Nebius Group NV (YNDX) 2012 Q3 法說會逐字稿

Thank you for standing by and welcome to the Yandex third quarter 2012 financial results conference 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 this conference is being recorded today on Tuesday the 30th of October 2012. And I would now like to hand the conference over to your speaker today, Katya Zhukova. Please go ahead.

Hello everyone, and welcome to Yandex's third quarter 2012 earnings call. We distributed our earnings release earlier today. You can find a copy of the press release on the Company's investor relations website as well as on newswire services.

Today we have on the call our CEO Arkady Volozh and our CFO Alexander Shulgin. Dmitry Barsukov, Yandex's Director of Corporate Finance, will be available during the Q and A session. Our 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 as well.

And now I will quickly take you through the Safe Harbor statement. Various remarks that we make during this call about our future expectations, plans and process constitutes 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 factor section of our annual report on form 20-F dated March 7, 2012, 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 before I turn the call over to Arkady, I would like to give you a quick update about Internet usage trends in Russia. Summer is seasonally slow with Internet penetration usually remaining unchanged compared with the spring. This year was no different, and according to the Public Opinion Foundation, Internet penetration remains at 51% on a monthly basis, corresponding to 59.4 million people online. This represents 14% growth year-on-year.

The growth continues to come primarily from the regions. Central and northeastern (inaudible) with (inaudible) Saint Petersburg respect (inaudible) demonstrated year-on-year increase in penetration from 28% to 35% and from 56% to 58% respectively. At the same time, Euro and south and north (inaudible) region demonstrated much faster growth and penetration, increasing year-on-year from 43% to 51% and from 51% to 49% respectively.

According to the more present research of ACMM consulting, household broadband penetration in Russia reached 39% as of the end of H1 2012. This is a 2% increase over the same data as at the end of 2011. In Moscow-Saint Petersburg, household broadband penetration increased to 81% and 78% respectively.

And now I am turning the call over to Arkady Volozh.

Thanks, Katya. And thank you all for joining us today. Before I begin, I would like to send our best wishes to those affected by the hurricane in the United States. And we hope that things go back to normal soon.

And now about the business. Over the past 15 years, Yandex has grown from a local search provider into a leading Company in Europe providing search and related services to the world. Last September, we celebrated our 15th anniversary. Yandex was launched in 1997 and it took us three hard years to ascend to leadership in the Russian market. And we have maintained the number one position ever since.

And now, we now have over 3,600 full-time employees in Yandex offices throughout Russia, Ukraine, Kazakhstan, Belarus, as well as in the United States, Turkey and Switzerland. And Yandex is an important part of the daily lives of our users and our advertisers.

Q3 marks yet another strong quarter with our core contextual search business driving top line growth, especially with its financial (inaudible) it is enough to say that we are pleased with the results. And now I will cover some of the (inaudible) highlights.

I am pleased with the performance of our search products over the past few months, as we maintained more than 60% market share in Russia. Importantly, we increased our share of searches across four major browsers and platforms. This is due to a noticeable improvement in the course of our search impressions, response time and quality of answers to (inaudible) queries.

However, approximately 11% of searches are now coming to Yandex from mobile devices, including smart phones and tablets. (Inaudible) strength in search is for the quote and market management is working to keep the quoted standards high.

The last few months were each with new product launches and partnerships. We released our own Yandex browser, a strategically important product for us. We extended beyond this market into (inaudible), a big and high gross consumer category. We broadened our partnership with Opera. We implemented our joint effort with Apple who chose Yandex to provide location search for the new maps offered with iOS6. And in September, we started maintaining Yandex Taxi, charging commissions from taxi companies.

Now let me share some additional details. I'll start with the Yandex browser. We have considered the idea of Yandex creating its own browser for quite a long time. We felt it was important to maintain neutrality towards browser for developers. But as the environment changed, we decided the time was right to launch our own browser.

We strongly believe that our plans in search and cloud services makes Yandex browsers a highly competitive product that would delight our users. It offers tight integration with Yandex search, as well as our own and our partner services, such as mail, maps, Constellation, et cetera. It is fast, light and easy to use.

Since it's (inaudible) over first, the number of downloads of the first release of Yandex browser exceeded 1.5 million and we started to bite into the Russian browser market.

