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Good day and welcome to the Yandex Q4 and Full Year 2017 Financial Results Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Katya Zhukova. Please go ahead.
Hello, everyone, and welcome to Yandex' fourth quarter and full year 2017 earnings call. We distributed our earnings release earlier today. You can find its copy on our IR website as well as on Newswire services.
On the call today we have Arkady Volozh, our Chief Executive Officer; Greg Abovsky, our Chief Operating and Chief Financial Officer; and Mikhail Parakhin, our Chief Technology Officer. 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 to the story, 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 updated 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 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 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 Arkady.
Thanks, Katya, and hello, everyone. Thank you for joining this call. 2017 was an outstanding and incredibly dynamic year for the company, the year of fantastic developments and partnerships combined with substantial investments in our non-core initiatives, primarily Taxi, which in 2017 became as big as our e-commerce business and continues to grow rapidly in triple digits.
We grew our consolidated revenues 24% year-over-year in 2017 with strong growth in Search and Portal of 21%, an expansion of its adjusted EBITDA margin of approximately 260 basis points. In 2017, we gained significant search share on android and reached historical highs on desktops. We not only improved our user experience on mobile with our revamped search app and through the introduction of Turbo pages.
Our advancements in AI allowed us to further improve our products such as our core search engine and the launch of Alice, our intelligent voice assistance, which opens up great [indiscernible] for the long-term. Our two flagship partnerships that we signed in 2017 became a testament to our leading technological expertise in ride-hailing and e-commerce. And finally, our non-search business performed extremely well and reached 18% of total revenues in Q4.
In 2017, Yandex celebrated its 20th anniversary. All our achievements are a result of our long-term commitment to machine learning and AI. Last year also was the 10th anniversary of our School of Data Analysis, which today graduates 120 Master level machine learning specialists a year.
We continue benefiting from our strong ecosystem, which rests on several pillars such as expertise in machine learning, strong brand, our data analytics and [indiscernible] tools, leading [market] platform and highly motivated management teams. This ecosystem allows us to launch and scale exciting new businesses. We are off to a great 2018.
And with that, I am handing the mike over to Mikhail Parakhin. Mikhail, please go ahead.
Thank you, Arkady, and hello, everyone. I'm delighted with the results we achieved in 2017, which became particularly visible in Q4. Our overall search share increased to 110 basis points year-over-year and reached 56.7% in December, despite continued shift to mobile, where our search share is lower than on desktop.
Our desktop search share continued setting new highs reaching 67% in December. On android, our search share increased to 46% and demonstrated 880 basis points gain on a year-over-year basis. Our search share on iOS was 39% in December 2017 and declined 20 basis points compared to September 2017 as our ability to gain share on this platform is highly limited. In Q4, our mobile search traffic reached 39% of our total search traffic, while mobile search revenues represented 32% of our total search revenues.
Before switching gears to advertising products, I would like to take a minute to quickly update you on Alice, our conversational intelligent assistant. Alice was launched in October 2017 as a part of our search app and was integrated with our search, news, weather, music and maps. And then we have continued to improve its functionality now as this can play over a dozen games and we are currently testing quite useful features such as order a taxi from our ride sharing service, and order a pizza from Papa Johns. Alice is now available inside our Yandex browser as well. I'm very excited with the product though it is still in early stage of its development. Alice’s achievements are already notable.
It contributed approximately one percentage point to our search share gains on mobile. It continued to boost the number of search app downloads, which helps our search share become the third most downloaded app on Google Play in December 2017. Alice continues to enhance user search [base] to help with user’s intention.
On the previous call, I mentioned that we started experimenting with Turbo pages in search. In late 2017, we fully rolled out our Turbo pages in search then in Yandex.Direct. Today over 20% of our search results are offered in the Turbo format, which loads many time faster and offers [indiscernible] from Yandex out of the box.
On the ad tech front, I would like to highlight search layout templates, which we started to roll out in late 2017. Templates are various ad placement formats that allow to dynamically enrich an advertisement with additional elements such as quick links, contacts information, working hours, merchants rating and others. Such advertisement becomes more information and visible. As a result, it increases click through rate, which brings higher conversion rate and ROI.
Today, templates are launched in the form of extended advertisement. We are experimenting with mixing and extending advertisements with our search results. Similar to broad match, we expect the launch of search layout templates to be gradual, and we plan to present various other ad placement formats throughout 2018. Going forward, our algorithms will be choosing which format is more appropriate and efficient in each particular situation.
