Yandex Announces Third Quarter 2019 Financial Results

MOSCOW and AMSTERDAM, the Netherlands, October 25, 2019 -- Yandex (NASDAQ and MOEX: YNDX), one of Europe's largest internet companies and the leading search provider in Russia, today announced its unaudited financial results for the third quarter ended September 30, 2019.

Q3 2019 Financial Highlights(1)(2)(3)

Q3 2019 consolidated financial results

  •  Revenues of RUB 45 billion ($698.8 million), up 38% compared with Q3 2018
  •  Net income of RUB 4.4 billion ($68.0 million), down 1% compared with Q3 2018; net income margin of 9.7%
  •  Adjusted net income of RUB 6.9 billion ($106.7 million), up 12% compared with Q3 2018; adjusted net income margin of 15.3%
  •  Adjusted EBITDA of RUB 13.9 billion ($216.1 million), up 29% compared with Q3 2018; adjusted EBITDA margin of 30.9%

 Cash, cash equivalents and term deposits as of September 30, 2019:

  • RUB 85.4 billion ($1,326.4 million) on a consolidated basis
  • Of which RUB 25.7 billion ($399.3 million) related to Taxi segment 

Q3 2019 Operational and Corporate Highlights

  • Share of Russian search market, including mobile, averaged 56.6% in Q3 2019, up from 55.9% in Q3 2018 and down from 56.9% in Q2 2019, according to Yandex.Radar
  • Search share on Android in Russia was 52.8% in Q3 2019, up from 49.1% in Q3 2018 and 52.3% in Q2 2019, according to Yandex.Radar
  • Search queries in Russia grew 9% compared with Q3 2018
  • Paid clicks on Yandex’s and its partners’ websites, in aggregate, increased 22% compared with Q3 2018
  • Average cost per click decreased 2% compared with Q3 2018
  • Number of rides in the Taxi segment grew 59% year-on-year compared with Q3 2018
  • MLU B.V., Yandex’s ride-sharing and food delivery joint venture with Uber, announced an agreement to acquire the IP and call-centers of the Vezet group of companies in Russia

“I am delighted with another excellent set of results,” said Arkady Volozh, Chief Executive Officer of Yandex. “In Q3, our ride-sharing business delivered sequential acceleration in ride growth, while Zen continued to grow its user engagement, and Yandex.Drive became the second largest car-sharing service in the world. Our strong IT expertise allows us to develop new business models, and we aim to continue preserving and growing the IT talent pool both for Yandex and the country as a whole.”

“We delivered 38% year-on-year revenue growth in Q3 with great contributions from Search and Portal, Taxi and Drive,” said Greg Abovsky, Chief Operating Officer and Chief Financial Officer of Yandex. “Our core business continued delivering strong results and demonstrated solid margins, while our business units and experiments maintained triple digit revenue growth, and now represent 36% of consolidated revenues.”

The following table provides a summary of our key consolidated financial results for the three and nine months ended September 30, 2018 and 2019, which includes Yandex.Market financial results through April 27, 2018, the date as of which that business was deconsolidated:

In RUB millions

Three months ended September 30, 

Nine months ended September 30, 

2018

2019

Change

2018

2019

Change

Revenues

32,570

45,014

38%

88,815

123,695

39%

Ex-TAC revenues2

27,277

39,257

44%

74,481

107,002

44%

Income from operations

5,959

7,437

25%

13,380

19,809

48%

Adjusted EBITDA2

10,801

13,919

29%

27,261

37,784

39%

Net income

4,434

4,378

-1%

38,860

10,918

-72%

Adjusted net income2

6,162

6,876

12%

15,183

18,141

19%

(1) Pursuant to SEC rules regarding convenience translations, Russian ruble (RUB) amounts have been translated into U.S. dollars at a rate of RUB 64.4156 to $1.00, the official exchange rate quoted as of September 30, 2019 by the Central Bank of the Russian Federation.
       
(2) The following measures presented in this release are “non-GAAP financial measures”: ex-TAC revenues; adjusted EBITDA; adjusted EBITDA margin; adjusted ex-TAC EBITDA margin; adjusted net income; adjusted net income margin and adjusted ex-TAC net income margin. Please see the section headed “Use of Non-GAAP Financial Measures” below for a discussion of how we define these measures, as well as reconciliations at the end of this release of each of these measures to the most directly comparable U.S. GAAP measures.

Our segment disclosure is available in the Segment financial results table below Income from operations.

