Nebius Group NV (YNDX) 2011 Q3 法說會逐字稿

Thank you for standing by, and welcome to the Yandex Q3 earnings call. At this time, all participants are in a listen-only mode. There will be a presentation, followed by a question-and-answer session. (Operator Instructions). I must advise you that the conference is being recorded today, Thursday, October 27, 2011.

I would now like to hand the conference over to your first speaker today, Ms Katya Zhukova. Please go ahead.

Hello, everyone, and welcome to Yandex's Q3 2011 earnings call. Today, we have on the call our CEO, Arkady Volozh, and our CFO, Alexander Shulgin. Dmitry Barsukov, our Director of Corporate Finance, will be available during the Q&A session.

This call will be recorded. The recording will be available on Yandex's Investor Relations website in a few hours. We also put together a few slides to supplement this story. These slides are currently available on our IR website. And now, I will quickly take you through the Safe Harbor.

Various remarks that we make during this call about our future expectations, plans and process constitute forward-looking statements. Our actual results may differ materially from those indicated or suggested by these forward-looking statements as a result of various important factors, including those discussed in the risk factors section of our APR prospectus dated May 24, 2011, 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 will be referring to certain non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with US GAAP. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is provided in the earnings release we issued today.

And now, I am turning over to Arkady Volozh.

Thank you, Katya. And welcome to our Q3 earnings call.

Yandex delivered strong results in the third quarter, as we maintained our market leadership. We are the leading Internet company in Russia. Our revenue grew 65% year on year, to RUB5.2 billion. Adjusted EBITDA grew 54% year on year, while margin expanded from 42% of revenue in the immediately preceding quarter to 45% this quarter.

We increased our global query share, according to comScore results published recently. In September, Yandex advanced to the fifth position worldwide, behind Google, Baidu and Yahoo! and Bing, but ahead of Facebook and (inaudible). And finally, we launched in Turkey; our first truly foreign market.

We're all concerned about the global macroeconomic picture, but I can say that we have not seen any material impact on our business in Russia to date. Based on our strong performance throughout the first nine months of the year, and our visibility in the advertising placements over the next few months, we expect to come in the upper end of our previously announced revenue guidance range for this year, 2011.

Let me first talk a bit about our share of searches. There has been a lot of attention on the competitive environment, and Yandex's share of search queries in Russia. So I believe it's important to address this topic right up front.

First, let's step back in time, to 1997. Yandex was not the first to enter the Russian search engine market back in '97, but our strong technology and marketing gained us the number 1 position of the Russian search market in 2001. And we have been the undisputed leader ever since.

Russia is an attractive, high-growth market, and search has always been competitive here. Back in 2006, when Google entered this market in earnest, their opening strategy centered on being the default search service in a variety of browsers and other software.

According to LiveInternet, the source of all the market share figures I will quote today, according to LiveInternet, our market share dropped from more than 60% in September 2006, to 53.5% in March 2008.

Over the next three years, we regained that lost share and extended our lead to 65% market share by February this year, 2011. And can you guess what happened next?

Google fought back with its own browser strategy, but now with their own browser. They disabled the feature that had allowed Russian language users of Chrome, only Russian language users, to choose their default search provider on installation. Instead, Google chose for them, setting Google as the default search engine. We estimate this code modification cost us 3 to 3.5 market share points last quarter. What next?

Yandex is fighting back, and we managed to break the trend, as you can see. Here's my point. This is a fluid, competitive market, and you should not be surprised to see share shift back and forth between Yandex and Google.

More important, and perhaps less obvious, is the fact that there is no one-to-one relationship between share of searches and advertising revenue. In the long run, clear market leadership is more important to financial performance than the magnitude of that lead, which, as I already said, is likely to fluctuate over time.

I will be happy to answer questions about this dynamic later in the call. So let's move on to our key initiatives in the quarter, and firstly, mobile.

Mobile is a top priority, and we are focused on developing powerful applications, including search, for all types of mobile devices and platforms. We need to be an integral player on the Russian mobile (inaudible) system, and we made good progress in Q3.

Last quarter, we launched our mobile search application -- mobile application searching, sorry, service, that makes it easier to find and download iPhone Android apps. We also rolled out an application for Windows Phone 7 launch in Russia. That provides access to our core services, including search maps, news, emails, mail and others.