Video advertising has become another area of our development in 2017 as we have been focusing on expanding our inventory. Our TV online button on the Yandex homepage provides access to 43 TV channels and content from 30 video-on-demand content providers. The Yandex ad technology powers video advertising in the NTV video player, which is installed on NTV’s website as well as across other properties on the Russian Internet.
We are also broadcasting Winter Olympics online. I truly believable our technology provides more efficient and less frustrating ad experience.
With this I am turning the microphone over to Greg, who will walk you through operational performance of the business areas and our financials.
Thank you, Mikhail, and thank you all for joining our call today. In Q4, we delivered another solid set of results. Our consolidated revenue grew 26% year-on-year and reached RUB 27.9 billion. This solid revenue was driven by strong performance of our core business, as well as great performance across other segments including Taxi, classifieds and experiments.
Online advertising revenues accounted for 90% of total revenues in Q4 and increased 19% year-on-year. Yandex properties' revenue grew 22% year-on-year in Q4 and accounted for 68% of total revenues. Revenues from our ad network increased 11% year-on-year and constituted 22% of total revenues in Q4. Share of ad network as a percentage of total revenues decreased 1.7 percentage points compared to Q3 of 2017. Other revenues grew 150% year-on-year in Q4, driven by Yandex.Taxi revenue, which constitutes the bulk of the other revenues line in consolidated revenues.
Traffic acquisition costs related to partner advertising network grew 15% year-on-year. Partner ad as a percent of partner revenue was 58.1% in Q4, down 130 basis points sequentially. However, partner TAC continued growing slightly faster than our partner revenue as a result of the change in our product mix, primarily driven by the increase of in-app advertising and mobile Turbo pages, which carry higher-than-average TAC.
Traffic acquisition costs related to distribution partners increased only 4% year-on-year and constituted 6.5% of advertising revenues from Yandex properties. This is 110 basis points lower compared with Q4 of 2016 and 30 basis points lower compared with the previous quarter. The slowdown in growth rates of distribution TAC this Q4 primarily reflects the high base effect in Q4 2016. As a reminder, a year ago in Q4 2016 we made a one-off payment to one of our distribution partners as a result of an extension in amendment of their contract.
Total TAC increased 12% year-on-year and constituted 17.2% of total revenues, 210 basis points lower than Q4 of 2016 and 160 basis points lower compared with the previous quarter.
Paid clicks grew 10% year-on-year, while cost per click was up 9% year-on-year.
Turning to our cost structure. In Q4 2017, total OpEx, excluding TAC and D&A, grew 26% year-on-year. Excluding stock-based comp, operating expenses increased 23%. The growth was primarily driven by personnel costs attributable to new hires.
In Q4, our headcount grew 19% compared with December 31, 2016 and was up 8% from September 30, 2017. Our headcount includes employees of FoodFox, the food delivery company that we acquired in December 2017. In Q4, our personnel costs constituted 20% of total revenues. On an annual basis, our personnel costs were 21% of revenue, approximately at the same level as in 2016.
Stock-based comp increased 61% year-on-year in Q4 and constituted 5% of revenues, up 110 basis points from 3.9% a year ago. The acceleration of growth rates of total stock-based comp expense is primarily related to new equity-based grants made in 2016 and 2017 and due to accelerated vesting of a portion of our RSUs.
D&A expense in Q4 increased 26% year-on-year. The acceleration was mainly due to our investments in servers related to the launch of our data center earlier in 2017. Our consolidated adjusted EBITDA increased 39% year-on-year and our consolidated adjusted EBITDA margin was 33.4%, up 310 basis points compared to a year ago and up 910 basis points compared to Q3 of 2017. The significant improvement of our adjusted EBITDA margin on a sequential basis was primarily driven by a moderation of losses in Taxi as a result of optimization of incentives to riders and drivers.
Our investment in taxi still remained heavy. Excluding both revenue and losses of Yandex.Taxi from our consolidated results, the consolidated adjusted EBITDA margin would have been 900 basis points higher.
This quarter, the impact from Forex was a loss of RUB 0.2 billion related to the appreciation of the Russian ruble during Q4 2017 from RUB 58 to the dollar on September 30 to RUB 57.6 to the dollar on December 31, 2017.
