Nebius Group NV (YNDX) 2017 Q2 法說會逐字稿

Good day, and welcome to the Yandex's Second Quarter 2017 Earnings Call. Today's conference is being recorded.

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

Hello, everyone, and welcome to Yandex's Second Quarter 2017 Earnings Call. We distributed our earnings release earlier today. You can find a copy of the press release on the company's IR website and on Newswire services. On the call today, we have Alexander Shulgin, our Chief Operating Officer; Greg Abovsky, our Chief Financial Officer; and Mikhail Parakhin, our Chief Technology Officer. Arkady Volozh, our Chief Executive Officer, will be available on the Q&A session. The call will be recorded. The recording will be available on our IR website in a few hours. As usual, we've prepared a few slides supplementary to the story that are currently available on the IR website.

Now I will quickly cover the safe harbor statement. Various remarks that we make during this call about our future expectations, plans and prospects constitute forward-looking statements. Our actual results may differ materially from those indicated or suggested by these forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of our annual report on Form 20-F, dated March 21, 2017, which is on file with the SEC and is available online. In addition, any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any date subsequent to today. 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 the call, we'll be referring to some non-GAAP financial measures.

These non-GAAP financial measures are not prepared in accordance with U.S. 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'm turning the call over to Alexander.

Thank you, Katya, and hello, everyone. Thank you for joining our second quarter 2017 earnings call. In Q2, we demonstrated a solid set of results across our segments, with consolidated revenues up 23% year-over-year. This growth rates were mainly driven by strong performance of online advertising, especially on Yandex's owned and operated properties, driven by ad tech improvements and product launches in the second half of 2016 and by the stabilizing economic environment. We continue to see strong growth in ad budgets across a number of our key ad categories including auto, financials, real estate and B2B, with ad budgets and financial services and auto industries growing 39% and 36%, respectively. Interestingly, growth rates in travel and consumer electronics ad budgets, which were weak in the past quarters, accelerated in May and now are growing at the rates similar to our overall online advertising revenues.

Before Mikhail updates you on our search ad trends in a few minutes, I would like to talk in more detail about the mechanics of the default search choice window, which we expect to see on the Russian market in the course of Q3 and on the progress with OEM distribution on Android devices. As I mentioned on the previous calls, as a result of the settlement between us, FAS and Google, existing users of Chrome browser on Android devices in Russia will be offered to choose the search engine that they prefer to use as default in Chrome. The choice screen will come with the introduction of Chrome, which is reportedly rolled out in a few upcoming weeks. It will appear to those users who have Chrome browser either pre-installed by OEMs or installed manually by user on Android devices. Based on a number of experiments that we ran with the choice scan internally, we are very optimistic and expect to see positive impact on our on search share on Android. Important to know that, rollout of a new browser version does not happen overnight, and we expect our share on Android to increase gradually in the upcoming months. We all realize that not all of existing Android devices have Chrome installed and that's why we continue negotiations with OEMs about the installations. In the last few months, our distribution team was focused on agreements with vendors to install the Yandex Search as default in alternative browsers, which in aggregate account for approximately 20% of browser traffic on Android in Russia.

In UCWeb, we have been the default search for some time already and recently, Yandex become the default search in Samsung Internet and Xiaomi browser. In the meantime, we continue working on products for mobile. Our new search app that now represents a combination of Yandex services is now installed on approximately 1/4 of Android devices.

Now turning to new Android devices. We expect that by the end of 2017 or in early 2018, all new Android phones shipped into Russia will be equipped with new a search widget. This new search widget will appear on the default home screen in the same manner as the current Google search widget. When the user taps on this new search widget for the first time or uses the Chrome browser for the first time on their new device, the user will be presented with a choice screen requesting them to select their default search engine. This default search setting will apply both to the new search widget and the Chrome browser. On new devices, the choice screen will appear to all Android users.

Now let me update you on the performance of our segments. Revenues of Search and Portal grew 22%, benefiting from strong growth in search and on our owned and operated properties, including Zen. To remind, Yandex Zen is our proprietary algorithmic, personalized news feed. Zen provides a set of content based on recommendation technologies and machine learning and becomes a truly personal source of information with very little user input. Recently, we have allowed publishers to create and distribute content exclusively through Yandex Zen. Now they can create their own channels with text video and advertisements and run experiments with mobile formats directly. We also offer publishers to monetize their channels through online advertising. In Q2, Zen, overtook all social networks in Russia in terms of traffic generated through third-party websites. We expect the product to add value to its users, content makers and advertisers.

