Nebius Group NV (YNDX) 2015 Q1 法說會逐字稿

Ladies and gentlemen, welcome to Yandex's First Quarter 2015 Financial Results Conference Call. I will now hand you over to Katya Zhukova to begin. Thank you.

Hello everyone and welcome to Yandex's first quarter 2015 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. On the call today we have Arkady Volozh, our Chief Executive Officer; Alexander Shulgin, our Chief Operating Officer; and Greg Abovsky, our Chief Financial Officer. Our call will be recorded. The recording will be available on Yandex's IR website in a couple of hours. We've put together a few supplementary slides which are currently available on our IR website, and now I will quickly walk you through the safe harbor statement.

Various remarks that we make during this call about our future expectations, plans and prospects constitute the forward-looking statements. Our actual results may differ materially from those indicated or suggested by these forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of our annual report on Form 20-F dated April 4, 2014, 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 will turn the call over to Arkady.

Thank you, Katya and hello, everyone. Thank you all for joining our quarterly earnings call.

Our overall revenue growth during the quarter was affected by a difficult macro conditions. Despite a challenging environment, we were able to grow our revenues by 13% with text-based revenues on our own properties growing 14%. We benefited from our exposure to contextual advertising, which continued to deliver superior returns to our advertising clients and was the only advertising segment showing positive growth trends in Q1. I'm also very pleased with our growing advertiser base. In Q1, we served 323,000 advertisers, which is 14% more than a year ago. A special significance is that the number of advertisers was 2% up sequentially, even despite in a challenging macro.

Another important development this quarter is our success in narrowing the gap between the share of mobile traffic and mobile monetization. Share of mobile in our overall search traffic in Q1 was 24.5%, slightly up from 24% in the fourth quarter, while in terms of revenues, mobile generated 20% in Q1 compared to 18% in our total search revenues a quarter earlier. I will let Sasha expand upon the initiatives that we undertook to improve mobile monetization in a few minutes.

Our overall search share in Q1 averaged 58.6%. The decline was primarily driven by our search share on mobile as well as by losses in Chrome, which were partly offset by the growth of Yandex Browser. We continued to invest in our Yandex browser project, which has become a clear number two in Russia in terms of traffic share.

On the mobile front in Q1, our search share on iOS was at 48% compared to [49%] a quarter earlier. Our share on Android-based devices declined 2 percentage points sequentially and in Q1, it was 42%.

With this, I will turn the call over to Sasha.

Hello, everyone. Let me start off by discussing the changes to our mobile revenue strategy that Arkady touched upon earlier.

As the number of mobile queries has grown, our advertisers have been turning to our solution to increase the amount of traffic that they receive from us and to gain greater control over their advertising campaigns. In this first quarter, we rolled out new advertising tools that give our clients an ability to fine-tune their mobile ad campaigns. Now advertisers can adjust mobile CPC score efficiency from 50% to 300% of their desktop bid. In parallel with this, we have introduced a new section of our web analytics store, Yandex. Metrica, which features enhanced device distribution and many other features. As our clients have begun to experiment with these new tools, the results have been encouraging. More often than not advertisers are adjusting their mobile CPCs upper. At the same time, we have been experimenting with a number of ads that we show on mobile devices.

In March, we started to offer video placements in Yandex. Video network, which includes KinoPoisk and other websites that are members of Yandex ad network. We offer multi roles, dynamic placements that play before or after online videos. Advertisers can choose between two options; placements that offer geographical targeting and placements that give advertisers the option to select the target all year using social demographic targeting like TV viewers search for targeting and interest-based targeting.

The performance of Yandex. Taxi in Q1 was also extremely strong. We improved the quarter of supply, expanded into regions while maintaining best-in-class time to arrival. As a result, Yandex. Taxi revenues more than tripled compared to Q1 2014.

(inaudible) successfully continued to grow its mobile usage. Yandex. Market now accommodates needs of international retailers interested in the Russian market and allows its users to shop with dozens of retailers from UK, US, Germany, China and Italy. Cross-border retailers are mostly focused on apparel, makeup, perfume, accessories and children products; the categories that were in demand in 2014 and that we aim to grow on Yandex. Market.