We're building revenue share relationships with leading global handset makers, including Samsung, Nokia, HTC. A week ago, we announced a strategic partnership with Samsung that will put our search products and other products on Samsung TVs and, also, on all new Bada 2.0 mobile phones in Russia, based on Bada operating system.

As I said, mobile is a strategic priority, and I am pleased with the momentum we're building.

Speaking about products, other products we launched this quarter, search quality is central to our success, and we continue to innovate on that front. In Q3, we launched Reykjavik, our latest platform release, which delivers search results based on users' language preferences, and optimizes search results for misspelt user queries.

And in Yandex.Maps, our mapping service, it also remains an important focus, and we continue to innovate on that front as well. During the quarter we extended our route planning service to include all Russian territory, and we also added public transportation routes. The application is free and available on desktops as well as on all mobile platforms.

And now, (inaudible). Users, of course, are essential but advertisers pay the bill. So the number of advertisers on Yandex continued to grow at a healthy pace across all sectors in Q3 2011, when we served over 158,000 of advertising clients, both text-based and display, which represents a 48% increase over Q3 last year, 2010, and 10% increase over the previous quarter, Q2 2011.

Q3 advertising technology initiatives designed to enhance our value to advertisers and partners drove a surge in paid clicks, while our average CPC actually declined slightly year on year. And we were pleased with both accounts.

In September we started using MatrixNet, it's our proprietary machine learning technology, to optimize text-based ads in our Yandex advertising network. We developed a new [operating system] that better understands our users' needs and more accurately predicts clicks. In the first 30 days the average click-through rate in the network grew more than 20%, which allowed advertisers to lower their CPC bid while increasing the number of clicks.

As a result, our customers saw an increase in ROI, while we saw an important improvement in our partner network monetization; quite an achievement. We also introduced changes to our [integration] algorithms, aimed at lowering the entry barriers for regional advertisers.

We also continue to experiment with new display advertising technologies. In August we launched Crypta; it's a social demographic targeting tool that allows us to target display ads. And in early September we experimented a bit. We introduced a new and unusual multimedia banner on our Yandex.Music service, and based on the (inaudible) surveyed, brand recognition of the companies who participated in the test placements increased 15%, on average.

So (inaudible) technology is an area ripe for innovation and we expect to continue to roll out new technologies and formats here.

Now a couple of words about our international shipments. As I mentioned earlier, our Q3 soft launch in Turkey was an important milestone for us. Why Turkey? Four reasons.

One, users have no freedom of choice in search there; Google has nearly 100% share in searches. Second, it's a big and fast growing market. There is a lot of users there. They're young and the population is very young and dynamic. Third, there is a lot of local content and users tend to read a lot of their local language materials. And fourth, the last but not the least, it's a sizeable market, advertising market, with over 200 million advertizing dollars spent online in 2011, as forecasted.

We believe that the combination of powerful search with unique global services will attract market share in this attractive new geography. It is important to know that Turkey is a stepping stone, in a way, to transform Yandex into a truly international company, to change the mentality of our employees and our internal processes to rediscover ourselves as an international, not just a local Russian company.

And on the other side of the world, in Q3 we invested in a US search start-up called blekko. We like their team, the energy of their approach to search and we want to get a better understanding of what is going on in that enormous market. We were excited to lead their $30 million investment round and have laid the foundation for a close strategic relationship.

To summarize, Yandex delivered strong financial results and made significant progress across all areas of our business during Q3. We showed robust growth in advertisers, expanded our global footprint and launched important new services and technologies. While our markets are fluid and competitive by nature, they are large and are growing rapidly.

Yandex is, and will continue to be, the market leader and will continue to drive strong growth. We expect to finish 2011 on a high note, and we are looking ahead to strong growth and profitability in 2012 and beyond.

With that said, I will now turn the call over to Alexander Shulgin, who will take you through our financials and guidance before we take your questions.

Thank you, Arkady. Talking about the financial results of operations, I would like to note that we had an excellent quarter. Our earnings growth of 65% year on year reflects rapid growth of the Internet as an advertising channel, attracting more and more advertisers and more and more eyeballs, reflecting the strength to grow all segments of the business.