Net income was up 189% year-on-year in Q4 2017 primarily due to the increase in income from operations and higher foreign exchange loss in Q4 2016 compared with Q4 2017.
Net income margin was 12.6%. Adjusted net income was up 62% year-over-year and adjusted net income margin was 18.8% compared with 14.7% in the previous year.
Our CapEx was RUB 2.6 billion or 9% of our total Q4 revenues. Full year CapEx-to-sales ratio was 13.2%. We expect in 2018 our CapEx will be at mid-teens as a percentage of revenue.
Now turning to the performance of our business units. Search and Portal revenues grew 20% year-over-year driven by continuing strong growth in search and on our owned and operated websites, but muted by moderated growth of our advertising network.
Adjusted EBITDA of Search and Portal grew 31% year-over-year in Q4 and its adjusted EBITDA margin reached 44.3%. This is up 390 basis points compared with Q4 2016 and up 210 basis points sequentially. On an annual basis, adjusted EBITDA margin of Search and Portal reached 43.7% and expanded 260 basis points compared with fiscal year 2016.
Revenues of Yandex.Market were up 3% year-over-year. Modest year-over-year revenue performance resulted from our activities aimed at improving traffic to our merchants that we launched earlier in 2017. Adjusted EBITDA margin of Yandex.Market was 26% in Q4 of 2017, up 220 basis points compared with Q4 2016.
In December 2017, we signed an agreement with Sberbank to form a joint venture based on the Yandex.Market platform. The parties have filed for necessary regulatory approvals, and are expecting the transaction will close late in Q1 or early in Q2 of this year.
Turning to Yandex.Taxi. Revenues of Yandex.Taxi were up 191% year-on-year in Q4. Adjusted EBITDA of Taxi was negative RUB 1.6 billion in Q4, a significant improvement compared to RUB 3.2 billion negative adjusted EBITDA a quarter ago. This improvement was mainly related to optimization of user and driver incentives that we started in September 2017. Importantly in Q4, we reached positive gross contribution margins across all of our territories before subtracting marketing costs.
We continued expanding across Russia and neighboring countries. As of the end of Q4, the service was available in 169 cities with 100k plus population and another 56 cities with population of 50k to 100k. The total number of rides grew 250% year-on-year primarily driven by the regions as well as by solid growth in Moscow and St. Petersburg.
Now let me provide an update on the stats of the combined Yandex.Taxi and Uber business. In January 2018, the two companies performed 62 million rides, up 77% compared with June 2017 and generated approximately $206 million in gross bookings, up 54% compared to June 2017. We will start consolidating the combined company from February 7, 2018 the day the deal was closed.
Now let me turn to Classifieds. Revenues of Classifieds business grew 74% year-on-year in Q4 primarily driven by revenues from listing fees and IVAS, which increased 99% year-on-year. Adjusted EBITDA margin of Classifieds was 10%.
Auto.ru continued strengthening its position in established markets. We estimate that in December 2017 Auto.ru generated 71% of all calls from auto classifieds to dealers in Moscow. In St. Petersburg Auto.ru generated 60% of all calls.
Revenues of Experiments represented by Media Services, Türkiye, YGF and discovery increased 104% year-on-year in Q4. This growth was mainly driven by Media Services, and discovery. Beginning with Q1 2018 we will break out media services for you as a separate business unit.
Getting back to corporate matters. We ended the quarter with approximately RUB 70.7 billion in cash, equivalents and term deposits, which is approximately $1.2 billion of the exchange rate as of December 31.
Turning to guidance. Given all the moving pieces, we wanted to provide you with slightly more details about our outlook for 2018 than we usually do. We expect our Search and Portal ruble-based revenue to grow in the range of 18% to 20% and we expect the adjusted EBITDA margin to be roughly flat on an annual basis for full year 2018 compared with 2017. We will continue to invest in voice, maps and a few exciting products launching in 2018.
We expect Yandex.Market revenues to grow roughly at the same rate as Search and Portal. As we plan to invest in delivery and logistics, we expect adjusted EBITDA of the Yandex.Market to be negative. However, just as a reminder, we expect the Yandex.Market will be deconsolidated from our results once the joint venture with Sberbank is completed.
Revenue of Taxi will grow in triple digits in 2018. We expect to continue having investment in Taxi probably on par with the previous year as we reinvest the savings from optimization of driver and rider subsidies into further penetration of the offline market as well as substantial investments into our food delivery business.