In Q1, we launched Yandex.Tours, serving the users who are looking for package tours and we also launched Yandex Jobs mobile app that is focused on serving blue-collar jobseekers.

Before turning over to Greg to discuss our financials, I want to provide a quick update on our antitrust case.

As you know, the Federal Antimonopoly Service officially opened the case on February 20, shortly after we filed our complaint. Since then, the request for information and documents have been issued to Yandex, Google as well as OEMs and operators. The first hearing took place in mid-April and the second is scheduled for the end of May. The case is still in its preliminary stage, but so far, we are pleased with the pace of developments. Also, we're very inspired with the EU Commission's recent move to open a separate formal investigation in regard to Google's Android practices.

And now, I will turn the call over to Greg.

Thank you, Sasha and thank you all for joining our call today.

In Q1 2015, our consolidated revenues grew 13% year-over- year and reached RUB12.3 billion. Text-based advertising accounted for 93% of total revenues and increased 14% year-on-year. Yandex's owned and operated websites constituted 68% of total and grew 14% year-on-year. Growth rate of revenues from Yandex's websites was primarily impacted by a significant slowdown of Yandex. Market in Q1, which was affected by weak macro and a significant exposure of our e-commerce product to consumer electronics. Excluding Yandex. Market's revenues from both periods, our owned and operated text-based revenues grew 18%.

Our text-based industry mix remains diversified though the current macro environment is affecting a number of categories such as auto, financial services and as I mentioned earlier, consumer electronics, on the other hand, we saw significant growth of advertiser spend in real estate, medical services, goods for construction and renovation. Our advertising network grew 13% year-on-year. Contribution of ad network revenues to total revenues remained fairly stable compared to Q1 of 2014, but grew 210 basis points sequentially to 24.4% in Q1 of 2015, as we continued to add new partners to our ad network.

Share of display advertising shrank to 5% of total revenues compared to 7% a year earlier. Yandex's own websites declined 19%, while display ad network grew 7% year-on-year. Other revenues more than doubled and comprised 2.2% of total revenues. The main driver of growth was Yandex. Taxi.

Traffic acquisition costs related to partner advertising network grew 4%, while partner TAC as a percent of partner text-based revenues decreased to 62% in Q1 2015 from 64% in Q4 2014. This is approximately 235 basis points lower due to the change in our partner mix. As you recall, partner TAC includes both TAC from display side as well as from the text-based side. Distribution TAC increased 9% year- on-year and constituted 10% of text-based revenues from Yandex's websites. Total TAC increased 6% year-on-year. Paid clicks grew 12% year-on-year, while cost per click increased 2%.

Turning to our cost structure. Total operating costs and expenses excluding TAC and G&A grew 47% in Q1. Excluding stock-based comp, expenses grew 42%. The growth is primarily driven by various factors including the increases of salaries to developers as well as increased rental cost for our headquarters. To remind you about our rental expenses, they are driven by two factors. Additional 18,000 square meters of office space that we took on in Moscow in May 2014 as well as the material depreciation of the ruble in Q1 compared to year earlier. The rent for our headquarters is dollar-denominated.

Personnel costs still remain our largest cost item. Talented personnel is essential for the Company to maintain its leadership position in the market. That's why we view the crisis as good opportunity to hire good people. Simultaneously, we made an efficiency review exercise and reduced our activities in certain areas, which we do not consider critical. As a result, the number of employees in SG&A decreased by 54 people and cost of sales by 20 people. At the same time, our product development staff increased by 61 employees compared to December 31, 2014 as a result of our review aimed at supporting our most important products. In Q1, our personnel costs totaled 27% of our revenues.

Our G&A expense for the quarter increased 39% as we continue to invest into data centers. Adjusted EBITDA decreased 12% year-on-year and our adjusted EBITDA margin was 28.9%. Adjusted EBITDA margin contraction was mostly due to office rent as well as growth in personnel expenses due to salary increases and severance payments. This quarter, the impact from ForEx was [RUB716 million] gain related to dollar-denominated assets and liabilities in our balance sheet.