Offering users choice is fundamental to our value proposition. And our browser embodies this core value by making it easy for you to extend the search to other providers, including our direct competitors should our platform not answer their question.

We were the first to do so 15 years ago and today we are still the only major search player to provide this kind of choice to the users. It is important to know that launching our own browser does not mean the end to partnerships in the highly competitive browser market. As before, we maintain partner relations with key players in the browser market. We have a lot to offer, including our web and cloud services, along with better integration with a leading search and summation products.

Today we bundle all these things through Yandex Elements, a separate product that is easily integrated with all major browsers available on the market.

In Q3 we extended our dealings with Opera to integrate Opera's proven technology into our browser, allowing (inaudible) moving over four connections. This may sound irrelevant, given both the penetration levels, but interestingly as mobile becomes more widespread, a significant portion of the market, a gain realized on early or slow mobile connections, so it makes sense.

Our partnership with Opera has always been strong in mobile, extends to other areas. Yandex store, our apps market, is built on Opera's technology and it already offers nearly 40,000 apps. Our latest release provides OEMs, telecom integrators and other infrastructure to customize their mobile devices.

Yandex (inaudible) is a user friendly UI that delivers the full range of Yandex services, including search, maps, mail, cloud storage and more.

I want to remind you that we have agreements with Microsoft (inaudible) that have Yandex (inaudible) search on all Windows phone and (inaudible) devices for Russia, (inaudible) and Turkey. It is particular noteworthy that Nokia products, unlike in North American and Europe, continues to be very popular with the users in Russia and Turkey. And we are particularly excited about this partnership, as we believe that the combination of the Nokia hardware, Windows 8 operating system and the Yandex services continues to be a strong user proposition.

Turning to location based services, which are a core part of our strategy, especially in mobile. Our Yandex mobile maps audience grew 80% from September 2011 to September 2012. And in Q3 we added a feature that allows consumers to submit reviews for the businesses that are now presented on the maps.

We can easily work to make our maps more useful. For example, this quarter we added a feature that forecast traffic jams. A unique feature. Those of you who drive in Moscow or Istanbul will agree that it is sometimes impossible to estimate how long it will take you to get from home to work. And (inaudible).

Also, Yandex safety service, which is less than a year old, is getting good direction with our users in Moscow. In September, we started monetizing Yandex Taxi, charging commissions all taxi companies.

Now, to online shopping which continues to grow. Before we introduced unique comparison shopping service for clothing. Today, apparel is among the fastest growing categories of goods for online shopping in Russia. Approximately 20% of searches related to goods on Yandex have to do with clothing or shoes. By introducing apparel on Yandex market, we're strengthening our ability to respond to user queries and start to monetize these (inaudible) verticals.

And finally, as we continue to invest in providing choice to users in Turkey, we are pleased to report strong progress. According to recent survey, Yandex branded technician is quits high. Over 80% of respondents, showing similarity with the brand in Turkey. And our core search and map base for this experienced solid adoption.

We were pleased to see Yandex capture the first 1% of search share according to our own measurements. Formerly, we became the number two search provider, right behind Google, we're there 89% (inaudible). And again, it's just early days and we are growing nicely.

In summary, Yandex had a strong quarter. We maintained our market leadership, improved core search quality and launched important new products and partnerships. Based on strong execution of the first nine months of 2012, and our outlook for Q2, we are narrowing our revenue guidance towards the upper end of the range, expecting 42% to 45% year-on-year growth.

I will now pass the mic to Alexander, who will take you through our financials. Please, Sasha.

Thank you, Arkady. In the third quarter of 2012, Yandex's consolidated revenues increased 41% year-on-year to RUB7.3 million. Contextual or text-based advertising continues to be the main growth driver for us, growing at 42% year-on-year and accounting for 90% of total revenues. Yandex's own websites bring the bulk of text-based revenue accounting for 72% of total revenue, while ads on the Yandex ad network accounted for 18% of total revenue.

Yandex's advertising network grew 55% year-on-year. As we discussed in our prior call, a revenue or now a partner network has been growing at rates which were considerably higher thank gross amount onsite. Which is primarily explained by two factors. Improvements in the ad service technology and the addition of Rambler to the partner network. Both these changes were introduced in Q3 2011.