And now moving on to the numbers. In the third quarter 2011 our consolidated revenues increased 65% year on year, up to RUB5.2 billion. Text-based advertising continues as the major driver behind revenue growth, accounting for 89% of total revenue. Yandex's own websites brings the bulk of text-based revenue, accounting for 73% of total revenue.

I would like to specifically mention performance of the Yandex ad network, which was growing at 124% year on year, a much faster rate than the 57% revenue growth on owner-operated websites. The ad network increased from 13% of total revenue in Q2, up to 16% in Q3. Acceleration of growth of ad network was driven partially by the additional search revenue from Rambler, as well as specific improvements in monetization of contextual partner websites that Arkady just mentioned.

Display advertising increased in line with total revenue, contributing 9% of total amount, and the rest came from Yandex.Money and other sources.

The increase in traffic acquisition costs primarily reflects much faster growth over our partner network, as well as growth of our search revenue. As a result, total ex-TAC revenue increased 59% compared to the third quarter last year.

The main driver behind TAC-based revenue growth was paid clicks, which increased in Q3 68% year on year, while average cost per click, or CPC, decreased 1%. The reduction in effective price came as a result of increased volume of clicks on the Yandex ad network, as well as fine-tuning our priority placement for regional advertisers, allowing for lower entry barriers.

Lower prices improved our competitive position in contextual advertising space, as well as vis-a-vis other advertising media. In Q3 display advertising continued to grow robustly. However, in the past few weeks we have been seeing some weakness in display ad placement by large multinationals.

Talking about geographical split, the bulk of our revenue continues to come from the Russian market. Our second largest market is Ukraine, accounting for less than 2% of total revenue.

And now, moving on to costs. Our total operating costs, excluding share-based compensation, plus excluding depreciation and amortization expense, increased faster than revenue at 75% year on year; however, marking a noticeable reduction in growth rate from Q2 this year.

As discussed in our previous earnings call, we proceeded with hiring at considerably slower rate. In Q3 we added 162 employees, 2 times fewer people than in Q2, bringing our total headcount to 3,163 people by the end of September. And, as a result of global hiring, in Q3 our personnel costs increased in line with revenue, returning to their normal level of approximately 20% of revenue.

All other costs, with the exception of traffic acquisition cost, increased roughly in line with revenue. As a result, our adjusted EBITDA increased 54%, and adjusted EBITDA margin for the quarter was 45%, up from 42% in Q2 but slightly below the 49% in Q3 a year ago.

Now moving to ForEx. In Q3, due to depreciation of the ruble, we reported gain of RUB683 million on appreciation of our dollar-based assets, which are primarily bank deposits held in Russia. In Q3 last year we recorded a loss of RUB70 million on devaluation of US dollar versus ruble.

This gain this year, compared to a loss last year, improved our net income growth rate by 44 percentage points, from 49% to 93%. In other words, had there been no effect of foreign exchange gains or losses, our net income growth rate would have been 49%. And, by the way, we do not reflect gains or losses on cash held in accounts of our holding company in the Netherlands.

While we are on the subject of ForEx, I would like to draw your attention to a mechanical issue related to our reporting. As you all know, we report in Russian ruble. This allows for better transparency in the true economic forces driving our financial results without the interference of exchange rate fluctuations. As a convenience to the readers of our financial statements, we translate our results for the most recent reporting period into US dollars.

The translation convention requires us to use the exchange rate at a specific point in time, in this case September 30, to convert our results. Other companies who have the ruble as their functional currency but use US dollar as their reporting currency, use an average exchange rate for the quarter to translate their financial results.

As the ruble weakened against the US dollar over Q3 this year by approximately 12%, up to RUB31.88 per $1 on September 30, I would like to point out that if we were to translate our financial results using the average quarterly exchange rate of RUB29.05 to $1, our results for the quarter as translated into US dollar would have been higher by approximately 10%.

Again, for comparison purposes, if we were to report in dollars, since the average exchange rate in Q3 last year was RUB30.62 to $1, our 65% reported total revenue growth in Q3 this year would have been higher by approximately 9 percentage points due to positive impact from ForEx and revenue growth rate in dollar terms would have been 74%.

Now, switching to effective tax rate. The effective income tax rate is lower than in Q3 last year, reflecting management's intention to continue to reinvest cash generated in Russia without upstream and dividends to our parent holding company in the Netherlands.