Now turning to business units. Yandex. Market posted 9% year-over-year revenue growth, a deceleration from 24% increase in the previous quarter. The growth rate slowdown comes from the high base effect of the previous year and from our initiative to increase quality of traffic from Yandex. Market to our partners. Important to know that, despite revenue growth slowdown, the business demonstrated strong adjusted EBITDA margin of 38.1%. The revenues of Classifieds grew 48% in Q2, primarily driven by 76% growth of non-advertising revenues. Revenues from value-added services received from individuals on Auto.ru grew 145% year-on-year, and now represent 19% of Auto.ru revenue, up 8 percentage points versus Q2 of last year. Auto.ru continue to strengthen its position through product quality and M&A activity. In Q2, we closed a deal with Hearst Shkulev Digital, which owns 30 auto classifieds domains in the regions, the largest in the Euros. And with 24Auto.ru, which is the leading auto classifieds in Krasnoyarsk region. On the product side, we continue developing our spare parts section of Auto.ru, and just recently, launched an aggregator of auto service and repair shops.

Yandex. Taxi continued developing rapidly. Since April, this service has expanded into 57 new cities with over 100,000 population, and now is available in total of 126 cities across Russia, Ukraine, Armenia, Georgia, Kazakhstan and Belarus. Total number of rides grew 425% year-over-year on a quarterly basis. In Q2, we continued to improve fleet utilization metrics, introduced fixed rates and loyalty program for the users. On a GAAP basis, Yandex. Taxi revenues grew 46% in Q2. However, on a gross basis, before substracting marketing costs and minimum fare guarantees from our commission-based revenues, Yandex. Taxi revenues continue growing rapidly at 190% year-over-year.

Now let me briefly walk you through the key aspects of the landmark transaction between Yandex and Uber, that we announced 2 weeks ago. As we said, the 2 companies signed an agreement to combine the ridesharing businesses of Yandex. Taxi and Uber across 6 countries, including Russia, Kazakhstan, Azerbaijan, Armenia, Belarus and Georgia. The companies will invest $325 million of cash, $225 million by Uber and $100 million by Yandex to facilitate further growth of this business. The new company will be valued at $3.725 billion on a post-money basis. Yandex will own approximately 59.3% and Uber 36.6%. The remaining 4.1% will be owned by NewCo's employees. Tigran Khudaverdyan, the current CEO of Yandex. Taxi will become the CEO of the combined company. This transaction was approved by both boards of directors and will close once we receive regulatory approval, currently expected to Q4 2017. After the closing, the 2 companies will integrate driver-side applications into a single technological platform, which users will be able to continue using their preferred apps, both Yandex. Taxi or Uber. As a result, increased driver and passenger density will lead to higher vehicle utilization and better routing for drivers. Users will benefit from shorter wait times and higher service reliability. In addition to the ridesharing business, the newly-created company will also operate the UberEATS service in the region. We are very excited about the prospects for the new company, which will benefit from exceptional technological strengths of Yandex, our robust expertise in machine learning, artificial intelligence and our world-class navigation and mapping technologies and from the global ridesharing leadership of Uber.

All in all, I am very excited by the whole company performance in Q2 and its future prospects for the rest of 2017 and beyond.

With this, let me please hand the microphone over to our CTO, Mikhail Parakhin. Mikhail, please go ahead.

Thank you, Sasha, and hello, everyone. Let me start with a commentary about the new measuring tool that we unveiled earlier this week. It's Yandex. Radar, the new publicly available search traffic and browser usage analytical tool. We have launched Yandex. Radar just recently in order to provide webmasters, advertisers, analysts and other Internet marketing professionals with accurate statistics from search markets and browser shares. The tool is based on Yandex. Metrica, our free comprehensive web analytics solution. Yandex. Metrica analyzes traffic and visitors behavior and measures advertising performance, making an essential tool for online businesses. As a result, Yandex. Metrica has the highest coverage in our web analytics platforms in Russia. Currently, it registers 78% of total traffic from websites from the ru domain compared to 35% of its closest competitor. Greater coverage translates into higher accuracy and allows Yandex. Radar to quickly react to measurement analysis. Yandex. Radar provides both current and historical data as it can be segmented by type of operating system or device type and allows users to view their data in multiple customizable ways.