Our effective income tax rate was 24.1% on US GAAP basis, generally in line with that in 2014. Adjusted net income was down 12% and adjusted net income margin was 18.2%. Our CapEx was RUB4.8 billion or 39% of Q1 revenues, as we continued to invest into data centers and servers. As you know, a significant part of our capital expenditures denominated in US dollars, therefore adversely impacting the CapEx to revenue ratio. Also to remind you, our CapEx this year is very much weighed towards the first half of the year.

We continued to buy back the convertible bond that we issued in December 2013. In Q1, we bought back another 30 million face value of the bonds. So far, we've bought approximately [180 million] face value of our convertible bonds.

We ended the quarter with RUB47 billion in cash, cash equivalents and deposits. At the exchange rate as of March 31, our cash and equivalents worth approximately $806 million. The currency split was 33% rubles and 67% dollars and euros held both in Russia, as well as in Netherlands.

Now, turning to guidance. The macroeconomic environment remains highly uncertain. And at this point, we're expecting that Q2 2015 revenue growth will be in the range of 9% to 12%.

Now, I'll turn the call over to the Operator for the Q&A session.

(Operator Instructions) Lloyd Walmsley, Deutsche Bank.

Wondering if you can elaborate a bit on the mobile ad campaign changes you made. You mentioned that some customers are actually adjusting bids upward. I guess can you just talk a bit about what you think is driving that upward migration and then when you look at the customers who are using these tools more aggressively, are they increasing overall budget as part of this as they see more ROI? Are you able to parse that out in this kind of macro landscape?

Hello, Lloyd. This is Alexander speaking. Thank you for the question. So, this functionality was rolled out not so far ago. So it's -- I think it's too early to say both longer-term trends coming from this, but we see a lot of demand from our customers for a split functionality around mobile campaign separately and we think it's good time now to introduce these new tools. We think that there is a class of customers who are mobile ready, they have good mobile websites and they run their campaigns efficiently, and that's why these customers are increasing their mobile CPCs upwards to cage all the mobile traffic that we can provide to them.

So, as I said in my previous speech, some customers are decreasing the CPC is about more often than not customers are increasing their bids to specifically focus on mobile users. How far this thing will be rolled out and how many customers will be increasing their budgets is yet to be seen. But we're very optimistic about growth in mobile and new opportunities which should provide us for revenue growth.

And if I may one more, Greg, if you can give us kind of an update, last quarter you gave us some thoughts on the potential margin pressure from FX. Can you give us an update on kind of puts and takes on where you're seeing cost inflation aside from obviously the rent in Moscow and where we should be thinking about that margin profile for this year?

Yes, sure, Lloyd. This is Greg speaking, thanks very much for your question. As we think about the year, I think our outlook for margins is more or less unchanged, perhaps unbalanced a tad better. Let me give you some of the puts and takes, obviously given where the rent -- given that our Moscow office rent is in US dollars and given that the US dollar has depreciated slightly now versus the ruble, we will see the benefit from that in Q3, since we prepay our rent one quarter in advance. The other place where you will see kind of an offset to that obviously will be just the fact as you can tell from our performance this quarter versus our initial outlook, the economic environment does remain challenging, so that's kind of another offsetting factor for that.

As we think about the year, we are also looking to invest more in marketing specifically behind products that are showing good promise and that's obviously Yandex. Taxi, which as we said in the opening remarks is growing extremely well as the clear market leader for on-demand transportation and as we're looking to roll that out further into Russia. We will also support Turkey, which is worse after not investing hardly anything in marketing there in Q1, we will invest considerably more there in Q2 and if that goes well, obviously we'll continue that investment. And we'll also invest in other Yandex products whether that is Yandex. Auto, which is really as best as we can tell taking market share away from our competitors in the online classified space for the automobile segment.

So, those are sort of the puts and takes. I'd say overall, I feel a little bit better about the margins than I did a quarter before. I think the margin compression will not be as bad, but whatever savings that we got from the efficiency exercise that we undertook over the last three months, we'll probably look to reinvest some of that back into marketing spend behind our most successful or most promising products or Turkey.

Edward Hill-Wood, Morgan Stanley.