We expect our Classifieds revenues to grow slightly faster in 2018 than they did in 2017. On a consolidated basis, we expect our revenues to grow 25% to 30% in 2018 compared with 2017. This outlook implies the consolidation of Uber starting from February 7, 2018 but excludes the effect of potential deconsolidation of the Yandex.Market. We will obviously update this guidance once the Yandex.Market transaction closes.
The slides supplementary to our earnings release include a summary of our guidance that I just provided.
With this, let me turn the call over to the operator for the Q&A session.
[Audio Gap] maybe you could share some stuff on the search share on those new devices, and the second question in on the media businesses, so what is the most promising niches or brands within the media segments – so where you see the high growth opportunities then? Thank you.
Hi, it is Mikhail. I guess I will take the first one and maybe Greg will take the second. So, yes, currently the implementation for [indiscernible] goes roughly as we were planning. We still believe it is possible for us to reach 50% on Android by the end of the year – it is an ambitious goal, but that's what we are hoping to achieve. We are as you know talking to all the major manufacturers, and I don't think we can really go into all the nitty-gritty details, but we are obviously in very close touch with all the major cell phone OEMs; you know, Samsung, Meizu, Huawei, [indiscernible] and all of them. And so here we are probably sort of reinforce the guidance we are giving previously.
Hi, Vyacheslav, and this is Greg. On the question with respect to media services, I would say that the clearest near term opportunity is around subscription music services. For us I think this is a very promising segment and it has been growing very nicely in terms of the number of subscribers and revenue opportunity there. As you know the opportunities for illegal music downloads or streaming have been reduced over time here in Russia, and as the market is becoming – as the market becomes to embrace legal streaming music services, I think we are in a position to be one of the leading players here. And so we are very excited about that and the contribution of media services to the overall Yandex ecosystem.
Okay. Thank you.
We will now take the next question from Cesar Tiron from Bank of America, Merrill Lynch.
Yes, hi everyone, and thanks for the opportunity and congrats for the results. I have two questions. So first on the core search business, just wanted to discuss the operating leverage, it seems that half of the margin improvement in the quarter was driven by TAC. I wanted to check with you how sustainable it is to have TAC growing at a slower pace than revenues especially for 2018, and if you could repeat your margin outlook for the core search for 2018, and then secondly on Taxi, could you please share with us how the Uber numbers look like for 2017, and also so if you can just repeat what you said on the reduction of subsidies that you wanted to reinvest in 2018, and when you think Taxi can become profitable on a pro forma basis? Thank you so much.
Hi, Cesar this is Greg. Let me try to take both of these questions. On the core search business like I said we expect that the margins of the core search business will be roughly flat. And this is similar I think to the outlook that we gave at roughly the same point last year. We see a lot of opportunities for reinvestment primarily around search and geo-based products, but also around some new exciting products that should be coming out later this year, which obviously do put some pressures on margins, and obviously once we have something to announce there we will do so.
With respect to the Taxi outlook, obviously we will provide little bit more details on the Q1 earnings call as we will have roughly two months of Uber consolidated into our numbers. With respect to sort of how we see the market and how we are thinking about subsidies and such, what – as you know what we have done between Q3 and Q4 is we managed to cut back on subsidies quite substantially. And what we have noticed is that there is essentially no real impact in terms of the growth rates that we saw. For example, if you take Moscow and St. Petersburg, the growth rates there were down roughly 2 percentage points versus Q3, and these are obviously coming off very, very high basis. So it's obviously quite hard to sustain high triple-digit growth rates. So we – what we do expect to do is we expect to take some of those savings and kind of reinvest them in the business. What we are still competing with very much is either non-consumption i.e. people are simply taking public transportation or their own cars and we are also competing with various offline services, and obviously our goal as we scale up this business is to be laser focused on taking share away from both of those. In addition to that we will also be investing aggressively in food delivery products as we look to combine Uber Eats and FoodFox brands under a new brand, which we will announce shortly.
Okay. Thank you.
Thank you.
We will now take the next question from Lloyd Walmsley from Deutsche Bank.
Thanks. First question – two if I can, first question given this is your first year really breaking out Search and Portal guidance, can you just give us some color on what's baked into the 2018 and 2020 in terms of further share gains, benefits from new add units, macro other key factors that could drive upside or downside to the range, and just do you continue to approach that segment guidance with the same conservatism you typically use at the beginning of the year historically? And then second one following up on some of the comments on TAC subsidies, can you give us a sense for where you are winding back the subsidies, the magnitude of the wind backs, are they kind of mostly gone in Moscow and St. Petersburg, or just partially gone and then just the timing around further reductions in I guess your more mature areas, any further color would be great.