And, as a result of all items discussed before, our net income increased 93% and net income margin was 33%. Adjusted net income, stripped of the effects of share-based compensation and foreign exchange gains and losses, grew 49% and adjusted net income margin was 28%.

Now, turning to CapEx, we continue to invest in (inaudible) equipment and construction and outfitting of our data centers and our CapEx for the quarter increased over 3 times year on year up to RUB1.7 billion.

And finally, turning to our balance sheet, we have the equivalent of RUB20.7 billion in cash, cash equivalents, term deposits and other investments and debt instruments. Cash is held in US dollars and ruble, including $404 million in IPO proceeds which are held in the Netherlands.

I would also like to mention that in the past quarter we have successfully passed our regular tax audit by the Russian tax authorities for the period prior to the fiscal year 2010 and, as a result, expect to settle for less than $1 million in the amount of taxes, fines, penalties combined. The appropriate provision is already included in our Q3 financial results.

And finally, turning to guidance. Based on the trends that we see in the market, we are narrowing our full-year guidance to the upper end of the previously communicated range. Our new full-year range will be 58% to 60% year-on-year revenue growth.

And we are also reconfirming our guidance on CapEx, which we expect to be up to RUB6.3 billion. As we complete this year's investment program, we expect to return to a more normalized historical CapEx level in 2012.

And now, I'll turn the call over to the operator for the Q&A session.

Thank you, sir. We will now begin the question-and-answer session. (Operator Instructions). Edward Hill-Wood, Morgan Stanley.

Just two questions, please. Firstly, just referring back to your first comment about market share loss or gain over the last couple of years, could you just outline more specifically what you are intending to do and what you are doing in order to regain or stabilize market share? And maybe touch around some of those issues on browser and marketing. And, in that -- and would we expect a more significant marketing expense, for example, in Q4? I just wanted to get a bit more color about your plans and initiatives around that area.

Secondly, and this relates to international expansion, we've had, obviously, the rollout in Turkey. Could you just give us a quick idea of any headline or starting results or initial impressions of how you're doing in Turkey and whether or not we would expect maybe the rest of -- or further international expansion maybe to be a little bit delayed or pushed back until you feel more comfortable that you've got the Russian share stabilized?

On the first question about what we're doing to improve our market share, we don't expect to spend much on all this distribution. Our response is mostly focused on cost-efficient distribution techniques. Of course, we would rather not disclose details, for competitive reasons, of what we're doing, but do not expect that we will spend a lot.

On the second question about Turkey, we consider the launch is very successful. We just launched. It's too early to discuss the numbers because there is no use if I tell you that we grew 10 times from the zeros we were in.

The important metric, which we followed from the start, was -- again, we launched softly without advertising for the first three weeks and we just monitored how the users behave on the search, which was just announced to them in PR without gaining a lot of artificial traffic.

And we followed the bounce rates how users use our search, [though they say] they are not and the bounce rates which we saw on this Turkish product in the first couple of weeks was as low as it is for Yandex. So people tend to stay on the service and they use it just like here, the same number of result pages per user.

So the product itself is attractive and as soon as we saw that, we went onto the second phase and we're starting the marketing campaign right now and we're starting driving traffic to the service. But, again, it's too early to discuss any numbers. Let's discuss it during the next call.

And maybe also to add -- because the share of search is not directly linked to share of money in our market. For example, in Q3, we saw our base clicks growing 68% while we had some blips on share of search, which shows that we are able to monetize our site, irrespective of the share change.

For advertisers, it's important how much we generate of clicks and who is number 1, who generates the most traffic. And Yandex is definitely by far the biggest search engine.

I would also like to stress, not count your investment decisions on the vulnerability of technical measurement systems because what all these systems measure depends very much on the techniques which is used.

I can give you a couple of examples. For example, if we launch a new service which has better navigational links in our suggest, which we did this quarter, it's when users could click into a site, avoiding to go to the search engine results page, just while typing the search query, they go to there. These type of queries could not be monitored well by the measurement systems and while we increased the number of searches and improved the search quality for users, of course, we didn't lose any user, then technically on the measurement, you may see some drop in the market share.

So please don't bet everything, all your financial decisions, on the technical measurement systems. Long-term trends are important, but short term are not. So it's important to stay number 1, but it doesn't matter whether it's plus or minus 0.2% today.