Starting from now on, we will be reporting our search and browser shares based on Yandex. Radar data. According to Yandex. Radar, in Q2, our overall search share was 54.3%, 40 basis points lower compared to 54.7% in Q1 2017. On desktop, our share remains unchanged at 65%. Our mobile share was approximately 40%. iOS share was down 80 basis points sequentially and down 270 basis points year-over-year. Our Android market share remains unchanged compared to Q1 2017, but was up 150 basis points year-over-year. As Sasha mentioned before, we expect our mobile share to increase during the current quarter as a result of the choice screen that will appear in the updated Chrome browser on existing Android devices.

We have continued to focus on improvement of user experience in advertiser tools for mobile. For example, (inaudible) on mobile devices. In May, we began rolling out our Turbo pages. Turbo pages are in many ways similar to instant articles and publishers benefit from easier deployment and from Yandex [monetization] built-in. For example, TASS, the leading news agency in Russia (inaudible) with a real-time meeting advertising blog, which we offer as a monetization tool in Turbo pages will increase several times, while the ad blog's view rate significantly increased and reached approximately 95%. Encouraged by the results of this launch, we are planning to offer Turbo pages to other market participants.

Recently, we also launched a new ad product for smartphone monetization called (inaudible). This ad format adapts automatically to different smartphone models and includes the images, animation and site links. The average switchover of this format is 2 to 4x higher than our regular ads. In Q2, we've also introduced an additional page link that will show in certain instances the buffer organic search results, both on desktop and on mobile. Typically, these are shown for highly competitive commercial groups. The effect of this change is, obviously, more impactful on mobile devices.

Another focus for us is video advertising, which we're trying to make more accessible to our SMB clients. Our tools allow small and medium businesses to automatically create video ads based on their text ads and on our stock video library. We use our machine learning algorithms to automatically take appropriate stock footage that matches up with the text content of ads.

With this, I turn the microphone over to Greg.

Thank you, Mikhail, and thank you, all, for joining our call today. In Q2, we delivered another solid set of results. Our consolidated revenue grew 23% year-over-year and reached RUB 22.1 billion. Online advertising revenues accounted for 95% of total revenues in Q2 and increased 21% year-on-year. Yandex's properties revenue grew 24% year-on-year in Q2 and accounted for 70% of total revenues, driven by strong performance of online advertising on our search and our owned and operated properties, including Zen. Revenues from our Ad Network grew 14% and comprised 24% of total revenues in the quarter. Share of Ad Network as a percentage of total revenues decreased 50 basis points compared to Q1 of 2017. Other revenues grew 59% compared with Q2 of 2016, primarily driven by the growth of Yandex. Taxi, which constitutes the bulk of the other revenue line in consolidated revenues. Traffic acquisition cost related to the partner advertising network grew 19% year-over-year. Partner TAC as a percentage of Ad Network revenues grew 210 basis points compared to the previous quarter and comprised 58.3% in Q2. The increase of our partner TAC was partly due to change in the product mix. Adjusted for one-off effects related to commissions of certain existing partners, our partner TAC as a percentage of partner advertising revenue would have increased only 120 basis points in Q2. Traffic acquisition cost related to distribution partners increased 17% year-on-year and constituted 6.9% of advertising revenues from Yandex properties. This is 40 basis points lower than Q2 of last year and 40 basis points lower than Q1 of this year.

Total TAC grew 19% year-on-year and constituted 19.1% of total revenues, 60 bps lower than Q2 of last year and flat compared with Q1. Paid clicks grew 10%, while cost per click increased 9%.

Turning to cost structure. Total OpEx, excluding TAC and G&A, grew 39% year-on-year. Excluding stock-based comp, expenses grew 43%. Growth was primarily driven by the growth in advertising and marketing expenses, primarily related to Yandex. Taxi as well as new hires. In Q2, our headcount was up 17% compared with June 30 of last year and less than 1% after March 31 of this year. In Q2, our personnel costs constituted 22% of revenues. Stock-based comp increased 10% year-on-year in Q2 and constituted 4.4% of revenues, down from 4.9% a year ago. Decline of stock-based comp as a percentage of revenues was primarily driven by the appreciation of the Russian ruble. G&A expense for the quarter increased 22% year-over-year. As in Q1 of this year, growth was driven by our investments in servers and data centers in 2016 and 2017, but was partially offset by lower G&A from our Finnish data center due to the strengthening of the ruble.