Sure, Lloyd. On guidance, look this is early in the year and this is – we want to provide our sort of best outlook as of today. We do expect that Android search share gains will continue as Mikhail said. We do see some of the benefits from new products that we are kind of rolling out. But at the same time we in the first half of the year we still were kind of facing the headwinds from the lost Ukraine business as we talked about, as well as kind of slower growth on the ad network side, which we do expect to persist.
You did ask about TAC I believe and I wanted to address that. We expect that our distribution TAC will stay roughly on par with 2017 levels, and so we do not expect to see significant pressure there. On partner TAC it's more of a tactical matter, and so it will depend very much on which products we want to push. Some of the products do carry higher TAC rates than others. For example, and we have talked about this I think in the last earnings call, things like video or mobile ads we tend to – since we want to push those more aggressively we will also provide higher TAC rates to publishers. Does that answer the first part of your question?
Yes. That's great.
Great. And on Taxi, so as I think I said, we pretty much reduced subsidies in Moscow and St. Petersburg to very, very low levels. We are still subsidizing aggressively in those regions. And that's because we feel that our market position in Moscow and St. Petersburg is very strong, whereas regions are still either under-penetrated. The network effect there is not as strong or there is offline competition, which we are looking to go after. And so that's kind of what's driving that.
Great. Thank you.
We will now take our next question from Miriam Adisa from Morgan Stanley.
Good afternoon everyone. Congrats on a great set of results. And firstly, – sorry if I missed this, but could you just give [indiscernible] run rate this quarter. And could you just talk about your plans for this year, and then also on Taxi revenue in your guidance, is this triple-digit growth, is that primarily driven by the substitute option or some of this also driven by commissions increasing on the Yandex platform? Thank you.
So I will take the second part first. It includes a number of things. We do look to optimize the commission structure. It does imply that [rides] are still growing very, very strongly. As I mentioned if you take our very old cities i.e. cities where we have been from day one, they are still growing kind of 170% plus year-over-year. And so there is plenty I would say of tailwinds still left there in terms of growing the revenue in 2018.
And then in terms of Zen, what we are seeing is that Zen is growing rapidly. The current run rate is RUB 3.5 billion roughly, and that's up 130% or so year-over-year. And our plans there is to make this a very important product for our consumers. It currently has roughly 10 million [indiscernible] I believe, and in terms of usage it is still generating like I think roughly 30 minutes of usage per person. We want to include more and more videos in there. We want to include more entertaining forms of content, and we are also trying to push slightly new format called Narratives, which I think maybe it's kind of similar to Instagram stories or something like that but it includes content from publishers, which are in the form of cards which somebody can flip through including images, text and other multimedia. So we are still very excited about Zen. We think it's really promising products. We are obviously integrating it closely into the search portal in terms of our browser, our homepage, desktop, mobile and everywhere else.
Great. Thank you.
Thank you.
We will now take our next question from Ulyana Lenvalskaya from UBS.
Good afternoon everyone, and thanks a lot for the call. Congratulations on the good numbers. Couple of follow-ups on Taxi for me, first of all can you confirm please that Uber also generates EBITDA loss so that the addition of Uber should at the moment make EBITDA loss bigger, and Greg when you say triple-digit growth in Taxi do you compare Yandex plus Uber to just Yandex Taxi in 2017 or is it on a pro forma basis?
Hi Ulyana, sure. So when we talked about our expectations for EBITDA loss in taxi that's on a consolidated basis. So obviously that is a combination of Uber and Yandex. And when you asked about triple digits, well unfortunately this business is not growing quadruple digits. But this is on a pro forma basis and so it's 100% plus growth that we expect to see in net revenues in 2018.
Okay. Thank you Greg, and could you please comment on your view on current market share of Taxi and Taxi market or maybe the size of taxi market or how reliable this analytical [indiscernible] government data is?
So we think we are in a very strong position. I can’t obviously comment on our market share as those figures are not readily available. We think the market is expanding still, and we will probably continue to expand as people do substitute public transportation and personal car usage for ride sharing. And we are trying to address those opportunities from a variety of angles as we are now starting to experiment with both car pooling type products, as well as sort of other forms of ride sharing, which tend to lower the average fare for an individual consumer. And so we think that this is just a better way for cities to address their transportation needs and it's a better choice for consumers. And we want to make this service obviously ubiquitous.