Okay, that's very helpful. Could I just follow up with that, just a question on, again, the international expansion, which I asked previously, was whether or not you would expect to have further soft launches in different markets this year or whether or not we'd expect that more in 2012?

Actually, we would not like to disclose where we're going, where we're not; just we are in Turkey today and this is our first international market and a lot depends on our success there.

Great. Thank you very much.

Jeetil Patel, Deutsche Bank.

I had a set of questions, but I guess, first of all, on search engine result pages up about 42% year on year. I guess, is there any particular rough growth rate that you look at in terms of SERPs as you look ahead? I know it's obviously a metric that moves round based on consumer interest, demand, etc., but I'm curious as to how you think about that number and growth rate going forward as you look out over the next several years.

Second, I guess it would be interesting to hear your perspective on the mix of revenues from global brands or major brand advertisers or large-scale companies versus the small to medium-sized companies in terms of mix, and whether you think there's more movement on the larger brand advertising budgets as opposed to the small to medium-sized budgets out there as you look at the marketplace.

So on SERPs, yes we, indeed, have seen some deceleration of rate of growth of search result pages. This is actually not the first time happening in our history. For example, in fall of 2008 the growth rate of search result pages decreased to 30% and then it came back to as high as high 70s% and 60s%.

So yes, this happens, but we are not changing our long-term plans and we are still comfortable with the forecasts that we have from the analysts like Public Opinion Foundation and other forecasts which expect search result pages to grow going forward, as the users use more Internet and they spend more time online.

Talking about your second -- one more item to mention here is that, again, growth in paid clicks, which drive our financial results, is not directly correlated with growth in search result pages.

For example, in Q3, we made some technological improvements to our CPA, click for prediction ability, and we saw high uplift of our revenue growing to 65%; faster than, for example, in Q2 and as high as in Q1 last year. So search result page growth, or query growth, is not a direct predictor of the revenue growth.

Now, talking about large or small customers and who are our key base for search-based advertising. Our main customer base is small and medium enterprises. And for display, of course, bigger multinational FMCG companies make up the most part of revenue.

Actually, this is very good that, for example, now in Q4, we see some softness, some deceleration of growth in the display media advertising. This primarily search TV and also display media has some effect on the Internet, but we do not see any slowdown of trends in text-based advertising. This is because the customer base is different between text-based and search and display advertising.

We see some big multinationals coming to text-based, but still SMEs are, by far, the bigger part of customers and these customers have their different priorities. Display creates demand, creates new demand, while search, text-based, satisfies demand. So search-based advertising is much more robust and resilient to a crisis if -- but we don't see any crisis effect in our Russian economy so far.

If I can ask a follow-up question to that. Just curious, the MatrixNet implementation in September on the ad network, you obviously helped increase ROI dramatically on the network. Have those changes been implemented on the core O&O side of the business as of yet?

And second, does it allow you to actually gain market share dollar on a ruble basis given the fact that you're now presenting much more valuable ROI solution than you did even a month ago?

Well there is no market management on short time horizons, so probably it did, but we cannot be sure about that. But secondly the rate of growth of partner network at 124% year on year should have improved our market share in terms of money.

I would also like to come in on the first part why we haven't applied much -- the same techniques to the search advertising. In search, targeting is very simple and direct. We just target it by terms and CTR rates are several times, maybe 10 times, higher than the plain advertising in the networks.

So it's not an issue for the search, for the advertising and the searches on the ad pages. But for the advertising on the pages on the network, yes, any improvement there is valuable and it's achievable through this different machine learning techniques and other techniques.

Alex Balakhnin, Goldman Sachs.

I have two questions, if I may. One is on your distribution strategy. So you mentioned that over the last couple of years your competition with Google was, to some extent, in the distribution. So my question would be, is it -- from your standpoint, is it possible to increase your share with your existing distribution partners, in particular with browsers, for example your share with Opera is around 69%, your share with Firefox is around 70%. Do you think you have a potential for increase of this, of your search here with those browsers to, say, 75%, 80%?

And my second question would be, you had quite a good dynamics of your paid traffic and is it possible to distinguish the effect which was coming from improved monetization of your advertising partner's network and from monetization of Rambler from the impact of paid traffic growth year on year on your own network? Thank you.