Our consolidated adjusted EBITDA increased 7% year-on-year, and our consolidated adjusted EBITDA margin was 32.6%, down 490 basis points compared to a year ago, and 70 basis points compared to Q1. The reason for the adjusted EBITDA margin decline is similar to previous quarters and reflects our increased investments in new businesses, primarily Taxi as well as in hiring talent. Yandex. Taxi was the main area of investment in terms of our business units. Excluding both revenues and losses of Yandex. Taxi from our consolidated results, our consolidated EBITDA margin would have been 1,000 basis points higher. This quarter, the impact from ForEx was a gain of RUB 1.3 billion related to the depreciation of the Russian ruble during Q2 2017 from RUB 56 to the dollar on March 31 to RUB 59 to the dollar on June 30.

Net income was up 69%, primarily due to the foreign exchange gain in Q2 and net income margin was 16.8%. Adjusted net income was up 2% in Q2, and adjusted net income margin was 18%. Our CapEx was RUB 3.9 billion or 17.5% of our Q2 revenue as we started to fill in our new Vladimir data center with servers. As you know, CapEx is now evenly distributed throughout the quarters, and despite high CapEx to sales ratio impact in the first half of the year, we continue to expect our full year CapEx to be in the mid-teens as a percentage of revenues.

Turning to the performance of business units. Search and Portal revenues grew 22%, driven by strong growth in search, on our owned and operated websites. Adjusted EBITDA of Search Portal grew 31% in Q2, and its adjusted EBITDA margin reached 45.2%. This 330 basis points higher compared with Q2 of last year and up 245 basis points sequentially. The strong margin came in as a result of strong growth of search revenues, slower hiring and year-over-year decrease of our rep payments in rubles as a result of depreciation of Russian ruble.

We now expect margins in the core business to be as high in the second half of the year, as we're planning to heavily support our search products with advertising campaigns and additional distribution networks on the back of the landmark Android deal. On an annual basis, we continue to expect Search and Portal margins to be roughly flat compared with fiscal 2016.

Revenues of Yandex. Market were up 9% year-over-year. Deceleration of its revenue growth rate was due to the high base effect in Q2 as well as changes to its network -- revenue mix. Our adjusted EBITDA margin of Yandex. Market was 38.1% in Q2.

Turning to Yandex. Taxi. Revenues of Yandex. Taxi were up 46% year-over-year. On a gross basis, before subtracting marketing costs and minimum fare guarantees from our commissions revenue, Yandex. Taxi commissions would have grown 190% in Q2 compared to a year ago. We continued the rapid expansion of the cities with 100,000 population plus, and as of mid-July, we were available in 126 cities, up from 69 cities that we reported in our call in April. Rides grew 425% year-over-year in Q2. And in Q2 introduced fixed prices and rider discounts that also helped rider growth. As a result of our increased investments in this business, adjusted EBITDA of Yandex. Taxi in Q2 was negative RUB 1.97 billion.

Revenues of Classifieds business grew 48% year-over-year, primarily supported by the growth in non-advertising revenues of Auto.ru. Adjusted EBITDA of Classifieds was negative RUB 17 million in Q2.

Revenues of Experiments, represented by Media Services, Yandex. Türkiye, YDF and Discovery, grew 125% year-on-year. The growth was primarily driven by Media Services, which almost quadrupled its revenues from Yandex. Music and Yandex. Tickets. The magnitude of investments in the segment continued to decrease.

Getting back to corporate matters now. In Q2, we repurchased $4 billion in principal of our convertible and senior notes due 2018 for approximately $3.9 million. Since the inception of the buyback program, we bought back approximately $369 million face value of the bonds. And as of today, we have approximately $321 million of the bonds that remain outstanding. We ended the quarter with approximately RUB 66.2 billion in cash and equivalents, which is approximately $1.12 billion at the exchange rate as of June 30.

Now turning to guidance. Based on the solid first half 2017 results, we increase our revenue guidance and now expect our ruble-based revenue to grow in the range of 18% to 21% in the full year 2017 compared to 2016. Our guidance includes the negative impact from the loss of our Ukranian revenue due to sanctions imposed on us in Ukraine, but excludes impact from share gains that we anticipate on Android. We're also not including the results of Uber until the transaction closes some time in Q4 of 2017.

And with this, let me turn the call over to the operator for the Q&A session.

(Operator Instructions) And now we will take our first question from the queue, Cesar Tiron from Bank of America.

I have two. The first one, can you please explain, it seems that there is a widening of the gap between the reported growth in Taxi revenues and the gross revenues that you disclosed? And then the second question is on the core search margins. They were quite impressive both in Q1 and Q2, up about 350 basis points versus last year. Is there a reason for those margins to be flat in H2 as you previously suggested?