Now that we have a full year of results since these changes were implemented, we should be seeing growth in the ad network very much in line with growth on our own websites unless of course our advertising technology team comes up with further enhancements in their algorithms.

Display advertising grew 25% in Q3, accounting for 8% of our revenue. Display advertising growth was uneven in Q3, while during the summer months we saw strong advertising patterns. In September the display ad market weakened. While we have seen some results in this advertising growth rate in October, we remain cautious and expect mobile (inaudible) till the end of this year.

The remaining 2% of our total revenues came from Yandex.Money and other sources.

Our traffic acquisition costs related to the partner network grew in line with this revenue growth, while growth of distribution TAC was slightly ahead of the owned and operated revenue, remaining approximately the same as a percentage of O&O revenue compared to Q2 of this year. As a result total ex-TAC revenue increased 39% year-on-year.

Tax-based revenue was primarily driven by paid clicks, which increased 35% year-on-year. As we cycled full-year, expected technology and usages were introduced in Q3 2011 will now add network and our own site. We returned to a normalized paid clicks costs pattern where paid clicks grow slightly slower than revenue. As it was suggested (technical difficulty) click began to (technical difficulty) as we pursue the policy of disciplined headcount growth, this quarter we added 133 employees, the majority of which are product developers.

Our total personnel costs increased 32% year-on-year and represent 18% of revenue. Our costs appreciated with operations of data centers and office [businesses], as well as costs of (inaudible), also grew slower than revenue at approximately 24%.

At the same time we continue to actively invest in Turkey, we saw our advertising and marketing costs more than double compared to Q3 last year. And our depreciation and amortization expense for the quarter increased 50%.

Revenue growth rates, primarily due to last year's forward investments in sever funds and related equipment. Accordingly in Q3, our adjusted EBTIDA increased 47% and our adjusted EBITDA margin for the quarter was also 47%, up from 45% a year ago.

This quarter we saw a very small ForEx effect on our net margins with a RUB30 million loss, primarily related to dollar denominated liabilities from our balance sheet as rubles (inaudible) during the quarter from 32.9 to 30.9 rubles per dollar. However, I should remind everyone of this RUB330 million foreign exchange gain in Q3 last year. This past gain makes the comparison with Q3 this year more difficult and explains the slower growth of the income compared to other profitability measures.

Our effective income tax rate in Q3 was 22.5%, reflecting management's intention to continue to reinvest cash generated in Russia without up streaming dividends to our parent holding Company in the Netherlands. And as a result, our net income increased 34% slower than operating income and our net income margin was 32%.

Adjusted net income grew 53% and adjusted net income margin was 31%. Adjustments include correction for the tax (inaudible) from division, foreign exchange gains and losses and the $1.840 million of contingent compensation related to the acquisition of SPB Software.

Our capital expenditure in Q3 was RUB1.5 million or 21% of revenue. CapEx is not usually evenly spread across quarters and just to remind you in Q2 we were at only 10% of revenue. We expect that for the full-year we will be between to 18% of revenue on CapEx.

And finally, turning to our balance sheet, we have the equivalent of $786 million in cash, cash equivalents, term deposits and other investments and debt instruments. As you undoubtedly noted on our balance sheet, we have assets and liabilities held for sale valued at RUB1.7 billion and RUB1.3 billion respectively. Taking a step back, in the fall of last year we started to process of looking for a majority strategic investor in our Yandex.Money electronic payment system. Management currently believes that we are likely to close a deal within one year from the end of Q3. Accordingly, in conformity with US GAAP, we reclassified the assets and liabilities of Yandex.Money that's held for sale.

I would also like to take a couple of minutes to comment on our SEC filing yesterday, relating to an equity exchange offer we're making to (inaudible). In the second half of (inaudible), we granted share options and share appreciation rights to a significant number of non-executives in place. We have since undertaken a comprehensive review of our equity compensation practices for our non-executive employees, as well as those of our peers. And (inaudible) to remember that equity was in the form of respected share units would better meet our (inaudible) goals.