Talking about improving our share in the existing browsers, I don't think it is going to increase any higher than that; it all depends on the contracts and the current contracts. We don't expect it to increase.

I'll take the question on partner network. Rambler, as added to our revenue growth in partner ad network and, of course, through growth in paid clicks. What I could say is that Rambler is below 20% of our total ad network revenue.

You can easily calculate it by taking their market share in search.

Can I have just a quick follow up? So you mentioned you saw 20% improvement of click-through rate on your advertising network partners' properties. Did you see the sequential improvement of CTR on your own operated network or it was pretty much the same quarter on quarter?

What I could say, that 20% improvement in CTR is attributed only to improvement in the click prediction rate. However, our total CTR in ad network improved more than that. And we see this improvement of CTR not only in ad network but also in search advertising as well, because we made a number of initiatives there.

Is it possible to elaborate on the magnitude for both?

Well, probably we wouldn't like to disclose this information, but it was a good substantial improvement.

Yes. Thank you.

Steve Weinstein, Pacific Quest.

Just two questions for you. First, I was wondering if you could just call out any advertising verticals that were maybe doing better or worse than anything else. In particular I'm curious to see what kind of momentum you're getting from e-commerce players in the region and if that's becoming material.

And then second, I'm trying to get a better hand around the impact of the MatrixNet solution from an advertiser standpoint. Is this something that when you roll it out you get the lift immediately and we see all the benefit right away? Or do you think there's still a ramp up period as advertisers learn the system and we could see this momentum continue for, say, several quarters? How should we think about that? Thank you.

Okay. Talking about different industries in our text-based advertising, the two industries which suffered in 2008 during the crisis were finance and car and auto. We don't see anything like that now and, on the contrary, these two categories are now growing. And, actually, there is equal growth in all the industries; there's nothing like we had in 2008 currently.

And now talking about e-commerce, what we see is that our own e-commerce -- it's not exactly e-commerce side, but our Yandex.Market, which is aggregator of bids -- of offers from e-commerce sites in Russia is growing at a very, very good rate. It's growing faster than our search-based advertising, at the rate of approximately 80% this year. So e-commerce is definitely growing fast and we capitalize on this e-commerce growth through our Yandex.Market service.

Now, to answer your question about advertisers, what we saw is that this number of advertisers continues to grow at a high rate and we see it accelerated compared to Q2 this year. And it's not only grown in absolute number, but we also see some increase in strength of advertiser.

This is Dmitry Barsukov. I should maybe also add that the growth of the number of advertisers is also related to our own initiatives to make advertising more available to the regional advertisers. And we hope to see continued strong growth in the number of advertisers going forward because of this and additional initiatives that we are contemplating.

Thank you.

Gene Munster, Jaffray.

Congratulations. I just want to get a closer look at EBITDA. It's been a little bit -- there's been some fluctuations over the past quarter EBITDA margins and is there any sort of visibility that you can have, or any thoughts on how that fluctuation may or may not happen in the future?

It's a matter of policy, we do not give guidance on EBITDA or profitability metrics but what I could say is that, historically, Q4 margins for Yandex are higher in the second half of the year and higher especially in Q4. And for Q4 we do not expect any substantial increase or, say, non-typical increase in operating expenses. This is probably as much as I could say about EBITDA margin for Q4.

And talking about next year, we're still early in our planning cycle for 2012 and even if we were to give a guidance, it would be premature for us to talk about it.

But we're very positive about the contextual advertising market for 2012 and we're very positive about our business prospects for 2012 also.

Okay, thank you. And then just a follow up, obviously oil prices have had less of an impact on your business, that correlation has declined over time. How do you see the impact of that if fuel prices go down in 2012? Would that potentially impact your outlook, assuming that does happen? It's still -- there's still some correlation. So how should we be thinking about 2012 with that kind of macro backdrop?

For us in the economy there is definitely correlation between oil prices and overall economy. But what I can say that, up until now, we don't see any signs of crisis in Russian economy. All sectors are growing well. And this indicator sector that Arkady mentioned, cars and autos and finance, is growing, actually, at slightly faster rate than others.

What I could say, that if there is some decrease, substantial decrease, in oil prices, it will definitely eventually affect Yandex, but there is some time lag, it could be a long time lag, between the impact of the change of oil prices and our sector.