Cesar, it's Greg. I will to try to take both of those questions. On the first point, the widening gap between GAAP revenues for Taxi and gross commissions revenues, that primarily reflects our increased use of subsidies and coupons in various cities in which we operate. On the second question with respect to core search margins, we are looking to invest slightly more in advertising and marketing in the back half of the year on the back of the landmark Android settlement agreement that Sasha talked about on the call. And so our aspiration is obviously for margins in the Search Portal to be roughly flat year-over-year and we'll kind of see how this settle out. But we think it makes a lot of sense to be investing a little more in marketing to drive up our mobile market share.

And now we will take our next question from the queue, Stanislav Kondratyev from Goldman Sachs.

Can you elaborate a bit more on the background of your investments into Uber? I mean, the global company in exchange for your own stake. So what was the rationale for such a deal? Do you plan to have access to their international plans on -- of Uber mined technology, et cetera? And the second question is on growth in search, which I have observed a substantial deceleration of inflation in Russia over the last year or 2 from double-digit levels to 4% currently. So generally speaking, do you observe any pressure on your nominal growth, maybe you see some signs or evidence of advertising margin growth slowing down in the medium term? And also, maybe it is supported for your cost trend? So any general thoughts on that would be helpful.

Stanislav, I'll take the first part of the question. The stake in Uber that Yandex received as is part of the transaction reflects Uber's desire to have a higher resultant ownership in this combined entity. So the resulting ownership percentages that you guys saw in the presentation that we put out of 36.6% reflect contribution of the business that they're contributing the primary share investment as well as the secondary share investment. This last part reflects the secondary share component. And I'll turn it over to Sasha to talk a little bit about inflation and overall environment.

Stanislav, this is Alexander speaking. So on inflation, I will say that, we see strong growth in number of customers and revenue per customer across all segments. And as I discussed in my prepared remarks, also, we see acceleration of growth in industry, especially, like in behind, like financial services and auto, which I think, is a very positive sign. So looks like this improvement of Russian economy together with decrease in inflation is good for our wide customer base, including SMBs and bigger businesses. On cost pressure, so -- as you know, Yandex cost structure is primarily shifted to salary expenses and all people related expenses together with investments in data centers. So these cost items are not directly impacted by changes in the -- inflation of the country, I mean, on the short-time horizon.

And now we'll take our next question from Lloyd Walmsley from Deutsche Bank.

Two, if I can. First, just looking at owned and operated, advertising growth looks very strong. Wondering, as you move into is easier comps over the balance of the year, is there any reason to think that O&O search can't sustain the growth rate you've seen in the second quarter, particularly, given the strength you're seeing across key categories, including now consumer electronics and kind of related to that, maybe you can give us a sense for the impact to Yandex sites advertising from the Ukraine stuff? And then second question, in the prepared remarks, you said your search team is focused on default search deals in non-Chrome browsers. And I think you mentioned that, every new Chrome -- every new Android handset will have choice box. Wondering, are you able to strike deals with wireless carriers or OEMs such that, you are the default without a choice box or you get better positioning within the choice box? And is that something you guys are interested in doing on Android?

Let me try to take a couple of these questions, and Sasha will jump in as well. On O&O trends, I think, overall, things are pretty much running as before without significant changes there. The one thing that is kind of felt that you can actually feel in the numbers is, just the loss of Ukraine revenue. Due to the sanctions there, starting with about the middle of May, we lost a few percentage points of our overall revenue. And so in my prepared remarks, when I talked about guidance for the rest of the year, this obviously, gets impacted by the loss of that revenue due to sanctions. And then on the question of operators, Sasha, can jump in.

Lloyd, so on partnerships, first of all, we made after the FAS settlement, some progress in making deals with OEMs. Definitely, the settlement agreement was positive to us. We improved our placements on the several leading OEMs, which I said, based in the Russia like Samsung, Huawei and some other guys, Xiaomi, for example. So this will definitely have positive impact on our search share, whilst the devises with new configurations will be -- will take sizable share of sales. It takes time for OEMs to produce, ship and sell those devices in the Russian market. Talking about potential range of partners, we're working with OEMs, telecoms and retail chains. In Russia, telecoms do not control to a big extent. The way phones are set up, meaning the software, which is based out on those phones. So given that there are variable partners for us, still at this point in time, OEMs have bigger share, bigger impact on our market share than telecoms, yet, seems like OEMs -- sorry, telecom operators are gaining share in sales of devices. And of course, this attractive goodwill partners for Yandex, and we are working with them as well.

And now we will take our next question from the queue, Miriam Adisa from Morgan Stanley.