Okay. But if you take total taxi market, is the growth rate single digit or double digit or how to think about the total market growth?
I wish I knew. We just don't know. What we are seeing – like I said I think the most interesting way to think about it, is if you take an established market like Moscow, the fact that we grew in Moscow 170% plus in Q4, seven years after launching the service should tell you something about the opportunity to expand the total size of the market.
Okay. Thank you.
We will now take the next question from Vladimir Bespalov from VTB Capital.
Hello. Congratulations on the number, and thank you for taking my question. So I have also a follow-up question from the Taxi business, first would be number of cities currently covered, do you still see a lot of opportunities to expand geographically? Do you hear me? Hello.
Yes we hear you.
Okay. With the taxi business do you still see opportunities to extend geographically after the large number of cities, which are covered now or it is just more of the growth inside those cities, where you are at right now, and the other thing is how should we look at the minority stake, which you are going to report in your account following the merger with Uber, which was completed this year? Should we just rely on that valuation number, which was done for the purpose of the deal to derive that, and the other thing about Taxi is on food delivery, could you maybe elaborate a little bit about the strategy across FoodFox is currently mostly concentrated within [indiscernible]
Moscow. So how aggressively are you going to extend this business and what kind of investment it will require and how this might affect the Taxi margins? Thank you.
Hi Vladimir. In terms of geographic expansion, the answer is yes, we will continue geographic expansion. Obviously this will be primarily into smaller cities. So the amount of population covered will not be growing as rapidly as it has in the past. However, we still see ample opportunity to grow the business within the current perimeter just as the network effect tends to develop. The ride times decline and the – our fares are attractive for consumers.
In terms of how are we reporting this from the adjusted net income numbers essentially will back out Uber’s minority interest in this business, and so whatever losses we generate in this business will some of – will push some of those losses equal to their ownership of the new co. will be backed out. It is roughly 36% or so. The adjusted net income numbers we will report will be net of those. And then when I talked about our expectations for EBITDA loss obviously that is aggregate and that includes sort of all of the initiatives.
And absolutely the answer is we do want to take FoodFox and Uber Eats outside of the core perimeter. We see very large opportunity here and we do want to invest aggressively, and so when I talked about the EBITDA loss for Yandex Taxi to be roughly equal to the 2017 levels, obviously a large portion of that is for expansion into other categories such as food delivery.
And in terms of balance sheet value of the minority stake, how should we approach this related to this Uber deal?
I am happy to follow-up with you offline.
Okay. Thank you.
We will now take our next question from Alexander Vengranovich from Otkritie Capital.
Yes. Hi, congratulations on the good numbers. From my side, there is a couple of follow-ups, so first one on android search share in the fourth quarter ’17, so it looks like it was pretty strong actually, can you please share some thoughts on what revenue drivers were behind this increase outside of Alice, which I think was one of the contributors, because previously I think you were expecting some sort of a stronger boost in the first quarter 2018 once new Android devices shipped to Russia, and you [indiscernible]. So it is the first question and the second question on Alice, I think, so how should you look like the – how should you think about the evolution of their service? Should we look at some products similar to [indiscernible] based, and which might bring some additional benefits for our e-commerce business. So please just share your thoughts, and last thing some quick follow-up on taxi. I think I haven't heard any number for gross revenue growth in the fourth quarter [that we lost]. Thank you.
Hi, it's Mikhail here. I guess I will take the first two questions. So in terms of the credit share growth in Q4, yes as you correctly pointed out was one of the big additional drivers so that contributed strongly to our results there. Aside from this, of course, we still have lots of help from the choice dialog that is being shown on devices, on existing devices, and as well as continued improvement in our search quality, and according to our measurements we believe we increased the gap with main competitors in terms of the quarterly results we are showing.
As we go forward, Alice, of course we are very ambitious and we will turn Alice into the whole big ecosystem of things surrounding users everywhere in the offline world. I don't think we are ready to share all the details as of now, but we are obviously investing a lot in that area and we see very strong growth rates in Alice, and we want to capitalize on that. So we will not stop pushing there.
And Alexander, on your second question about gross revenue, growth rates. In Q4 gross revenue grew at the same rate as net revenue, 191%.
