officer. Yevgeny Senderov, Chief Financial Officer of Yandex.Taxi, will be available on the Q&A session.

Now I will quickly walk you through the safe harbor statement. The various remarks that we make during the call regarding our financial performance and operations may be considered forward-looking, and such statements involve a number of risks and uncertainties that could cause actual results to differ materially. For more information, please refer to the Risk Factors section of our most recent annual report on Form 20-F filed with the SEC.

During the call, we'll be referring to certain non-GAAP financial measures. You can find a reconciliation of non-GAAP to GAAP measures in the earnings release we published today.

And now I'm turning the call over to Tigran.

Thank you, Yulia, and thanks to everyone for joining our call today. Q3 turned out to be a better quarter for us than initially expected. We have seen a recovery across our key businesses, which, coupled with our prudent approach to cost and resources planning, led to strong profitability improvements. Greg will talk about this more later.

Since we regained full operating control over Yandex.Market a few months ago, we have put an increased focus on deepening the integration between the various businesses within our ecosystem. In this regard, we have paid particular attention to Yandex.Plus, which we see as one of the key enablers of our ecosystem strategy.

In Q3, we enhanced Yandex.Plus, with access to a full KinoPoisk catalog. We also replaced several individual bonus programs and discounts for Yandex.Plus members with a unified cashback offering. Subscribers earn cashback rewards when they use our services and then can spend these rewards across the Yandex ecosystem. This update presents a better value proposition for our users, and we believe will allow us to improve customer retention and monetization across our services. The number of Plus subscribers has more than doubled since last year and now exists 5 million in Russia alone.

E-commerce is another priority area for us. The integration of Yandex.Market is progressing well. One of the key advantages of full consolidation is a much faster decision-making process compared to the JV structure. An important milestone for us was the combination of e-commerce businesses, price comparison in the marketplace into one platform under the Yandex.Market brand.

This unified platform enables us to provide the full suite of e-commerce services to over 30,000 of our partners, including access to consumers, fulfillment, logistics, advertising and marketing, payment support and analytics. This platform is also one-stop shop for online buyer.

Among recent developments, I wanted to flag our first step towards deeper integration with Taxi vertical on logistic infrastructure. In Q3, Yandex.Market started to pilot with Lavka, where consumers may order an on-demand delivery of marketplace orders using our several Lavka drugstores as the last-mile delivery solution. Another area of integration is with Yandex.Plus. We have expanded our loyalty program to our marketplace, so users are now able to receive up to 5% cashback as well as to pay for their purchases with Yandex.Plus points.

Let me give you a brief overview of some of our key trends in Q3, Search and Portal. In Q3, we continued to Search share gains on Android, reaching a record 58.7%, which represents a further 120 basis points increase from Q2. Our overall share remains strong at 59.3% in Q3, up 270 basis points from the previous year. We have seen a slowdown in the pace of our Search share growth in September, October. But we are confident in our ability to continue growing our share further.

We continue to enhance our advertising technologies. A fixed-pay model launched in Q2 is gaining very good traction, especially with our SMB partners, and its share in total advertising revenue has reached mid-single digits compared with 0 in the beginning of Q2. It's a win-win, and our advertisers now spend less per action and they receive better return. They pay only for results and spend their ad budgets more efficiently. Hence, they place more ads through Yandex. Moreover, this model allows us to attract new customers for whom the auction model was too complicated.

In Q3, we also completed the acquisition of K50, an efficient and fully automated platform for centralized ad placement in different channels. This company is the one of the leading partners for ad agencies on the Russian market. Initiatives such as our fixed-pay model, small bolt-on M&As and others are all aimed at increasing the efficiency of ad spending and convenience of use for our customers.

Turning to Zen, user engagement continues to grow fast. In September, Zen's daily audience reached a new record of 18.2 million users, up 45% versus September of last year. We are very encouraged by our progress on the video front, which remains a key focus for Zen this year. The time spent on video in Q3 increased by 18.5x versus September last year and by 42% versus the end of Q2. Today, video accounts for 20% of total time spent on Zen versus 2% last year. In September, Zen revenue reached RUB 10.3 billion on an annualized run rate basis, growing 33% year-over-year, a solid improvement compared to the July run rate of RUB 8 billion.

The performance of the Taxi group was also very strong. Daniil will provide you more color on this in a minute. All in all, Q3 was indeed a good quarter for us. However, the second wave of COVID is already emerging, and the number of new daily cases is above May's peak level. The situation remains uncertain, and until there is a greater clarity, we will maintain our conservative approach to cost, hiring and capital allocation. We believe we are now better prepared to face the challenges compared to 6 months ago because: first, we have learned to use our resources even more efficiently and continue to improve our unit economics even in the toughest times; and second, we have seen a number of new exciting opportunities, which we believe will add to our long-term growth potential.

Finally, a couple of words about fintech. We continue to explore various opportunities open to us, including in-house development, partnerships and M&A. Our key focus areas are payments and digital finance services for our customers, partners and SMEs.

And with this, I'm turning the mic over to Daniil.