(Inaudible) extension the rights to receive a number of shares for free once this (inaudible) and conditions have been met. We are therefore offering eligible employees the opportunity to exchange their existing options or share per share (inaudible) for RSUs at the rate of 2 for 1. In other words, employees can elect to cancel an option to purchase two shares in exchange for an RSU for one share. The listing terms will not be changed. We believe that RSUs will cover debt maturation for rank and file employees while the use of shareholder dilution from employee share awards.

Importantly, top management continues to be compensated with share options or share appreciation rate, which only benefits from increases in our share price following the (inaudible).

And finally, turning to revenue guidance. Given the dynamics that we are seeing in the market and our performance year to date, we are narrowing our full-year guidance to the upper end of our previously announced range, expecting that our revenue growth will be between the 42% to 45% over full-year 2011.

I will now turn the call over to the operator for the Q&A session. Thank you.

(Operator instructions) Edward Hill-Wood, Morgan Stanley.

I've got two questions, please. Firstly, debt question is on the relationship between paid clicks and CPCs. You were pretty clear on the direction of that in the quarter, but given we're now down to 35% on paid clicks, is that some level that you'd want to defend more aggressively, maybe to the expense of CPC inflation? I'd just be really interested in your thoughts on that, particularly in Q4.

And secondly, just on the 11% of traffic coming from mobiles and tablets, could you just give us a sense of any obvious or clear differential user behavior you see between the two different types of user? Thank you.

This is Alexander. Let me answer this first question on paid clicks. As we discussed active growth in this quarter and I think you see what 35% and cost per click increased 5%. So the growth rate of paid clicks as you see the rate compared to Q2, which is absolutely normal and expected trend that we can indicate it to (inaudible) before.

The acceleration of paid click grows. It's like the effect that the full-year has had since two important events. One is ad sever technology improvements on our ad network on second additional (inaudible) search. So from this point on, we are now returning to a typical paid clicks growth pattern, where paid clicks would grow slightly slower than revenue and cost per click (inaudible) moderate, year-on-year increases, both in line with general selection in the economy. So we expect the (inaudible) gross (inaudible) from paid clicks and some inflation on our CPC (inaudible) in terms of (inaudible) percent.

Talking about mobile and monetization of mobile, although it's considered to be -- the mobile use is considered to be more for pleasure and entertainment, from what we see the more users use mobile, the less difference we see between monetization per thousand searchers on desktop and mobile. If we talk about tablets, it's almost the same and now -- well, now on mobile devices, that with smart phones the monetization comes close to 78% of -- 70%-80% of debt (inaudible). And I think the more users who will be there, the closer the results will be.

If I could just ask one follow-up. Just wondering how your relationship with Apple is these days?

This is Dmitry. I just wanted to say as we said on this call, that we're quite pleased with the (technical difficulty) Apple and that it's hope for further progress, but we cannot say anything further at this point.

Lloyd Walmsley, Deutsche Bank.

I had two if possible. The first on the UNIX browser, are you now promoting that broadly and could you maybe talk about what percent of the downloads came from organic versus paid source and how you think that might evolve going forward and impact margins?

And then second question, on mobile OS, how do you guys think about potentially moving to create your own mobile (inaudible) now that you've created your own browser? Is that something you're contemplating or already potentially working on? That'd be great if you could answer those.

Talking about the browser, I would like to remind you again that this is the early version of the browser, the first version, and we announced this whole (inaudible) for the browser. And we didn't start real serious distribution on this. And all the growth rate and (inaudible) we saw so far was mostly natural oriented. So we didn't spend on promotion to browser.

We are waiting for this more -- the further versions to maybe start distributing. But again, distribution is not the first time we are doing it. We were the distribution business for many years, and we don't expect any significant additional cost to that.

And on the mobile OS, I would not comment right now. Maybe we'll have some comments later.

(Operator instructions) Alexander Balakhnin; Goldman Sachs.

I have one question is on your paid clicks dynamics on Yandex website. I mean obviously you don't disclose this year-on-year growth, but can you probably share with us what was the growth relative to one you saw in the first half? Was it the same for Yandex websites or is slowed down?

And probably if you could share some thoughts on the fourth quarter display advertising sell-out (inaudible). I mean if you can just share probably some -- like the percentage of inventory you have sold for the fourth quarter it would also be helpful.

This is Alexander. On paid click notes, and you said perfectly well, not basic in our paid click growth by [earning] a stream, but what I could save on ad network, we saw very high increase in how the growth rate (inaudible) with new technology and (inaudible).