Okay. Thank you.
We will now take our next question from Sveta Sukhanova from Sberbank. Please go ahead.
Hi everyone. May I please take a step back to Search and Portal business, or advertisement business overall, can you please elaborate why ad network is growing so slowly? I understand that [indiscernible] in Q4 2016, so Q4 last year was already a low base, while it looks like even from this low base ad network revenues are still declining. Can you please elaborate? And second question, let me shoot it at you, it would be on search revenues, why the search revenue gain, which you have seen in Q4 is still not translating into the search ad revenue growth? Thank you very much.
Hi, it's Mikhail again. So it is actually a similar answer to both of the questions. I would like there are number of factors that work against faster growth. One is of course Ukraine, and that's probably one of the major ones. We are still fighting against the comps and Q4 was when Ukraine completely got offline last year with all the – I mean last year was when all the contracts wound down. On ad network side as we were talking about it last call – on the last call, our internal ad network on our Yandex Properties continues to grow very strongly. And as we take overall time spent away from other websites, external network [indiscernible] that it grows slower. There is a little bit of the transition effect.
There were certain things that we – that got a little bit delayed in the end of Q4. So as we were talking previously we have the new ad technology called templates that we started rolling out, unfortunately the roll out – was in fact slower than we anticipated and it will continue because it's a multistage process. We will keep on working on it but rolling it out bit by bit. So that didn't help the comps. And on the – especially on the Android side, I just wanted to remind you that the search portal includes everything. So search is only roughly half of our search portal revenue and mobile is roughly a third of that and Android is roughly two thirds of that. So overall it definitely did help. It just didn't – is not as visible against other factors that could have been.
Okay. Thank you very much.
[Operator Instruction] We will now take our next question from Sergey Libin from Raiffeisenbank.
Hello. Thanks for taking my question. First one is on personnel, so you had quite a significant increase in the number of employees throughout the year actually, but the increase in the personnel related cost was much smaller than that. So I just wanted to understand whether the new employees are lower paid, and are going to somehow increase their – so is the personnel cost going to increase going forward or given that the increase in number of employees was that significant do you think you will need probably new premises in the near future. So that's first one, and secondly, I would like to ask whether you are going to air World Cup 2018, as well as Winter Olympics and is it somehow included in your guidance?
Hi Sergey. I will take the first part of the question. So we are hiring aggressively. Most of the growth in personnel in 2017 was in our business units in terms of – specifically within Taxi. That's where as you can imagine most of the growth in headcount was, but we are also hiring aggressively for our mapping efforts as well as for our classifieds. As I mentioned, classifieds seems to be a very promising segment.
The revenue growth rates there have accelerated in Q4, and we expect that they will accelerate further in 2018 and so we obviously want to support growth in classifieds with more headcount. The growth in headcount in Taxi, like I said, shouldn't surprise you either. And so it's not like we are hiring less expensive employees. It's just going to take a while to work its way through, and so keep that in mind please as you model out the business, and I will pass the mike to Mikhail for the second part of the question.
Yes, and video streaming [interface], and so we are streaming Winter Olympics right now. You can see it in our main page. I cannot yet comment on World Cup and other similar issues because obviously we are interested in streaming high profile events. They drive users and some of them stay afterwards. By themselves those events I wouldn't say impact materially our bottom line. The main importance is in the fact that new users coming and more of them are becoming accustomed to watching TV on our properties, and that drives our video advertising revenues. So I wouldn't say that factoring or not factoring say, Winter Olympics streaming would have a material impact on our numbers.
All right. I got it, thanks. And so maybe while Arkady is on the call may I take the opportunity to ask about the business in Turkey, for example, or some other things like Yandex Data Factory, which are normally not widely discussed on these calls, but could be interesting to the audience please.
Yes, hi. So Turkey is still there. We now have basically one product, which is still in the market, which is Yandex. Navi, which we extended just a couple of weeks ago. We switched to our own map, our own map of Turkey, so we are a mapping company in Turkey completely now. We are creating our own maps. This product has – it now has its own [indiscernible] and we cut the – all other investments for now in Turkey, and we are very close to be profitable there.
On the other things, we have dozens of different experiments which we report regularly, and some of them become our business units like media services has become a business unit. We are considering a couple of others to transform the business units soon. So [indiscernible] come and go. There are many of them.
All right. Thank you very much.