Thank you, Tigran, and hello, everyone. Q3 was a strong quarter for the Taxi group. Ride-hailing showed steady recovery, this business doubled in orders and GMV year-over-year. Lavka continues to rapidly scale up. Our Drive car-sharing business joins the Taxi group family and focused on optimization, new product launches as well as the realization of synergies with our ride-hailing business.

Let me start with ride-hailing. In Q3, ride increased 24% year-over-year and GMV was up 27% year-over-year. This is a significant improvement compared with a decline of 19% in the second quarter. GMV grew faster than rides as demand for rides [outgrew] the supply of drivers. Throughout the quarter, we were extremely focused on managing this undersupply condition, and in the recent weeks, the situation was starting to normalize.

Growth of B2B GMV accelerated sequentially. The acceleration was predominantly driven by B2B logistics which comprised approximately 20% of our B2B ride-hailing service in Q3, up from 0 in the year ago.

Since the end of Q2, we have significantly increased the number of partner enterprises in B2B segments of logistics. October to date, the number of businesses actively using our logistics services exceeded 10,000. The number of deliveries continue to grow rapidly. The annualized run rate already exceeds 40 million deliveries.

Logistics services is a key focus for us as we believe that this will become a sizable segment for the group. Yandex.Eats, our food delivery business, has over 29,000 restaurants and stores at the Plus platform. This is the 2.3x growth compared to September of last year. Eats orders grew 98% year-over-year in Q3, while GMV increased by 109%. I believe that this is a truly remarkable result for the business as there has been no restrictions on eating in restaurants or restaurant capacity limitations in place during Q3.

Eats' revenues grew 2.6x year-over-year. In Q3, Eats continued to ramp up its grocery offering. As of today, Yandex.Eats offer grocery delivery from 9 top grocery chains, each with 2,000 to 8,000 SKUs. In addition to outlook, of course, and also, which I mentioned on the call in July, we have recently added 7 more chains, among them, Magnolia, Miratorg, Magnet Dicte and others. While Eats is developing the city grocery model, Lavka continues to scale up its hyperlocal delivery service.

As of today, we have over 230 drug stores, over half of which were open in the last 6 months. Based on the third-party data, it appears that Lavka already has the highest number of orders per store, and there is significant room for further growth. Lavka revenues reached RUB 2.5 billion in Q3. We see grocery as a great opportunity to expand total addressable market for our services and as the logistic infrastructure that places a drugstore within a 30-minutes walking radius for something like 20% of Russian adult population.

And I also like to say a few words about Yandex.Drive. I think that the Drive team did an amazing job during the past few months. In Q3, Drive posted 28% year-over-year revenue growth, which translated in RUB 2.7 billion of revenue. During much of Q2, the team focused on cost optimization. The disciplined approach led to adjusted EBITDA of RUB 71 million in Q3 or 3% adjusted EBITDA margin. I am very glad that they joined the Taxi group.

Together, we've been extremely focused on the realization of multiple synergies that ride-hailing and car-sharing businesses have. In Q3, we added Yandex.Drive to Yandex.Go app to provide our customers with multiple transportation options. Already, this has generated approximately 5% of new users to Yandex.Drive.

In mid-August, we launched our Yandex.Go app. Yandex.Go offers a collection of services, including ride-hailing, car-sharing, public transport schedules, Eats and Lavka available at the push of a button. Today, Yandex.Go app generate 25% of all new customers for Yandex [food initiatives].

A few words about the recent trends we're seeing right here. October to date, we have seen some slowdown of year-over-year growth trends as a result of second wave. Both ride and GMV are currently growing in low 20s year-over-year. It is difficult to predict how the situation will evolve, but we've developed a clear playbook of how to react, and now we have a collection of services that make people's lives more convenient during the second wave. So we feel pretty confident about performance of our businesses.

We've also further expanded our COVID-related support programs. We are working with fleet management companies, drivers and couriers, restaurants and retailers as well as with all our partners in logistics and Drive, to ensure safety of all the services we provide and to offer support to our partners during the difficult times.

Greg, now I'm turning the mic over to you.

Thank you, Daniil, and hello, everyone. I'm very pleased with our Q3 results, especially with the profitability in our key businesses, which is a function of improved operational efficiency and cost optimization.

Let me walk you through our Q3 performance and the latest trend across our business units. Search and Portal. Our Search and Portal ex-TAC revenue improved materially to plus 8% year-over-year in Q3 from minus 9% in Q2. We're very pleased with this growth that we achieved on the back of our proactive steps to optimize our distribution and ad network partnerships.

Total advertising revenue on a like-for-like basis, i.e., including Yandex.Market price comparison in both full Q3 2020 and Q3 2019, came to 2% year-over-year. Adjusted to exclude the negative impact from terminating our search contract with Mail in early July, our total advertising revenue growth in Q3 would have been 4% year-over-year.