While on search and other owned websites, we saw very solid and stable growth rate. So this acceleration in Q3 effective growth that we see, it's only due -- four month cycling on the growth on the ad network while searching is solid and stable in this growth rate on paid clicks.

Talking about next year, it will be too early for us to give any guidance or make (inaudible) projections, because we do have two highest months, (inaudible) highest months, so November and December, ahead of us. So we plan to give the appropriate revenue guidance for 2013 in our Q4 call in February.

But what I could say that we are optimistic about the next year and expect another great year for Yandex.

Gene Munster; Piper Jaffray.

If we listen to some of the other large Internet companies, whether it's Google or Yahoo or Facebook, they've obviously had some less than optimistic things to say about broader year of nothing specific about Russia. But maybe can you just talk a little bit about maybe what you're seeing in the macro related to Russia that might be different from what some of those other companies are saying?

This is Arkady. Actually we judge whether or not there is any kind of a slowdown by our contextual advertising. And as far as you see from our numbers is what we see so far. There's no slowdown and the growth rates are very healthy.

Whereas a slight decline in display advertising actually we think came to us from other markets. Some of the big budgets decided on some markets which are much more affected by the economy and maybe the decisions are made there and that's why without seeing anything of interest here we see some decline in the big display budget.

But again, display is not the big part of our business. It's just 10%, so we -- well, we are higher than the market in display this quarter and it's small proportion of our revenues. But on search advertising we are still healthy.

And then separately is your search share has been slowly increasing here. Can you -- is there one or two things you can identify that's really been causing that share to slowly return?

It's a lot of small things we are doing to the search quality mostly because the growth around all the platforms, all the browsers, mobile and desktop, is just increasing of the quality and hence a retention of the users. We're launching new services and we improve our core search, that's the secret that's (inaudible).

Olga Bystrova, Credit Suisse.

My question is on revenue share in search. You had pretty stable and slightly improving traffic share, but growth in search revenues have been lagging some other the competitors that report revenues on the same segment. So I wanted to ask you to comment if I understand correctly that you have been losing some of revenue in search. Why that could be a reason, whether it's sort of oneoff in the quarter or is it more of a trend that you are seeing? And I guess how should we think about it going forward?

This is Alex speaking. So on revenue growth on search, we have seen growth rate at approximately 40% for the last three quarters. From Q1 to Q3 currently. The other search player, which you recall the figures, as you know is one of our competitors, which is much smaller and the search is advertising on this website is powered by another company. So it would be difficult for us to comment on the structure of that deal.

What we think is our rating share of the total search (inaudible), because the market is stable and is unlikely to change materially this year.

So basically it was a oneoff in the third quarter then, right?

Again, the (inaudible) advertising rating (inaudible) on the other search player, we disclosed the figures for the Russian market, has not purely a revenue drive from the customers, but it's (inaudible) revenue from the searching solution deals. And so we won't be able to comment on (inaudible).

Olga, this is Dimitry. I just wanted to add that there are essentially as we were saying open time for us, that's the biggest play in the contextual market in Russia. The main driver of revenue is the market itself as long as our share remains stable and solid and considerably above everybody else. So this is why you don't see much fluctuation in our growth rates quarter to quarter. Whereas for smaller players in the market, these fluctuations may be more pronounced and we do not know the terms of their deal, but it could be that their revenue is much more related to traffic. Whereas for us the terms are different.

Mariya Kahn, Bank of America.

I wanted just to get some granularity about the sectors that are driving growth in search. Are you seeing more traditional advertisers, like other CG companies coming to search at all or is still driven mainly by financials and ODOs? And also if you could give us color on the contribution of e-commerce to search growth as well?

This is Alex. So on -- let me go by sector. We see a better stable than (inaudible). Think there's no major shift there, so the revenue companies basically remains virtually the same or very close to what they had in Q1 and Q2.So we see some accelerated growth at the [slow] financial services industry and also in e-commerce.

We don't disclose revenue contribution by each industry, but I could say that we see some accelerated growth in broadly defined ENC commerce sector, which will account for about 15% of our revenue contribution.