Two questions from me. Just firstly, how should we think about the losses for Taxi for the rest of the year, given the fact the deal hasn't closed yet? Are you still subsidizing via the same rate? Or should we expect that second quarter would have been the peak quarter in terms of losses? And then secondly, there's been a headline that, the Uber deal was potentially being looked up by the government Commission on Foreign Investments. Just wondering if you have any commentary around that?

Miriam, it's Greg. On the question of kind of how we're looking to operate the business. Obviously, prior to the approval of FAS, both companies are operating the business as usual in the ordinary course. With respect to the actual approval, I think, as we stated before on the M&A call is that, in line with the publicly available information as of fiscal 2016, and looking at the estimates of the Analytical Center of the Russian government, the size of the Russian taxi sector is approximately $8.4 billion. The gypsy taxi market is another $1.5 billion. So in such case, the combined share of the 2 companies in that sector is only 5% to 6%. And so we believe that, there is a lot of players in this market and there is a lot of competition for riders, and it's not just taxi companies, it's also public transport. And so we think that, overall transaction will not limit, but actually in the contrary, will help develop the competition and be beneficial to the market in all aspects, providing end-users and riders with better service, helping cities better deal with congestion and alleviate the aging transportation system. So as we said on that last call, we're very optimistic about the process. And then finally, on your question with respect to whether or not this will be reviewed as part of foreign investment as well, we don't think it will, but obviously that was -- that is still unclear.

And now we will take our next question from queue, Ulyana Lenvalskaya from UBS.

My question will be about Yandex. Market. I'm a somewhat concerned to see such a slowdown. Maybe you can be a bit more specific about the initiatives that you do to improve the quality of traffic, and how should we think about the outlook for the second half? And maybe more strategic directions of market and its team?

Ulyana, this is Alexander. I will take this question. So on the deceleration of market revenue growth, as I said in my prepared remarks, there are 2 reasons for this: one, is tougher comps in Q2 than in Q1 versus the previous year; and also our intentional actions to improve quality of traffic from Yandex. Market to our CPC partners. So basically what we have done is, we eliminated a part of Yandex. Market advertiser network, so really just number of those distribution partners to improve quality of the traffics that our partners receive. So I wouldn't say that this revenue deceleration has any strategic meaning or has strategic impact on Yandex. Market. Coming back to what we plan to do with Yandex. Market, our intentions have not changed. We plan and we'll take actions on this to convert Yandex. Market into online marketplace, where people are making their purchase and transactions completely on Yandex. Market. We're considering different options how to develop this business. As maybe you have seen, we're also considering some ideas about doing partnership deals in infrastructure as well to improve quality of order execution for Yandex. Market. Having said this, we still weighing our options and having the goal of doing high quality order execution.

But still what about the second half outlook? Should we think about the second quarter, this 9% as new normalized level? How should we think about this business as growing something in line with e-commerce in general?

Tougher comps and the impacts of improving the quality of traffic will remain in Q3 and Q4 until we tackle this. But I think that the growth rates will be slightly higher than Q2.

And a very short clarification question. Did you provided us with Yandex Zen annualized revenue this time like you did in the previous call setting?

I don't think so. But we will take a note on this, and we'll provide more information probably in Q3.

And now we will take our next question from the queue, Vladimir Bespalov, VTB Capital.

I want to follow-up a little bit on Yandex. Market, first. In the recent interview your new head of Yandex. Market mention, you're going offline and developing a 5-year strategy for Yandex. Market and things like this. So could you give probably more color when this strategy is going to be announced? What kind of offline processes you want to develop? Are you going to be with something like Amazon-type business based on Yandex. Market and to what kind of CapEx can we expect? And the second question is on margins. Could you give us some margins for the second half -- margin guidance for the second half of the year, given like your deal with Uber and probably a lower marketing expenses on the other hand, an increase in promoting your search base after the FAS and Google deal and things like this. Should we expect your margins to go up, down or be roughly the same as we saw in the first and in the second quarters?

Vladimir, this is Alexander. I will take the first question, and Greg will take the second. So on markets and potential investments, clearly, the main impediment for growth in e-commerce is logistics. So it is reasonable for us to at least evaluate how Yandex. Market, as one of the largest players in the e-commerce, may cope with this and improve the quality of execution not only for Yandex. Market, but for the whole industry. Having said this, I think, it's too early for us to give any CapEx numbers. And definitely if we do it, we'll try to do it in the partnership with existing operators, so that we do not take the whole burden of investment on Yandex, given that infrastructure improvement will benefit all players in the market. I think, we would like to form some kind of partnership with this -- in this.