The best-performing industries were FMCG, IT and telecom, finance and insurance as well as health care. While the worst-performing are still travel, due to the ongoing restrictions; and the categories where ad budgets didn't recover due to the product being out of stock, which is in auto; or where consumer demand is strong on its own and doesn't need extensive marketing support at the moment. For example, real estate, domestic services and food delivery.

SMEs continue to drive the recovery ahead of large enterprises. That being said, the pace of recovery has slowed somewhat as the number of new COVID cases has started to increase again. Advertising growth in October on an ex-TAC basis was around mid-single digits, though this has improved over the last week or so to a high single-digit growth case.

Profitability-wise, we have managed to deliver the strongest margin ever of 52.6%, which was primarily driven by strict cost controls, optimization of TAC rates and improved operational efficiency. Overall, we believe that the level of around 50% is sustainable for this segment. However, we may decide to reinvest a certain part of our profit to support growth of our ecosystem and to improve our market position.

Moving to Taxi. Starting from this quarter, we've included Drive into the Taxi group, while we have excluded the self-driving group. Taxi group revenues increased by 58% year-on-year, driven by the solid recovery in our mobility businesses, such as ride-hailing and car-sharing as well as the continued strong growth of our FoodTech services. Revenues of ride-hailing and FoodTech services combined grew 64% year-on-year, an acceleration from 41% growth in Q2.

Q3 was another impressive quarter in terms of adjusted EBITDA. Let me highlight a few things here. Adjusted EBITDA of our ride-hailing and FoodTech businesses amounted to RUB 1.7 billion, a material increase compared to RUB 998 million in Q2. This was driven by further margin expansion in the ride-hailing business on the back of cost-saving initiatives, improved revenue growth as well as supported by a recovery in rides and average checks.

We also reached breakeven in Eats due to improved efficiency of operations. This is a great achievement from the team, given the tough competition in the light of the incremental support which we provide to our partner restaurants during these difficult times. These 2 factors helped to offset higher investments in Yandex Lavka and in B2B logistics.

In addition to Eats, Drive has also delivered positive adjusted EBITDA for the first time in its history, which was enabled by increased demand and higher car utilization post the lockdown, optimization of lease expenses and rigorous cost control.

Now let me give you an update on the performance of Yandex.Market on a full Q3 basis. Total e-commerce revenue amounted to RUB 6.9 billion, which implies 55% year-over-year growth. Price comparison accounted for about 1/3 of total Yandex.Market revenues and grew by 23% year-on-year in Q3, and we see similar trends for price comparison in October month-to-date.

GMV in the marketplace increased 2.3x in Q3, which reflects the expected normalization of growth rates post the peak demand during the lockdown months in Q2. The trends in October remained solid with GMV growth of around 2x month-to-date. Adjusted EBITDA loss of e-commerce was RUB 1.2 billion for the full quarter, which is a material improvement from the more than RUB 1.8 billion loss in Q3 of last year. The upside in profitability was driven by improving efficiency of operations, primarily in delivery and fulfillment costs as well as development of our own courier platform, improving stock replenishment and availability as well as economies of scale due to growing number of orders.

Turning to other businesses. For Media Services, it was another quarter of strong performance with top line growth of 92% year-over-year, driven primarily by 131% increase in subscription revenue. October month-to-date, the total revenue growth is comparable to Q3. The level of investments grew a little in Q3 compared to the previous quarter as we continue to invest in quality content to meet the demands of our rapidly growing subscriber base.

Revenue in Classifieds recovered to plus 16% year-over-year compared to a 30% decline in the previous quarter, supported by a rapid bounce back demand for cars post the reopening of auto dealerships as well as on market share gains. Against the backdrop of increased demand, combined with COVID-related supply chain disruptions, dealerships have now run out of stock. This has limited the pace of our recovery, and growth in October so far has remained in the mid-teens in line with Q3 trends. On the profitability side, we've further expanded our adjusted EBITDA margin, both in the year-over-year as well as quarter-over-quarter basis as a result of positive operating leverage and cost-saving initiatives.

Finally, on to Other Bets and Experiments. Revenue increased by 50%, primarily driven by the recovery in Geo and Zen as well as due continuing growth of our Cloud business. The adjusted EBITDA loss amounted to RUB 1.9 billion, up from a loss of RUB 1.2 billion in Q3 of 2019, primarily due to the doubling of our investment in self-driving technology to RUB 800 million as well as higher costs related to the development of our education platform.

We continue to maintain ample financial flexibility with RUB 3.2 billion of cash as of the end of September, including RUB 200 million that was added post the consolidation of Yandex.Market. We feel confident in our ability to fund our key strategic priorities as well as to respond quickly to new potential opportunities and changing market conditions.

With this, I'm turning the mic to the operator for the Q&A session.

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

Yes. My first question is, how sustainable is the margin improvement across the Search business in particular? How much would you say it is driven by the recurring traffic cost optimization? And how much is basically the cost savings that you expect to reverse somehow in the coming quarters?

Slava, it's Greg. So a very good question. I would say that the margins are, as I've commented in the prepared remarks, very much sustainable at around a 50% level. And obviously, those will be balanced by potential for investment opportunities along the way, but they are sustainable.