I got two questions, please. Firstly, just going back to the mobile unbundling, are you saying that you think CPCs will in net aggregate increase as a result of the change you put through in March as opposed to -- it would be a relatively surprising outcome and with that just be sort of early adopters, I mean going into 2016, presumably as mobile gets bigger, that could sort of change -- could tend to put downward pressure on CPCs. So I'm just wondering, if you could comment on where we are today and maybe as a result of this and an uptick in the desktop CPC in the short-term.

And secondly, on revenue market share you've lost a little bit of traffic market share, but it's mainly coming in low monetized areas. Could you talk about why not you think you've held revenue market share in the quarter and why not you think your guidance for 2Q assumes revenue market share equality relative to your competitors, please?

Hello, Ed. This is Alex speaking. I think that on the impact of new mobile functionality of our CPCs, the impact on total CPC growth is too early to say given that more customers are more likely than not to increase their CPCs up, maybe it could have some minor impact on CPC increase, but as I said, too early to say because most or many customers have adopted a new functionality.

About the revenue market share, I think we are maintaining our revenue market share, simply because on desktop in search we are maintaining share and most of the revenues are still coming from the desktop. Therefore, I would assume that our revenue market share is with us and we are maintaining that.

Okay, thank you. Could I just clarify the first point? So the mobile unbundling was introduced in March, I believe around March. Your guidance for Q2, do you think that CPCs will be decreasing in Q2? I mean the revenue guidance is for a slight decrease in run rate, is that partly driven by CPC or do you think CPC will be -- are you budgeting for CPC to be relatively stable through the quarter?

Yes. Our Q2 revenues, and I would say 2015 revenues, are primarily impacted by the macro environment in Russia rather than dynamics of CPCs and paid clicks.

Cesar Tiron, Merrill Lynch.

Yes. Just two questions, please. Just on the outlook for Q2 which is seen as of by some in the market. Is it really because you slightly missed Q1 and you're trying to be overly conservative, or is it also because the unbundling of the CPC plays a role simply because -- I think you're planning to increase the inventory as well, and you probably are not going to be able to do that straightaway?

And then on the margins, can you please disclose what was the EBITDA margin excluding the severance?

Hello, Cesar, it's Greg.

On the question -- on your last question, what the margins would have been ex-severance, I don't have that number handy. But it clearly -- it's in there buried slightly. On average, I think we ended up paying something like four months of salaries for employees that have left Yandex.

With respect to our outlook for Q2, I think more than anything what the outlook reflects is the softness in the three categories -- key categories that are outlined on the call. It's really driven by autos, financials and consumer electronics and some IT services. Sort of ex -- if you exclude those categories, if you just assume those kind of -- take them out of the mix entirely, the rest of the business is growing healthily sort of in the low to mid 20%. But, we are kind of held back by the three key verticals that I just mentioned and who knows how they will perform, clearly financials should -- probably at the margin start to feel a little bit better given that the federal rate is coming down here a little bit. On the other hand, autos are still declining precipitously every year. March figure showed auto sales are down 43% year-over-year. So, those are the sort of the puts and takes.

And just to put it in perspective, look in Q1, ad spend for television was down 22% year-over- year, for radio, it's down 35%, for press, it was down 45%, for outdoor, it's down 30%. So I think that the overall health and the profitability from an ROI standpoint of contextual advertising is still showing its strengths, but we can't fight the macro headwinds, we are not isolated from the rest of the economy.

Yes, just a very quick follow-up on the margins, which you said would -- could still decline by up to 900 basis points. I mean, if I mark to market, because I don't have all the details, I mean -- with rubble where it is today, the delta between your guidance and what your EBITDA should be this year is probably 2% percentage points at least. So are you saying that you're going to reinvest this 2 percentage points of margin in marketing?

Not all of that, not all of it, but some of it we will reinvest back. I think on the last earnings call, I said that we think about 800 basis points is the compression -- 800 basis points to 900 basis points and perhaps we can do a little better than that. Whatever is the delta, some of it we'll invest back in the marketing spend.

Alex Balakhnin, Goldman Sachs.