So again, it remains very stable, we see some (inaudible) come into search and contextual (inaudible) advertising, but their contribution is still not so high and our total rating remains to be very fragmented with a high number of customers, which is very good for the business because this is why contextual and (inaudible) are (inaudible) is slow, stable and solid (inaudible) compared to display.

(Inaudible) said that e-commerce is about 15% of your revenues. Could you give me an idea where it was about a year ago?

It was slightly lower than that. Slightly lower than that. A couple points lower.

Anastasia Obukhova, VTB.

The question follows your audience growth in September was behind the market. Was both (inaudible) was 17% overall Russia to net audience. Do you attribute or do you see from your own point that the audience is going to some other smaller websites?

And the follow-up questions on they have equal method, et cetera. Do you see, as such as we see the tremendous slowdown in the search queries and for the paid clicks, do you see some other revenue stream material coming in 2013 that may change, for example, your business model?

This is Dimitry. On your first question I just wanted to say that for us the more relevant method to look at is a queries group, which is disclosed in our press release. It's about 50%. Overall Russian Internet audience continues to grow quite nicely and we are seeing continued attraction with the users.

By the way, to answer this question, we are still number one by audience in Russia by -- according to comScore. And this didn't change.

(Inaudible) in terms of daily audience. According to (inaudible). Can I please comment on like the different revenue business that may impact your business model structure in 2013?

This is Alexander speaking. Yandex of course remains to be a merely search and text based advertising Company as there is still lots of opportunities to increase (inaudible) in this advertising sector because new (inaudible) click rates and new advertising technologies (inaudible) to be implemented. So we think there is a lot of things to be done for Yandex in this particular area.

Another potential revenue growth segment is Yandex.Market, which is the leading e-commerce platform for Russian use online but as we know, 30% of shopping (inaudible) three Yandex market or using permission on the Yandex market. That's been discussed just recently. We launched comparison shop in (inaudible) and shoes on the Yandex.Market. And given that about 20% of (inaudible) for good on all searches from Yandex.

I searches for good and (inaudible) as we believe that long-term this could be a good revenue growth opportunity for Yandex, which is not exactly related to search.

Alexander Vengranovich, Otkritie.

I have a question regarding your product development and advertising expenses going forward. So we've seen some pickup in advertising expense in the third quarter. What do you expect for this fourth quarter this year and going forward? Should we expect that product development and advertising expenses will grow in line with the revenues?

And also, do you see any additional advertising (inaudible) from Google in the third quarter?

This is Dimitry. Traditionally we do not disclose our expectations regarding specific categories growth. One thing I should like to express is that why we like to keep optionality for our spending. We always grow with EBITDA in mind. And as you saw in -- based on our Q2 results, we not only (inaudible) but we are very prudent in the ways that (inaudible).

I would also add that at our current level of (inaudible) and EBITDA level, the budgets -- we cannot forward and we plan for the advertising is high enough for the Russian market for any brand building.

And one more question I may about display advertising. Actually it would seem that the market is quite depressed in the third quarter. Probably they have to be the same case for the fourth quarter. Do you have any common initiative going forward just to stimulate your growth in display advertising? So (inaudible) kind of a small revenue stream for you, but you have the biggest portals in Russia and probably you can also stimulate that revenue stream.

Yes, display advertising is not the core of our revenue stream. We are not the biggest player on the market to influence the core market. The core -- yes, the display advertising counts for something like 20% to 25 of the total display market in Russia.

And as you saw, we are growing above the market average level. We're showing healthy results in display. We don't know whether or not we should drive the show here because it does influence much of total top line growth.

Anna Lepetukhina, Sberbank.

My question is that you've accumulated almost [RUB800] million of cash on the balance. You generate enough cash to finance CapEx and you have some cash even left. So what do you intend to do with this cash? Do you plan any M&As? Do you plan to pay dividends? And for how long you will continue accumulating this cash on your balance sheet?

This is Alex speaking. We think that having a strong balance sheet is a strategic advantage for Yandex, which provide us -- this necessarily reflects new (inaudible). So either develop technologies or to acquire technologies, which will complement our search and other products.

Talking about dividends or any other potential use of cash, this is only at discretion of our shareholders and so I'm not able to comment on that front. The decision -- the future plans of cash utilization policy is really on an annual basis by our shareholders and the board of directors. And the current plan is to continue to accumulate cash. As I said, to have flexibility with our investment (inaudible).