On the question of TAC, I think we've talked about our proactive steps to optimize our -- both partner and distribution TAC, and I think what you're seeing in Q3 is the result of those long efforts. We have looked to essentially get rid of some of the partners where the arrangements were unfavorable to us on the ad network side. And on the distribution side, we worked closely with -- hand-in-hand with our various partners to make the arrangements more appealing to both us and them.

And so that, which is very much sustainable, and should be in place for the future.

And my second would be basically with regard to the Yandex.Market, what would be your priorities in the medium term? Specifically, how do you find the balance between the investments and the growth here and taking into account significant addressable market? And so do you have a rough understanding of the fulfillment capacity you aim to have in the medium term?

So the logic behind the acquisition and consolidation of Yandex.Market earlier this year was because this is an area that we plan on investing significantly. That means that we plan on increasing the number of SKUs that are offered; improving the quality of logistics that we offer to our clients, meaning offering next day or 2-day delivery to as many consumers as we can, making that delivery more reliable so that our delivery promise matches up with the results; obviously, delivering attractive prices to our consumers; and also enhancing and broadening the loyalty program of Yandex.Plus to all of the Yandex.Market customers.

And I think Tigran talked about that in his prepared remarks. We think that, that should be a very powerful driver for loyalty and for the value proposition of Yandex.Market. Meaning consumers who are subscribers to Yandex.Plus and use that to get their streaming music or online -- watch online videos or get cashback on their Taxi rides can also use those bonus points for their purchases as well as just receiving cashback offers on all of the purchases in Yandex.Market. So this is very much our focus, and we're looking to increase the footprint of our logistics infrastructure and marry it up with the Taxi logistics that we've built in-house and that we're continuously expanding with the B2B offering.

We'll now take our next question from Cesar Tiron from Bank of America.

Congrats on the results. I have a question -- my first question would be on the taxi margins. I think the -- on the widening margins, I think they improved about 400 basis points. Can you please help us understand the key drivers there? Obviously, I suspect Lavka [incurred] losses, but potentially the widening margin improved significantly. And then what happened to food delivery as well, so we can better understand the picture?

Sure. Cesar, it's Yevgeny. Look, based on the results, as you see the numbers that we reported, we had record profitability in our ride-hailing business in the third quarter really driven by GMV recovery and cost-cutting initiatives that were implemented in the second quarter.

Our operating expenses significantly decreased as a result of these cost-cutting initiatives. And actually, this allowed us to further lower effective take rate for drivers to support them during these difficult times. In September, for example, we maintained high-margin levels despite a decrease in effective take rate down to 8%. So going forward, I think we're able to balance our profitability targets while providing additional investments to support our partners and ensure a high level of earnings for them, and frankly, to support our market position going forward.

Yes. That's very helpful. And also...

Yes. On Eats, Eats turned profitable in the recent month, again, as a result of efficiency improvements and as well as increased density of orders, all of this leading to better unit economics and positive contribution margins.

And going forward with Eats, I think -- thinking about our further strategy, we think it makes sense to rationally reinvest some of these profits in order to further scale up the business and to strengthen our market position versus the competition and to support our partners.

Great. Just a very quick follow-up question, more conceptual. In your fintech strategy, are you really interested both about online lending as well as payments? Or does it have to be both together?

Cesar, it's Greg. Let me try to answer that. So I would say that payments and transactions is definitely the centerpiece, but we also recognize the incredibly important role that financing and installments and things like that play in e-commerce, and so we would likely pursue both of those. That's on the consumer side.

And then as Tigran mentioned in his prepared remarks, we're also looking at the SMB side of things where we believe that an integrated offering targeted at SMBs should really help those enterprises manage their finances, manage their advertising, manage their customer acquisition.

Does it mean that the Yandex needs to be the entity that gets the -- basically the ultimate exposure, if you're moving into lending? Or would you be willing to pass on this exposure to a third party?

I would say that both of those models are actually currently being studied and pursued in parallel.

We'll now take our next question from Ulyana Lenvalskaya from UBS.

I wanted to follow-up a bit on the fintech side. Is it possible for you to elaborate on the options you currently assess, i.e., do you have any alternative targets? Because I personally struggle to think of any after the (inaudible). And also, do you have any dedicated team at the moment focused on fintech? And like how far fintech is in the list of priorities management at the moment?

Ulyana, so absolutely, we are looking at a number of opportunities on the M&A side as well as developing it internally.

Let me spend a few minutes talking about what we've done internally and what we're extremely excited about. We have rolled out a very much revised and improved offering within Yandex.Plus. Yandex.Plus, as you recall, is a subscription offering which offers consumers unlimited access to streaming music, online video, cashback offers on Taxi and cashback offers sort of across the ecosystem, and that offering has actually had a fantastic result with consumers.

Consumers are embracing this product to a much larger extent than we ever hoped. So in terms of the inflow of subscribers, let's put it this way, previously, obviously, during the COVID months, during April or March, we saw a very large inflow of subscribers. And we thought that, that was kind of the limit. And then along came this fintech offering of Yandex.Plus with the cashbacks and being able to use those points across the ecosystem. And the number of subscribers has really taken off.