Two questions from me, if I may. One is on the stock-based compensation level, just looking several years back, it doesn't seem this number was ever falling sequentially. Should we consider the first quarter stock-based compensation number as like a new norm or you would still reckon it may be bit of a one-off in it.

And my second question is as you start to contextualize search with overall advertising market trends, do you think you are lagging the market in terms of the rate's evolution or you are in line or maybe ahead because the TV players expect that second quarter will be pretty much the same as the first quarter was. From your guidance, it tells that you keep expect -- you expect some sort of slowdown, which means that you might be lagging a little bit there at the total ad market. So you are probably theoretical thinking about, that will be quite helpful.

Hello, Sasha, it's Greg. On stock-based comp, some of it has to do with the FX rate at the time of issuance, some of it has to do with the rolling off of the older stock options. From a philosophy standpoint, much like some of our competitors, we are moving away from using stock options and moving towards issuing RSUs given the fundamental mismatch on the currencies for our employees between US dollars and rubles.

So more or less that will be a wash on whether or not the search market lags, I think there is not a whole lot of difference between Q1 and Q2 as we're currently seeing. Some of the trends in the second half of Q1 seem to be persisting into Q2 and for us, it's more of comping issue in terms of starting to anniversary some of the CPT improvements that we made a year ago.

Right. And just to my first question, a follow-up, so this RUB560 million is probably a little bit inflated and it should be lower going forward, is this right?

As you saw, we also are undertaking an exchange program where we will be giving our employees an option to exchange their options for RSUs on a ratio, basically, two options could be exchanged for one RSU and there will be some consequences to that from a chart standpoint as well.

Okay. Thanks.

In aggregate, I think the amount of RSUs/options, the sum of the two will be basically unchanged from previous periods. (multiple speakers) question of shifting from issuing almost no options and shifting towards issuing RSUs.

Ulyana Lenvalskaya, UBS.

I guess we covered one of the most important questions. Thank you very much for that. Could you please give us an update on the Turkish business performance this quarter?

Hello, Ulyana. It's Arkady.

In Turkey, in the first quarter, we have re-launched at last our search product. We were busy with the preparation of the new product since May last year. And we stopped all, technically advertising activities and all marketing activities on search in Turkey. Before that -- now we have -- when we have the product, it looks like in our internal measurement it's very good quality and we win all competitors on side by side metrics. Now with this, we will start some marketing, but before that, we had a case with Firefox.

As you may know, Firefox made tests on their users, they tried to change the search default for 2% of their customers. And they saw much higher retention rates than they expected, which tells a lot about the quality of the product. And since April -- end of March, April, they changed their defaults and we had one-time prop-up in our market share. And we still retain those users, and we will continue marketing the product, and we'll see how it goes. It's just couple of weeks as we relaunched, we'll see how it goes. (multiple speakers).

Where the market share is currently standing?

Comp score of mid-April shows 5.6%.

Okay, thank you. And my second question would be on the number of advertisers as the growth was surprisingly strong to me in the first quarter. Given we are in say almost in May, is it possible for you to comment on the current trends in the number of advertisers like qualitatively?

Hello, Ulyana, this is Alexander speaking. I wouldn't say it's surprising that we saw increase in number of advertisers in Q1 because typically what happens in this kind of environment and what we saw in [2009] for example, is that customers incentivize now more to move to contextual performance-based advertising where they can easily measure the impact of their ad spend, and this is what I think is happening in Q1 2015 as well. These trends are -- say they are prolonged in time and I wouldn't expect anything very much different from Q1 and Q2, but I will not be able to give you the numbers at this point in time.

Thank you, it makes sense. And my last question is to Greg, Greg, could you please confirm the CapEx guidance for full year at the same level of -- as last year in absolute dollar terms?

Yes. Our outlook for our CapEx is about the same. If you took our -- what we spent last year in dollars to the kind of the average exchange rate for the full year. I think last year, we spent like [$200 million] -- based on that math will be [$250 million] -- roughly looking to spend about as much this year as well.

Anna Lepetukhina, Sberbank.

I have several questions. First of all, can you please disclose how much e-commerce advertising was as a percentage of text-based advertising in first quarter and maybe can you talk how Yandex. Market performed in the first quarter and whether do you expect cross-border sales to boost the growth of this revenue stream in the short-term or it's more long-term or we are to see benefit in the long term.

