Q2 2018 Yandex NV Earnings Call on July 26, 2018 / 12
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THOMSON REUTERS STREETEVENTS PRELIMINARY TRANSCRIPT YNDX - Q2 2018 Yandex NV Earnings Call EVENT DATE/TIME: JULY 26, 2018 / 12:00PM GMT THOMSON REUTERS STREETEVENTS | www.streetevents.com | Contact Us ©2018 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. PRELIMINARY JULY 26, 2018 / 12:00PM, YNDX - Q2 2018 Yandex NV Earnings Call CORPORATE PARTICIPANTS Gregory Abovsky Yandex N.V. - COO & CFO Katya Zhukova Mikhail Parakhin Yandex LLC - CTO CONFERENCE CALL PARTICIPANTS Alexander Vengranovich Sova Capital Limited, Research Division - Research Analyst Cesar Adrian Tiron BofA Merrill Lynch, Research Division - Research Analyst Lloyd Wharton Walmsley Deutsche Bank AG, Research Division - Research Analyst Miriam Anuoluwapo Adisa Morgan Stanley, Research Division - Equity Analyst Mitch Mitchell BCS Financial Group, Research Division - Media and Industrials Senior Analyst Slava Degtyarev Svetlana Sukhanova Sberbank CIB Investment Research - Senior Analyst Ulyana Lenvalskaya UBS Investment Bank, Research Division - Director and Analyst of Media and Technology Vladimir Bespalov VTB Capital, Research Division - Analyst of Industrials, Transportation, Infrastructure, Chemicals & Equities and Internet Analyst PRESENTATION Operator Good day, and welcome to the Yandex Second Quarter 2018 Financial Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Katya Zhukova, Investor Relations Director. Please go ahead. Katya Zhukova Hello, everyone, and welcome to Yandex' Second Quarter 2018 Earnings Call. We distributed our earnings release earlier today. You can find a copy of the press release on our IR website and on Newswire services. On the call today, we have Greg Abovsky, our Chief Operating Officer and Chief Financial Officer; and Mikhail Parakhin, our Chief Technology Officer. Arkady Volozh, our Chief Executive Officer; and Vadim Marchuk, our VP of Corporate Development 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 prepared a few supplementary slides, which are currently available on our IR website. 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 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 27, 2018, 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 those forward-looking statements as representing our views as of any date subsequent to today. 2 THOMSON REUTERS STREETEVENTS | www.streetevents.com | Contact Us ©2018 Thomson Reuters. All rights reserved. Republication or redistribution of Thomson Reuters content, including by framing or similar means, is prohibited without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. PRELIMINARY JULY 26, 2018 / 12:00PM, YNDX - Q2 2018 Yandex NV Earnings Call During this call, we'll be referring to certain non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance to the 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 Mikhail Parakhin. Mikhail Parakhin - Yandex LLC - CTO Thank you, Katya, and hello, everyone. I'm delighted with our accomplishments in Q2. Our consolidated revenue grew 34% year-on-year, reaching RUB 29.7 billion. Revenue growth was primarily driven by the solid growth on Yandex properties, accounting for the bulk of our revenue as well as by great across Taxi, Classifieds, Media Services and Experiments. On April 27, we completed the formation of Yandex.Market JV with Sberbank and deconsolidated Yandex.Market from our consolidated numbers. From a reporting perspective, this in use our consolidated revenue growth has Q2 2018, we report only 27 days of Yandex.Market results versus full quarter of Yandex.Market in Q2 2017. Excluding the impact of Yandex.Market from 2017 and 2018, our revenues in Q2 grew 39% year-over-year. Revenues of Yandex properties grew 21% year-over-year. Excluding Yandex.Market, revenues of Yandex properties grew 28% year-over-year. This is compared with 24% growth on the X Yandex.Market basis in Q1 this year. The acceleration was driven by solid trends in Search and across our other properties with then images and homepage as main contributors to growth. Growth in our core search product were driven by a number of factors, primarily by games in Android and our advancements on the front. The new approach to auction that we unveiled in late April as part of our launch was well adopted by advertisers. We continued experimenting with different layouts and within organic search results. We see encouraging trends in mobile monetization as a result of some of these -- In June, we started experimenting with placement of Yandex.Direct on our homepage. The experiment combined sufficient targeting capabilities of Yandex.Direct with an extensive research provided by Yandex homepage, one of the largest online advertising on the Internet. Currently, we're in this experiment on a limited audience size and we're seeing encouraging results. On the Ad Network front, we continue seeing the adverse impact from the change of our partner mix that I mentioned in April. In Q2, it was not fully offset by the positive impact of our new partnerships. Revenues of Yandex Ad Network grew 4% year-over-year this quarter. Turning to our search share trends. In June, our overall search share reached 55.5%, up 120 basis points compared to the year-ago. Our search share and desktop averaged 65.9% in June, gaining 160 bips from June 2017, but down 160 bips from March 2018 due to regular seasonality and the adverse impact of the road cap on our desktop searches. On mobile, our search share hit new heights at 46.2%, growing 540 bips year-over-year. On Android, our search share averaged 48% in June. This is an increase of 120 bips from March 2018 and 80 bips up year-over-year. On the past 4 weeks, our share on Android reached 48.6%. Our search share on iOS was 39.4% in June, up 19 bps compared to March 2018, but slightly down from a year ago. Share of mobile traffic reached 45% of our total search traffic in Q2. Mobile revenues represented 35% our research revenues. Mobile platforms remained the key driver of our search increase driven by growth of our mobile share and the adoption for Alice, our intelligent voice assistant. Alice continues to drive user engagement and loyalty. In Q2, its number of skills significantly increased 10,000. This growth was driven by Yandex dialogues, our platform for third-party developers, allowing to integrate third-party skills quickly and easily. In share of voice search traffic in our search app grew from single-digit to 18%, while our search app audience had doubled. We strongly believe that voice is a key element to connect the online and the off-line worlds. Alice is currently available in Yandex.Browser, Yandex.Search app, navigator and Yandex.Station, our smart that we recently. Yandex.Station is on board, assist people in their homes, managing daily routine tests. This is the first smart speaker developed for the Russian market. We see a strong interest in Yandex.Station. We sold out our first batch during the first day. Now everyone can order Yandex.Station on Yandex.Market and -- the price is RUB 9,990, which is approximately USD 160. Yandex.Plus is another new product that we unveiled in Q2. It is our subscription-based membership program that currently provides access to bundle of Yandex services. The subscription monthly fees below $8, but it offers number of nice benefits, unlimited music streaming on Yandex.Music, free moves on KinoPoisk, discounts for Yandex.Taxi and Yandex.Drive rights, predelivery for the users and additional storage space on Yandex disk. Yandex.Plus provides its subscribers with benefits of using their favorite products and give them opportunity to discover new ways like Yandex services can help them. I'm excited for the speed of new product launches that we demonstrated recently. With this, I'm turning the microphone over to Greg, who will walk you through the operational performance of business units and our financials. Gregory Abovsky - Yandex N.V. - COO & CFO Thank you, Mikhail, and thank you all for joining our call today. In Q2, we delivered another strong set of results. Our consolidated revenue grew 34% year-on-year, reaching RUB 29.7 billion. Online advertising revenues accounted for 83% of total revenues in Q2 and increased 17% year-on-year. 3 THOMSON REUTERS STREETEVENTS | www.streetevents.com | Contact Us ©2018 Thomson Reuters. All rights reserved. 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