We are already kind of much further ahead than the numbers that we talked about in the call. We -- as of the end of Q3, we had an excess of 5 million subscribers and now we have in excess of 6 million subscribers and only, call it, 4 weeks later. And it turns out that Yandex.Taxi is a very large contributor to that growth. So quite a lot of consumers are being able to be cross-sold within that super app. And so we certainly have, inside the company, a lot of teams that are getting very good and very smart about fintech very, very quickly.

And so the combination of inorganic acquisitions that we're pursuing as well as the organic capabilities we have inside, I think, should really position us very well to pursue opportunities in fintech.

That's very helpful. And the second question will be on Taxi. When I look at the number of rides, they were up 24% during the year. Can you please try to split this on the core ride-hailing rides versus the logistics contribution?

Yes. Ulyana, it's Yevgeny. So just give me a second. The ride-hailing rides overall, they grew 24% year-over-year and logistics grew 36% sequentially, that's both B2B and B2C sequentially quarter-over-quarter. It doesn't really make sense to compare it to previous year, we didn't have, really, logistics a year ago.

But the consumer rides, are they up or down? That's the question.

They're up. They're up, but well, they will continue to increase every month during the quarter. So in September, they grew 26%. And for the quarter, they grew 24%.

And we'll now take our next question from Miriam Adisa from Morgan Stanley.

My first question is just a follow-up on Yandex.Plus. Firstly, could you talk a bit about the cohort behavior and potentially the churn of customers that you've acquired right at the beginning of COVID and what you're starting to see now in the last couple of months? And then also if you have any medium-term targets in terms of the number of subscribers, whether for year-end or perhaps in a year's time, if you could share that as well. And generally, how are you thinking about the investment side of the business and EBITDA losses? How should we think about how that may trend for fourth quarter? And then also for next year, given it seems that you're adding a lot of different services into Plus.

Miriam, it's Greg. So in terms of cohort behavior, obviously, the subscribers that came on during COVID, many of them rolled off. But I would say their cohort performance has been not dramatically different from the cohort performance of our regularly acquired subscribers.

And so if you look at kind of what happened to the subs, they peaked in April, right, in the post-COVID or COVID period. They kind of rolled off a bit over the next 3 months. And so I would say the trough again was in June. And then we sort of started seeing this exponential growth again, which, as I mentioned, culminated more than 6 million subscribers as of October 27.

So overall, cohort performance is strong. It's not materially different from non-COVID performance. I don't want to provide guidance, just because when you're in exponential growth phase, it's very hard to predict where things will shake out. But we think the value proposition to consumers is extremely strong, and we're still experimenting with exactly how to drive more and more cross-sell behavior across Yandex.Plus subscription base. And then I wasn't sure I completely understood your second question. Could you just clarify it a bit?

Yes. No, it was just on the EBITDA trajectory or the EBITDA loss trajectory for media services. And just given the fact you're adding more services into Yandex.Plus, how should we think about the investment plan going forward?

So the, call it, the bread and butter of investments in Yandex.Plus is the music offering, where, as you recall, we're the #1 player in subscription music in Russia. And despite the launch of Spotify, that has had essentially no impact on the business. In fact, maybe because of the added awareness that their marketing investments made, the growth of Yandex.Plus actually accelerated.

And the other investments are around video content. And so obviously, we have to be cautious and prudent with content investments, but the ability of having more subscribers gives you, obviously, more funds to invest in content, both on the original side, where we're again, I think, blessed with yet another hit on our hands that we recently released.

In Russia, it's called (foreign language), which has been very well taken up on top of a number of other previous TV series that we've had. So we feel very good about the content slate that we have coming up.

Great. I just had one more on Drive. How much of the profitability that we saw in the quarter was due to potentially temporary cost savings? And how much was driven by synergies with the Yandex.Taxi business? And then if you could just give any color on what you think about the long-term margin of that business?

Yevgeny again. Look, with Drive, I think it's difficult to predict. There are a number of factors that are at play that may affect Drive performance going forward, but the team has done a fantastic job this year so far. And all things being equal, we expect the business to remain at least breakeven and actually we'll be targeting for further profitability expansion going forward.

We will now take our next question from Lloyd Walmsley from Deutsche Bank.

This is Chris on for Lloyd. Maybe for the first one, do you think the surge in e-commerce activity this year is coming with a commensurate surge in online ad spend? And how do you think about this -- how this dynamic will impact the holiday this year?

Hey, it's Greg. So I think as we've sort of mentioned in the prepared remarks, given just how much the extent to which e-comm is just a natural fit during the pandemic, I'd say it's not as if there's an explosive demand for e-comm advertising. That being said, as we mentioned in the prepared remarks, the price comparison side of e-comm saw kind of a 20%-plus year-over-year growth, which is in excess of overall advertising. So it's certainly helping. It's a tailwind, but I wouldn't call it out as being a complete game changer where online advertising related to e-comm is growing hundreds of percent year-on-year. It's strong, it's strong against the backdrop of the overall softness in advertising driven by the pandemic, but it's not a game changer.