My second question is while you're waiting for the decision of the Federal Antimonopoly Service, do you intend to boost investments into marketing of mobile search or this is not something that you plan to do this year.

And my last question is on video placements, you mentioned that you've started doing this in March this year. I'm just trying to understand what is your strategy in this segment? And do you plan to expand into video streaming services and where exactly do you plan to do video placements?

Hello, Anna. This is Greg. I'll take the first part of your question and then Alexander will take the second half of your question.

So, as you know, we don't break out e-commerce specifically as a category because e-commerce, we tend to look at it industry-by-industry level in terms of what it touches. Consumer electronics specifically, which as you know is a very big portion of e-commerce was very weak this quarter. The other categories, like I said, that were weak were financial services and banking.

A lot of the other categories within e-commerce however for us ex-market are continuing to be healthy; home improvement, household goods, health and beauty, all of those demonstrated pretty healthy growth. And then as far as market itself, market was essentially flat year-over-year. And with that, I'll hand it over to Sasha to answer the rest of your questions.

Hello, Anna. So talking about support of our products in the mobile, we will definitely be supporting our browser both on desktop and on mobile devices and promote its functionality and also ability to reinvest with mobile. So we think this is an appropriate way to support Yandex Search.

On video, [we are playing into] show ads and we also already showing ads on KinoPoisk, and also on partners of Yandex ad network. A number of our partners have ability to show videos on their websites and our ads are introduced into the video content.

Can I just clarify as far as I know on KinoPoisk, you don't show professional video content, so where exactly you show video ads there?

We do not show yet the movies, that's correct. But we show lots of millions of trailers for the movies and we ensure video ads into those trailers.

(Operator Instructions) Alexander Vengranovich, Otkritie Capital.

Two questions from my side. So first on your mobile customers. So basically, can you please elaborate a little bit more about the mix of this mobile customers versus your additional customer mix? I mean, can you please talk a little bit more about which industries these customers represent, and how active are mobile operators in this respect, do you see that they are migrating the budgets faster than the others, and whether also you see the increase of the share of the mobile operators among your customers? So that will be helpful.

And the second question is, of course, about your share of search market. So basically, we see that it continues to go down and meanwhile, until you're waiting for Federal Antimonopoly Service decision, do you see any other ways how you can, except for the Yandex browser and -- do you see any other ways how you can combat the reduction of the search market shares? For example, I know installments of your products via Yandex. Kit and already sold smart phones, some sort of other promotions with the retail chains or whatever can help you?

Hello, Alexander. I'll take the first part of the question, maybe to provide you just with some data points in terms of mobile. So, as you know, mobile queries were 24% of total this quarter and generated 20% of our search revenues this quarter. This compares to year ago period when they generated 19% of queries and 13% of search revenues. So plus 5 percentage points in terms of queries plus seven percentage points in terms of revenues. And I will hand it off to Sasha, who can give you some more details about which advertisers are interested in mobile and also a little bit on share of search market.

So I would say that the universe of advertisers who are interested in mobile is very broad. Say with our 400,000 active accounts, you could name, basically any industry, the customers from any industry who are advertisers on the mobile. It basically comes to whether a particular advertiser has a mobile website and the ability to accept calls or orders from mobile devices.

But in general, mobile is -- the early comers to mobile are customers who sell the services online, but it was say, several years ago, but currently, I would say all the industries are in mobile. Now a few details about our search market share. So as we reported, our search market share in Q1 was 58.6%. Now, when we break it down by type of device, on desktop we're maintaining our market share, it's flat and on iOS, we're also maintaining market share. Our market share on Android has declined, but it's important to understand here that most of ad spend -- the majority of ad spend is on desktop and also on Apple devices. Monetization of customers from Android devices is not as strong as in other types of devices which people use to connect to Internet.

Now, how we're planning to support our market share on Android, where it has declined in the recent quarter. First of all is, of course is promoting Yandex browser because it's a very important way to generate search queries. We're also developing now -- revamping our Yandex Search application for Android and also promoting Yandex Search through our other applications we share on Android platform.