And Vladimir, I'll take the second part on margins. Again, so I guess there is a few different buckets here, right. You have the Search Portal, you have the 3 business unit and you have the Experiments bucket. And I think the way to think about it is, in the Experiments bucket, we want to reduce over time the absolute amount of losses as we ramp those businesses up, especially, things like Media Services. In this first bucket of the Search Portal, as I mentioned, our goal is to be roughly flat year-on-year in terms of margins. And we do expect higher advertising and marketing spend within the Search Portal to support the choice screen and the new search widget. And finally, within the business unit bucket, I would say that on Classifieds, we're still investing. We see really good traction there in a lot of different cities. We did some very, very small tactical M&A, and we will support that regional expansion. With respect to market, I think, margins there should remain strong. And with respect to Taxis, I mentioned we will continue to operate the business in sort of ordinary course and update you on the outlook for the segment once the transaction closes some time in Q4 2017.

Just one thing from Yandex. Market. When are you going to announce your new strategy, the 5-year strategy? If you have any update, when are you planning to finalize it?

We're working on this and our internal goal is to develop it by the end of Q3. So again, hopefully, we'll be able to update you in the Q3 call.

And now we will take our next question from the queue, Olga Bystrova with Crédit Suisse.

Actually most of my questions were answered. Just maybe a follow-up on the mobile. You obviously made some progress, quite visible progress already. Let's say, if you look at all of the addressable OEMs and models for you currently, can you tell us roughly where you stand on the remaining part that we haven't seen in the stores yet? And the second one, I'm not sure if you've answered that question already and I apologize if you did, if you look at Search and Portal margins, how much of the -- this additional costs of Google Plus settlement sitting in there already in the second quarter, either to Google or to sort of the OEMs?

Olga, this is Alexander. I will take the first question, and Greg will take to the second. So on our distribution deals with the OEMs, as I said, we have improved our placement terms, conditions and traffic, amount of traffic that we generate from the smartphones with majority of the biggest OEMs, which in total controls, I think, about 70% share of sales. We have improved placement on Samsung and Huawei, on Xiaomi and some other OEMs. New devices will get shipped into Russia over the course of second half of the year. And there is, yes, lots to be done to even further improve our placements. So I think, the game is not over. We have lots of opportunities left throughout '18 to improve the way Yandex Search app and other Yandex applications are placed on mobile devices which were shipped into Russia.

And Olga, on the second part of your question. For all intents and purposes, there were no real incremental costs related to the mobile plan for gaining share on Android in Q2. A lot of those events will be tied to the new version of search, which is coming out later in August to the choice screen, which will start appearing on Android devices soon and to the search widget, which will appear on new Android devices towards the end of the year.

And now we will take our next question from the queue, Alexander Vengranovich from Otkritie Capital.

Two questions, please. First question is a brief follow-up to Yandex-Uber deal. Have both companies already filed for the approval of Federal Antimonopoly Service? And second question is on Uber. I've seen some reports in the media that the company has started to hire like new management team and looks like, there is some acceleration of the development there. How are you engaged right now in the development of this business? And when do you think you will start to aggressively develop UberEATS?

Alexander, this is Greg. With respect to filing, the anti-trust documents, we have not done so, but which we'll do that shortly. On the second question, obviously, UberEATS is a service of Uber's. I obviously can't comment on their plans. All I can say is that, we are extremely excited about the prospects for food delivery, and we're looking forward to investing in this area once the deal completes.

And now we will take our next question from the queue, Svetlana Sukhanova from Sberbank.

As a follow-up to Arkady introductory speech, can you please update us on the timing of this update to the Chrome browser, when all Chrome -- Android users will start getting this choice screen? We saw a increasing marketing activity, advertising activity both from you guys and Google, so is it related? And when should we expect this big day to start?

Svetlana, this is Alexander speaking. Technically, it's not a day. It will be most likely happening over the course of several weeks. We expect the choice screen to start appearing on devices of end users in August, probably in early August. And typically update of a new version of a browser or any other application takes several weeks up to 2 months. So I don't know exactly how it will happen in this particular case, but I think, it will be a standard update process. So most likely, Russian users who are supposed to receive the choice screen window will be fully covered over the course of August and September.

That's very clear. Are you publicly giving any estimates, where you would see your share on the mobile as a result of this launch of the update?