Got it. And maybe just one follow-up. I think there was a comment made about the effective take rate in September at 8%. Can you just talk a little bit about how you guys are thinking about returning that effective take rate to pre-COVID levels or higher?

Look, like we said, I think going forward, we're going to also balance our effective take rate and other expenses down at the P&L. We're aiming to sustain profitability going forward, at the same time, supporting the drivers and protecting our market share. So we were able to go down to 8% and still show record profitability. We, long term, will make decisions based on what's happening with the overall economy, with the market, with competition, with our drivers and so on.

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

Congratulations on good numbers. I would like to ask you about self-driving cars, maybe you could provide some color. On the strategy for this part of your business, it's now hidden in Other Bets and Experiments, but if you could tell what are the plans for fleet expansions. Maybe you could give us some metrics about how the prices of the cars are expected to go down? What will be the level of your investment and maybe on some regulatory developments in the area? When, for example, you expect that the first car can start commercial services?

Sure. Vladimir, so self-driving remains an important strategic project for us, and we certainly believe in its long-term potential. We continue to invest here in the technology and the team. We currently have about 130 cars on the roads, which are spread between Moscow, Kazan, Israel and U.S. We are also investing in delivery robots. One of them is called the Yandex.Rover, which we're investing into as well for applications like food and parcel delivery.

In total, we have driven something like 5 million miles in autonomous mode, which I think puts us firmly among the top 3 companies globally by total distance driven. And we're also interested in technological partnerships with OEMs, as it may help us internationalize the technology.

So I'd say, no specific updates here other than we continue to invest. We continue to believe, and we think we have some of the world's leading technology in this area.

Okay. And in terms of new investments in this part of your business, let's say, next year, what are the expectations?

So I can repeat what I said about the Q3 investments where we invested approximately RUB 800 million into self-driving. We expect that those investments will step up over time, but I don't -- I'm not here to provide sort of detailed guidance. That being said, we don't expect that they will grow by multiples or factors, right? We will continue to increase investments here, but we will do it prudently in the same way that we've done before.

Okay. And the second question, again, on capital allocation. You mentioned that you have a big cash pile, you are looking for potential opportunities. But my question is we know about Uber, which you mentioned previously. Maybe you could update here. We know about fintech that you're looking at. Maybe you could provide more color, are you looking at some other areas? Or these are the key areas where you are planning to make investments and use your cash?

Yes. I think outside of those 2 areas that you mentioned, specifically, consolidation of our minority stakes as well as fintech, we're not looking at major strategic opportunities. Those are the 2 key focus areas. But obviously, we want to be disciplined and prudent there.

We also do a number of small tuck-in acquisitions around the margins, which we think really help us accelerate our growth, such as the K50 acquisition that Tigran talked about in his prepared remarks.

We'll now take our next question from Maria Sukhanova from BCS.

I wanted to ask about ad network performance. Could you please comment, is the decline mostly to the termination of these partner contracts? Or you see that, like, your partners have also not yet recovered? That's the first one.

Sure. On the partner network side, it has to do with just sort of being focused on higher-quality partners that we want to keep in our partner network. It's about focusing on our own properties, which are developing fast and supporting the growth there. And I can spend a few minutes on Zen as a great example of that. And it's also about being focused on the bottom line. And so we've been very active over the course of this year in culling, if you will, the ad network side of things and terminating or exiting some of the relationships which were not profitable to us or attractive. And so what we were willing to do is essentially sacrifice advertising revenue growth, hence you see kind of our ad revenue growth being somewhat muted in Q3 for profitability and for quality.

And just to give you a sense of why we think that, that is prudent, take a look at Zen. So Zen today has -- is a business with about a RUB 10 billion run rate. It is up about 33% versus September of last year. It is currently an average of 18 million daily average users. In fact, last week, we already surpassed 20 million daily average users. These users are spending over 40 minutes per day per user with Zen, which is absolutely remarkable. And even more importantly, I would say, is we've been able to inject more and more video watching. It's inside the news feed.

So a year ago, only 2% of total time spent on video was on the -- time spent on Zen was on video. So of that 40 minute, roughly, of time, people were spending 0.8 of a minute watching videos on Zen. Now it's in excess of 20%. So every single day, something like 20 million users watch 8 minutes of video, news feed video with us per day, and I think it's absolutely remarkable. And you should expect us to continue to invest more and more in our properties like Zen.

Understood. Just a follow-up on Taxi.

Thank you, Maria.

Yes. So with Taxi, what kind of -- we have DiDi entering Kazan. So could you please tell us what happened in the market there? What kind of activity do you see from competition?

Yes. It's Yevgeny. Well, DiDi entered Kazan, as you pointed out, 2 months ago. And the launch was basically along their typical strategy lines of having initial discounting and subsidizing. And when you do that, this leads to the expansion of the overall ride-hailing market, and this happened in Kazan and that allowed DiDi to become a #2 player there.