And, again, search advertizing is satisfying the demand and it's vital for many it continues, because they're the main channel of attracting customers. So I would say that the search is much more robust than any other advertizing media to crisis.

And this is the reason why we want not to be so much dependent on the oil price.

Okay, great. Thank you.

Mariya Kahn, Bank of America.

Congratulations, again, for the numbers. Just wanted to ask (inaudible), you're pretty upbeat about operating leverage and potential for margin expansion going forward. I'm just wondering, since then, has anything changed in your thinking? Do you still look for margin expansion potential, given that you're extending to Turkey and also signed a lot more distribution contracts. Thank you.

We are still in the very early stages of this Company growth, and we have lots of opportunities to grow in technology, and also geographically. So I would say in the short to mid term it's -- I would not expect margin expansion for Yandex, because all the leverage that we have in Russia we will use to invest and to develop into new services and also for geographical expansion.

Thank you. I just want to follow up about distribution partners for mobile phones. Are you going to look to sign similar deals like you signed with Samsung with other handset manufacturers?

Yes, there will be some partnerships announced soon, as I mentioned, related to Windows Phone 7 and maybe something else. We cannot deliberate on this now. But, yes, we're working --

Is it very difficult for you to sign on an Android platform or Apple?

We're talking about all possible platforms.

Okay. Thank you.

David Reynolds, Jefferies.

I think this is a relatively straightforward one. I think your CapEx guidance for 2011 is RUB6.3 billion, and you explained that you'd be expecting a more normalized CapEx environment in 2012. I don't want to draw you unwillingly, but I wondered if you could, perhaps, explain what a more normalized CapEx environment meant, in terms of this -- the number?

Yes. We give guidance on CapEx for this year of up to RUB6.3 billion, and, going forward, what we believe is normal levels for Yandex is about 20% of CapEx to revenue ratio. It will be either high teens or lower twenties. So all our capital goes into data center and contractual data centers.

Next year, in absolute amount, CapEx probably wouldn't be as much lower than this year, but the percentage of revenue we expect to go down.

That's great. Thank you.

Anna Lepetukhina, Troika Dialog.

I actually have two questions. Can you just talk a bit your strategy in display advertising? Because, so far, I can see that you don't gain market share; you see growth more or less in line with the market. But with launch of this new technology, Crypta, and given the traffic that you have, do you think that it is possible to increase your market share? Do you intend to do it? Or you are satisfied with the market share that you have right now?

And my second question is a bit more specific. I've noticed in cash flow statements that you've invested almost RUB3.6 billion in debt securities and some non-marketable equity securities. Can you please define the nature of these securities, what exactly these securities are and why you opted to spend cash on investing in some securities? Thank you.

I will answer the first part of the question about display.

Yes, Crypta and other initiatives help us to increase the volume of display advertising. It's -- actually, if you look at our numbers, and compare it to the market average, our growth rate for display is higher than other players or market average, because it grows almost as fast as the text advertising.

Yes, we are thinking about extending display advertising outside of the [corporate] boundaries, but it's something we will be focused on later.

And the second question -- go on, please.

Just to follow up on this, but where you see your market share just theoretically with the traffic that you have and your focus mainly on text-based advertising, just hypothetically, what can this market share in display advertising be?

We cannot give away the -- we cannot estimate that, but we are the largest player in terms of the audience, but as a portal, we are very thin portal, so to say. We don't have a lot of services which generate a lot of pages. So display advertising is not our key business. So I don't think that the share of display in our revenues -- it will -- I think it could grow, but it won't be higher than text in the foreseeable future.

Okay, clear. Thank you.

Yes, and answering your second question on debt securities. Debt securities, these are investment grade securities, rather than deposit, with maturities of less than -- two years and less. So we think it's a way to manage our cash temporarily until we invest it in some operating projects.

And on the equity securities, these are our investments in blekko, US search engine, and in Face.com.

Okay. And just a follow up, as far as I understand, you don't intend to pay dividends or make any buyout, or this is something that you consider?

At this point in time we are not considering buyouts or dividends.

Okay. Thank you.

Thank you. That does conclude the Yandex Q3 earnings call for today. Thank you for participating. You may now disconnect.

Thank you, everybody. See you in (inaudible) next time in three months.