We are not giving estimates, but our internal tests suggest that, there should be positive impact on our search market share on mobile. And of course, yes, our marketing activities are connected with this choice screen, we want to communicate to our users who love Yandex, that there is a choice screen and please select the choice search that you prefer.

And now we will take our next question from Mitch Mitchell from BCS.

I want to go back to Taxi and I think, I just have two sort of groups of questions. One is just, you give us -- every quarter, you've been giving us an update on what's happening with rides on a year-over-year basis. Just can you give us any sense of what those numbers look like on a quarter-to-quarter basis? Just as we see now, we've seen 3 quarters of about 400% growth, and I'm just trying to figure, if we maybe have one more quarter of that level of growth and then we're on a different base, and things drop off or if we're still seeing substantial acceleration? And then the second question is, I guess, I just want to push back a little bit, if I can on your confidence about FAS approval here. Clearly, the market for Taxis, although, we can come up with a number for all of Russia, the market is local and FAS representatives have already said couple of times in the press how they will look at the deal that seems to be looking at it either on a geographical basis or maybe on the basis of the taxi aggregators that may not be the right approach, obviously. But if they're looking at those, that suggest there may be more obstacles there. I'm just wondering how you -- what your comment is on these kind of statements?

Mitch, good questions. On quarter-over-quarter growth, I don't have it handy. But I think you're right and that's -- eventually, it's going to be very hard for us to keep growing at the rates at which we're growing and it'll slow down. What I can say is, though, and even in more established cities, growth is still triple-digit on a year-over-year basis. With respect to the second question, obviously, that's a much better question to ask of FAS. As we've stated, we're confident that this deal does not lead to decrease competition and probably in the contrary is good for riders, drivers and cities.

And now we will take our next question from the queue, Sergey Libin from Raiffeisen Bank.

First one is on partner TAC. Greg, could you repeat, please, how much of that's -- how much of this increase is one-off? And more generally, what's actually happened to partner mix? Because in the previous -- several previous quarters, you only had this percentage of Ad Network revenues just going down, and now it turns around. And second, I just wanted to know what's -- where does the difference from -- of about 3 percentage points between Yandex. Metrica and LiveInternet measurements come from. So what's the difference in the methodology, if you could explain that, please?

Sure, Sergey. I'll try to take the first question, and maybe Misha, you can jump on, on the second question. So with respect to partner TAC, were not for this one-off, partner TAC, would have increased 120 basis points. And the question is -- the reason it's going up is a question of product mix, advertiser mix and other ad formats, such as programmatic. I guess, what we're mostly focused on with partner revenue and partner TAC is the absolute dollars that we're getting as opposed to what the absolute rate is. And look, we will obviously look to optimize those absolute ex-TAC dollars as we look to grow out our partner network. And as we look to sort of optimize the -- those kind of the right levels of both product mix, publisher mix and platform mix.

Okay, and Mikhail, here. I want to talk about differences between LiveInternet Internet and Metrica measurements. So I -- as I was saying in my preliminary remarks, Metrica has more than twice the share of LiveInternet. We register right now 78% of total traffic to websites compared to 35% in our closest competitor. So it's significantly more accurate simply because it gets much bigger share of the overall traffic. And so necessarily there will be some differences due to that. And also I'd like to point out that, we have already being using Metrica in previous reports to report things that were not LiveInternet internet. I just shared some desktop and mobile platforms. And that's why since roughly early 2017, we added Metrica into the scope of our annual audit, being done by 1 of the big 4 audit firms as part of our annual audit of financial reporting. So basically, you can expect small differences between those measurements. We believe, and are very confident that Metrica's measurements are the most accurate, simply because it attracts by far the largest share of overall Internet traffic.

And now we will take a follow-up question from Cesar Tiron from Bank of America.

I have a follow-up question for Greg. Sorry to insist on that, but did you mean that the margins would be flat for the full year despite there being 360 basis points up for H1, so which means that the 2H margins would be down quite significantly? Or did you mean that, the 2H margins would be flat versus last year?

Cesar, no. So -- it's a good question. I think we've been pretty consistent in saying that we expect margins to be flat on a year-over-year basis since the Q4 call. And that's kind of where we so are. So that does imply that margins would be down in the second half on a year-over-year basis in advance of the choice screen on Android and in advance of the search widget on Android and so on. But obviously, as always, we look to optimize our cost structure and improve margin outlook to the extent that it is prudent to do so.

So there are no further questions in the room -- over the phone, so we just would like to thank everyone. And that will conclude the Yandex's second quarter 2017 earnings call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.