So as our own performance is concerned, we're actually very satisfied with what is happening there. Our multi-brand strategy, our quality of service, our investments and efficiency, it actually allowed us to accelerate our year-over-year growth rates of rides in September. Sequentially, our rides in Kazan grew even faster than they typically have grown September to August. And at the same time, according to our estimates, number of rides for all other players in the market actually decreased in September versus August in absolute terms.

If we're looking at October to date trends, we see that DiDi started to decrease its investments and substantially increased take rates. And this led to approximately 5 percentage point share loss. And these 5 percentage points were redistributed to us. So we will continue to pay very close attention to the competitive dynamics, and we will respond accordingly. But overall, after the last 2 months, we continue to remain confident that our focus on service quality are backed by leading technology, our multi-brand strategy and the focus on the long-term earnings of drivers and our partner fleet management companies positions us very well in the competition.

We'll now take our next question from Ildar Davletshin from Wood & Company.

So I'd like to follow-up on Yandex.Plus, and it's obvious that there are plenty of synergies, and it looks like great traction with your subscribers for other services. But my question is, could you provide a bit further details on some things like average ticket, for example, of Yandex.Plus subscribers in e-commerce or maybe other services? Are they using -- are they paying a little bit more? Or are they using your services more regularly, more often? That would be my first question.

Hey, Ildar, it's Greg. Yes, we do see Yandex.Plus subscribers taking more rides in Yandex.Taxi. They're ordering more on Yandex.Market. And so I don't want to share the exact figures, but absolutely, the cohort behavior of Yandex.Plus is -- displays a lot greater loyalty to Yandex services than an average consumer.

All right. And maybe just on this particular e-commerce. We've noticed that there are a bit more notifications being sent to the apps of your Yandex.Market users more recently. Should we think that you could even accelerate further? And I'm particularly interested in the progress. So you took control in late July. Obviously, you can't change things immediately, it takes time. But would you say that now you see even more potential? Or you've had pretty much a good pace from the start?

And then also, are you growing -- do you think you are growing ahead of the market? Like are you gaining market share in e-commerce? Or is it pretty much still the whole market is accelerating, so it's very hard to estimate at this level?

Sure. I would say that you should expect the pace of integrations and improvements to accelerate. If we closed the deal, call it, 3 months ago, we probably spent some time just in organizational kind of realignment, if you will.

What's happened since then is, I think we're making a lot of progress on product improvements. We've already unified the brand. We've gotten rid of the Beru brand, and everything is unified under the Yandex.Market umbrella, which we think is a positive in that process. We executed, I could say, very smoothly in terms of not losing any consumers along the way, in terms of not losing any traffic. And I'd say the team has been actually working very hard at making almost daily improvements to the app and to the site in terms of simplifying checkout, in terms of improving search, in terms of integrating, like I said, Yandex.Plus inside of Yandex.Market. And I'd say that, that pace should continue to accelerate.

And then in terms of how we're growing, our sense is we're growing much faster than the market overall. And we are rapidly gaining share on our way, hopefully, into the top 5 sometime next year and potentially on our way to be a -- the top 2, top 3 player in the market.

We'll now take our next question from Anna Kupriyanova from Gazprombank.

My first question will be regarding your EBITDA-positive segment. In your press release, you mentioned that a number out of advertising and ride-hailing becoming positive on an adjusted EBITDA level. I understood it's Yandex.Eats, maybe some other businesses? Could you please comment on that?

Anna, thank you very much for your question. So in terms of the segments that are turning positive, it's Drive, as we talked about, and it's Eats, as we also talked about. And obviously, those are 2 very exciting developments for us.

And my second...

And that's on top of, clearly, ride-hailing and so on.

Yes, I understand. And my second question will be regarding October trends. I understand they are slowing down in some segments. Maybe you could give us some numbers regarding the first few weeks of October in advertising, car-sharing, Eats or something else?

Sure. Yes, sure. So I would say that while the absolute numbers of COVID cases is up and it's actually higher than the first wave, the economic impact of the pandemic is lessened, I would say, by the prudent actions of the -- of government agencies. So the choice that seems to have been made is in favor of a much softer lockdown of enforcing things like face masks as opposed to almost a full-scale shutdown to the economy, the way that we had in March and April. As a result of that, obviously, the entire market is impacted, but I would say the impact is a lot lower.

On the Search side, what we're seeing is month-to-date in October, we are growing ex-TAC Search and Portal revenues by mid-single digits, which is in line with kind of the late July growth that we saw. And then the trends are improving slightly. Last week, for example, October is growing in the high single digits.

If you look at things like ride-hailing the trends there are also a lot better than during the first wave. We're still seeing very nice growth in ride-hailing. It's slowed down a little bit versus kind of the peak September month, but it's still in the low 20s.

And in terms, maybe of FoodTech, if you can, of course.