We will now take the next question from Olga Bystrova from Credit Suisse.
Yes, good evening. You give guidance on overall Search and Portal business growth. Can I ask you how you see overall online advertising market in Russia developing in 2018, when you talk to advertisers, do you see a acceleration in budgets, either in general or let's say taking share from TV, and also how do your clients think about allocating budgets on desktop versus mobile. Is it an incremental budget for them or this is sort of reallocate within their current budgets? And I guess the second question I am not sure if you can or will be willing to talk about it on the call, when you think about your food delivery business, can you maybe elaborate a little bit on what business model you are planning to undertake and your expectations for growth, are they mostly built on expansion of the online food delivery market or you have some material market share ambitions as well? Thank you.
Okay. Mikhail is here. So, I will take the first one. So, in terms of the overall advertising market, we basically see continuing taking money from the offline world to online world. We do not see dramatic changes in the pace of growth there. We do see, of course, the effect of our properties getting more time spent and things like that and stuff, and in general growth of services like that.
We do see faster growth in terms which areas tend to over-perform, outperform we probably see video as another area, which grows faster than previously and taking budgets from TVs into online world. In terms of redistribution of the budget, as usual advertisers in general tend to be little bit cautious and apprehensive taking money from desktop to mobile, so gains there always tend to lag the gains in traffic. It takes a while for advertisers to adjust their split of the budgets. We expect this lag to continue. But eventually if they do redistribute, so I think those are the main probably trends that we are seeing. And the second is for Greg.
Yes, hi Olga. On the food delivery question. So at this point we do like the on-delivery model, where it is our carriers as opposed to the Russian carriers who are delivering the food. We think that that provides a superior experience for consumers. But importantly what we do want to utilize with respect to food delivery is the significant synergies we see both from the search business where quite a number of consumers are coming to search first before deciding what food they want to order. And secondly we also see significant synergies with the [ride] share of business, which we also are very much interested in exploiting it as you can imagine.
This is very helpful. Thank you and I don't know if you can talk about sort of market share ambitions or in general how you think about growth in this business for you specifically?
The way we see growth in the food delivery business is it's just a very, very nascent market. We are very, very early here. Consumers don't understand in many cases that this is something that's even available to them. That's number one. Number two, the previous experiences have been so poor where the wait times were extremely long. The food came in. By the time it arrived it was already cold. Selection was poor that consumers weren't returning as much, and so what we are obviously aiming to utilize and leverage is like I said our position in search, our ride sharing business, our knowledge of maps and routing algorithms, and the fact that this is just – we are all very early and consumer preferences are likely to change.
Okay. Thank you very much.
We will now take our last question from Vladimir Bespalov from VTB Capital.
Thank you very much for taking my follow-up question. I would like to ask you about the classified business. It has been almost shared a little bit lately by the [indiscernible] taxi and the markets, but we see very good growth rates here, and could you maybe elaborate a little bit on [indiscernible] this business let us say on a three-year horizon how do you see this developing. Are you going to build a fully fledged horizontal classified business platform, and when we can expect margin improvements here, and what will be the drivers for growth in 2018 that you anticipate?
That's a very good question. Yes, we are very excited about the classified business. Our view is that a very tailored vertical player has extremely good chances competing against horizontal classifieds players because what they can provide to consumers is very much a tailored experience and we tend to utilize all of the scores of Yandex technologies everything in machine learning and other parts of our ecosystem to improve the experience for our classified consumer.
For now classifieds is overwhelmingly focused on the auto segment, and I think that will be the case for sometime, although we are also interested in real estate. It has been growing very, very nicely for us. We have no real appetite to get into the horizontal business. Our focus is one of being just a highly, highly useful vertically optimized tool to serve very specific consumer needs i.e. when you are looking to buy or sell a car you are going to do it in auto.ru.
Thank you.
Sorry, you asked about margin outlook. Look on the margins front we are not focused on generating significant margin in the classifieds business in near term. Our feeling is that we still see hyper growth ahead of us. And we are more focused on investing here rather than harvesting.
Thank you very much.
Thank you.
That will conclude the Q&A session. I would like to hand the call back over to your speakers for their closing remarks.
Thank you all for joining our call today. Sorry for the fact that the line disconnected, but hopefully we were back pretty quickly. Please feel free to reach out to us in case you have any follow-up question, and we will be happy to host you on our Q1 2018 earnings call in April this year. Thank you. Bye-bye.