And can I have just one more question? Can you please explain what is the rationale behind selling Yandex.Money?

Again, Alexander. We think that business in electronic (inaudible) with additional (inaudible) with additional (inaudible) -- additional services industry as (inaudible) financial evolved and (inaudible) interim page. So we think that Yandex.Money will be better off as a business having a strategic investment from financial industry while keeping connections with Yandex and technology and IT insight.

We think that combination of two strategic shareholders with complementary skills will make Yandex.Money even a stronger business than it is now.

Alex Balakhnin, Goldman Sachs.

I have two follow-up questions. One is on your regional traffic monetization. Can you probably share with us what instruments do you have in place to -- to the improved monetization of all of their regional traffic because I think there is still a bit of discrepancy between where the traffic is originated and where it is mostly monetized? So I think it's still skewed to most constant speed.

And my second question would be on the return on investments of advertisers into the paid clicks acquisition. You have obviously an extensive analytical framework at hand. Would you say the return on investments is staying the same improved or would decline? I mean any observations on this would be helpful.

Talking about monetization of regional traffic. On one side this is evolutionary process as people get more accustomed and used to doing commercial (inaudible) on the Internet. Local businesses come online and improve their websites and move their product offerings online.

What we can do and what we do is that we are opening sales offices in the regions and educating local customers and local advertising agencies on the ways to sell online and to use Yandex advertising technologies effectively.

We have now sales office in almost all (inaudible) population and we are active and educating and advertising our business -- our proposition to local businesses.

So on return on investment for advertisers, as we discussed just this quarter we saw a very moderate increase in cost per click. So we think this -- given that Yandex is the majority of contextual advertising market, there is an investment for our customers. If (inaudible) -- say, increase of cost per click is offset by additional improvements on technology side, which improved (inaudible) and click through rates.

Olga Bystrova, Credit Suisse.

Just a follow-up on the last question that Anna asked. And it's related to CapEx. The CapEx has gone up a little bit in the third quarter. It is sort of within the range that you highlighted earlier this year in terms of your expectation. But it did increase from the first half. And I was wondering if you could comment to sort of which areas increase came from, particular with markets? Was it related to (inaudible) regions, et cetera? And how do you see CapEx development going forward and which projects you will be addressing as a priority?

As we discussed, CapEx is not even from quarter-to-quarter because it depends on when we open new (inaudible) data centers. Just in Q3, we opened our new data center in one of the (inaudible) regional cities, which is quite a big one and we expect to continue investing and with this data center in Q4. This is the reason why our CapEx for the full year is expected to be in the range of 15% to 18% while in the first six months of the year it was about 10% to 11%. So it's simply due to the time schedule for our investment process.

This CapEx is really primarily to Russia while the big -- all our data centers are also able to (inaudible) from other countries like Turkey, (inaudible) and (inaudible) as well. But majority of our traffic is still in Russia and therefore CapEx (inaudible) into Russia. And this is primarily the search as our biggest and our most capital intensive product.

At this point in time we remain at the same as we indicated before that our long-term CapEx to regular ratio is between 19% to 20%. And that decrease if and when we see opportunity to improve user (inaudible) data centers or reduce this ratio, we'll certainly do so.

And sort of just a related question on international expansion, because I think there were a couple of comments if I'm not mistaken, about maybe more appetite for international or more international ambitions from you going forward. Are you -- so seem to be happy with Turkey. Is that beating our expectations relative to what you expected before and whether you are willing to be contemplating other countries?

As we said, it's too early to talk about Turkey. And we are preparing to analyze it for later. That's how we are very much pleased, as I said. We spent a year to build the product, we spent this year to build the brand and we have built the brand in Turkey. And now we're going to build the audience. And before we prove the model there we are not going to spend anything else.

And what about the other -- potentially other markets?

Of course if Turkey works and we will be seeing revenues coming from the market, of course I think all of our investors will just push us hard to go further. And we will be ready to do this.

Yes, but it's not like it's an imminent (inaudible), just sort of more conceptual.

We didn't make the decision yet. We want to see a clear success first.

That does conclude our conference for today. Thank you all for participating. You may now disconnect. Thank you.