Okay. So, you're not planning any sort of additional partnerships with the retail chains to more actively promote installations of Yandex services on recently sold smartphones.

The channels -- yes, the ways to promote Yandex Search as I mentioned are the key channels, which have the highest impact, but we are doing a number of other activities including, installation and revenue retail, that seems [that's favorable]. But, as I said that is focus of our activities on the key channels will be in the browser and the Search app and the mobile website of Yandex.

Mitch Mitchell, BCS.

I think you've covered most of my major questions, but just two quick ones. One, you've talked a lot about the different industries. Can you give us any kind of breakdown of the industries or maybe what percentage of revenues those top three industries make up and that's the first question and the second question is about the Yandex. City app. Are you monetizing that at all and how is the progress of that going?

Hello, Mitch. Let me give you some ideas on the top industries for us. As historically been the case, the top industry remains B2B and industrial, household goods, home and garden are round off the top. Other large industries for us are, real estate, travel and tourism, and auto and then it sort of drops off health and beauty, apparel, finance, leisure and guest, etcetera.

Okay, thanks. On Yandex. City?

Yes, hello, Mitch. This is Alex speaking. So about monetizing our geo-based applications, currently, we do not do any sizable business model there. We have some -- a product, which is called placing marks on our maps, which has some small revenue stream, but it's not high. We are thinking about opportunities, how to monetize our maps and geo applications, but nothing to report at this point in time.

About Yandex. City, it has a loyal audience, but the growth of audience is not so high. So we are now importing the functionality of searching for the places on the maps and locations and organizations on the maps to other applications like Yandex. Maps and Yandex. Navigator.

Alex Balakhnin, Goldman Sachs.

A quick follow-up from me. I'm sure you have plenty of big data analysis of a post-click life of your search users. And I was just wondering with what's going on in the economy, do you see the conversion of your paid search traffic? Is it the same as it was or you see any changes i.e. the paid traffic becomes sort of less convertible for some of your advertisers or it's not really the case, so your observations, I'm sure you have them, would be very helpful.

Hello, Alex. Thank you for the question. Yes, we did analysis on some select number of industries. And we definitely see some decrease in post click conversions in different customers, in different industries. So I would say that speaks to our end-users like people in Russia willingness to spend money is decreasing especially on say, sizable spend.

You say in some industries, are there any industries where the conversion increased?

What I was trying to say that we did not analyze all the industries, but we did analyze some specific industries which we think are indicators of the overall economy and we see decrease in post-click conversions.

Okay, thanks so much.

I would say, it speaks to the whole economy.

Edward Hill-Wood, Morgan Stanley.

I just had one question on the antitrust situation and you haven't lost any revenue market share since the decline in Android traffic occurred or since it accelerated since last year. So would you also expect if you want or you got a positive outcome your revenue market share to be unchanged post that decision or is it just a question of time lag, there is a revenue time lag on traffic share should be, you’re more concerned about the impact of this on 2016 maybe.

And secondly, just related to that, would we expect logically that your distribution TAC would increase if you had a positive outcome of that antitrust case which given that this doesn't appear to be much in the way of revenue share differential could result in lower margins just in the short term?

Ed, this is Alexander speaking. So I think that eventually mindful of the users and the impact of Android search market share will eventually translate into revenues. Currently, I don't think it's difficult for Yandex and for Russia monetization of Android users is not as high as iOS device, for example, but eventually it should level off, and yes, we are concerned about our ability to maintain our revenue market share in 2016 and on. This is the primary reason why we initiated this antitrust case.

And in terms of your distribution TAC, would you expect it to increase in the short-term?

It is difficult to say, but assuming that we have opportunities to pre-install Yandex applications on OEM devices, it could have some impact on distribution TAC, but it's very difficult to say at this point in time what the impact will be.

Thank you. That will conclude today's question-and-answer session. I would now like to turn the call back to Katya Zhukova for some closing remarks. Thank you.

Hello, this is Katya Zhukova. Thank you all again for joining us on our Q1 earnings call and we'll look forward to speaking with you on the Q2 2015 earnings call in July. Goodbye.

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