Yes. Sure. So FoodTech continues to grow the same 2x as we have before. So 100% year-over-year growth or more than that, that's on the food delivery side -- restaurant delivery side. And then Lavka is just growing, obviously, by leaps and bounds as the number of orders is increasing and as the average check has started to go up again. And so we're very happy with both the demand for that service and the path to profitability that we're steadily marching towards in Yandex Lavka.

And maybe finally on car-sharing, please, if you can. Yandex.Drive?

Car-sharing has slowed down a little bit. And there, we're seeing people taking slightly longer trips again and fewer trips per day -- per car. So overall, a little weaker, but nothing like the Q2 trends that we saw before.

And if I correctly understood, the B2B Taxi portion of ride-hailing is 20% in third quarter? You mentioned before, I'm not sure if I if I understood correctly.

Sorry, can you repeat the question, the B2B?

The portion of B2B Taxi revenues, as I understood, was 20% of total Taxi revenues. I mean ride-hailing in third quarter, if I correctly understood, you mentioned before.

Look, let me just give you a rundown of sort of the structure. So if we look at overall new revenue structure, B2C ride-hailing services were slightly less than half of segment revenues in the third quarter. B2B services, Drive, Lavka, each were in mid-teens. And each of them has booked on gross basis and GAAP. And Eats revenues were in low teens, commission-based revenues.

We'll now take our next question from Catherine O'Neill from Citi.

Great. Just had another question on food delivery and just really your thoughts on when this, hopefully, at some point, will return to normality what you think the impact will be on food delivery? How sort of sticky it will be? And also, I think you mentioned on the advertising side, there's obviously lower advertising spend from food delivery platforms, and I guess lower discounting. So how much of your profitability improvement has come from that, that I guess will probably reverse to some degree once we get back to normal?

Sure. Let me try to take that. So our view is that the pandemic has probably fundamentally changed quite a number of behaviors, including things like work from home, travel, business travel. And the -- certainly, the other industry that's changed is food delivery.

So in the past, I think Russia was always underpenetrated, I would say, in terms of the number of consumers who were interested in ordering food in for delivery, and that was primarily confined to things like pizza.

I think what the last, call it, 7 months have shown is that a lot more consumers have now tried it. A lot more of them are using it. They're using it more frequently than ever before, and we believe that, that behavior will stick. Sure, it could slow down somewhat, but there is kind of a fundamental change in how people are looking at it. And I think you could also say something similar about groceries where we've added top 9 grocery chains onto our platform, each with 2,000 to 8,000 SKUS.

Prior to the pandemic, probably many of these chains never even recognized that there was a customer demand for this product, and the pandemic showed that not only is their demand, but that demand is extremely robust, and that consumers value the convenience, the choice and the ease with which they can order it on a single platform, such as Yandex.Eats. So I think that that's there to stay as well.

And then in terms of profitability, our path to profitability in food delivery was fundamentally a question of improving operations. So high utilization per courier, better mapping and logistics, better algorithms and batching. It was also predicated on more efficient subsidy structure where we've really kind of moved away from the concept of giving people free food, which is, I think, very prevalent and -- with a lot of our competition. And so I think the business itself becomes much more resilient and much more sustainable.

Okay. And then I also wanted to ask about B2B logistics. You mentioned you think it will be a sizable opportunity longer term. Could you maybe provide some [steer] on how to think about the addressable market? And also the -- how the economics works for the Yandex on the B2B logistics side?

Sure. Just -- I'll remind you of some of the figures that Daniil talked about in his prepared remarks. So our current annualized run rate of deliveries is 40 million, 4-0 deliveries per year, which is quite a lot. And I think ultimately, longer term, you could envision that we make, call it, $1 or $2 in each of one of those deliveries as our sort of EBIT per delivery from that point of view.

Obviously, that's going to take some time for that to develop. But as we build out the scale, as we build out the capabilities, as we bring on more and more customers onto the platform, we think that, that will materialize. And obviously, this segment is in extremely rapid growth phase. And overall, the logistics infrastructure in Russia is relatively poor. You don't have strong players like UPS or FedEx or postal service that has quite as much capillarity as in some of the other countries. Obviously, postal service is here, but there's no FedEx, there's no UPS. And so I think we have an opportunity to become a significant player in this space.

Okay. Great. And then just -- so finally, on Classifieds, the margin was up an awful lot. How should we think about the margin profile of Classifieds for the year and sort of longer term?

So on the margin profile of Classifieds, we expect that we are sort of past the heavy investment phase. We feel like we have a very strong competitive position in this space. It's more a function of auto production restarting and dealerships restocking. Currently, most dealers are totally out of stock.

And we think that as we go into next year, assuming things kind of normalize a bit, we should be able to increase our margin significantly in 2021 and beyond. And I'd say we're very excited about the prospects of the Classifieds segment.

And with that, that does conclude our question-and-answer session for today. And I will hand over the call to Yulia Gerasimova for any closing remarks.

Thank you very much for your participation and the questions. If you have any follow-ups, please contact the IR team.

Thank you very much, and goodbye.

Thank you, and that does conclude today's call. Thank you for your participation. You may now disconnect.