Consolidated revenues breakdown

In RUB millions

Three months ended September 30, 

Nine months ended September 30, 

2018

2019

Change

2018

2019

Change

Online advertising revenues:

Yandex properties3

19,965

24,903

25%

56,303

68,669

22%

Advertising network

5,952

6,329

6%

16,936

18,744

11%

Total online advertising revenues3

25,917

31,232

21%

73,239

87,413

19%

Revenues related to Taxi segment

5,109

9,636

89%

12,289

26,058

112%

Other

1,544

4,146

169%

3,287

10,224

211%

Total revenues3

32,570

45,014

38%

88,815

123,695

39%

(3) Excluding Yandex.Market from financial results for the nine months ended September 30, 2018:

  • Online advertising revenues related to Yandex properties grew 25% year-on-year
  • Total online advertising revenues grew 22% year-on-year
  • Total revenues grew 41% year-on-year

Online advertising revenues grew 21% in Q3 2019 compared with Q3 2018 and generated 69% of total revenues. Online advertising revenues include revenues derived from performance and brand advertising on Yandex properties and in our advertising network.

Online advertising revenues from Yandex properties increased 25% in Q3 2019 compared with Q3 2018 and accounted for 55% of total revenues.

Online advertising revenues from our advertising network increased 6% in Q3 2019 compared with Q3 2018 and accounted for 14% of total revenues.

Revenues related to Taxi segment grew 89% in Q3 2019 compared with Q3 2018 and accounted for 21% of total revenues. This increase mainly reflected the solid performance of our ride-sharing business driven by increase in the number of rides and incentives optimization, the strong growth of our corporate Taxi offering, which we recognize on a gross basis, as well as the growing contribution of our food delivery businesses.

Other revenues grew 169% in Q3 2019 compared with Q3 2018 and amounted to 9% of total revenues. The growth was primarily driven by our car-sharing service Yandex.Drive, subscription revenues of Media Services and our initiatives related to IoT (Internet of Things).

Consolidated Operating Costs and Expenses

Yandex’s operating costs and expenses consist of cost of revenues, product development expenses, sales, general and administrative expenses (SG&A) and depreciation and amortization expenses (D&A). Apart from D&A, each of the above expense categories include personnel-related costs and expenses, relevant office space rental, and related share-based compensation expense. Increases across all cost categories reflect investments in overall growth. In Q3 2019 Yandex's headcount increased by 583 full-time employees. The total number of full-time employees was 9,588 as of September 30, 2019, up by 6% compared with June 30, 2019, and up 8% from September 30, 2018.

Cost of revenues, including traffic acquisition costs (TAC)

In RUB millions

Three months ended September 30, 

Nine months ended September 30, 

2018

2019

Change

2018

2019

Change

TAC:

Related to the Yandex advertising network

3,772

3,848

2%

10,379

11,273

9%

Related to distribution partners

1,521

1,909

26%

3,955

5,420

37%

Total TAC

5,293

5,757

9%

14,334

16,693

16%

Total TAC as a % of total revenues

16.3%

12.8%

16.1%

13.5%

Costs related to Taxi segment

1,282

3,029

136%

3,459

8,155

136%

Costs related to Taxi segment as a % of revenues

3.9%

6.7%

3.9%

6.6%

Other cost of revenues

2,489

5,175

108%

6,243

13,275

113%

Other cost of revenues as a % of revenues

7.6%

11.5%

7.0%

10.7%

Total cost of revenues

9,064

13,961

54%

24,036

38,123

59%

Total cost of revenues as a % of revenues

27.8%

31.0%

27.1%

30.8%

TAC grew 9% in Q3 2019 compared with Q3 2018 and represented 12.8% of total revenues, 350 basis points lower than in Q3 2018 and 70 basis points lower compared with Q2 2019 as a result of revenue mix effect.

Costs related to Taxi segment increased 136% compared with Q3 2018. The growth was mainly a result of an increase of costs related to our corporate Taxi offering and the logistics costs related to food delivery. We are the principal in transactions with our Taxi corporate clients, therefore, we recognize both revenues and cost of revenues on a gross basis.

Other cost of revenues in Q3 2019 increased 108% compared with Q3 2018, mainly reflecting the growth of costs related to Yandex.Drive, our investments in content within Media Services, as well as our IoT initiatives.

Product development

In RUB millions

Three months ended September 30, 

Nine months ended September 30, 

2018

2019

Change

2018

2019

Change

Product development

5,534

7,407

34%

16,723

21,108

26%

As a % of revenues

17.0%

16.5%

18.7%

17.1%

Product development expenses grew 34% in Q3 2019 compared to Q3 2018, primarily reflecting salary and other personnel-related costs increases, growth of share-based compensation and new hires in Q3 2019.

Sales, general and administrative (SG&A)

In RUB millions

Three months ended
September 30,

Nine months ended
September 30,

2018

2019

Change

2018

2019

Change

Sales, general and administrative

8,895

12,421

40%

25,742

33,854

32%

As a % of revenues

27.3%

27.6%

29.0%

27.4%

SG&A expenses grew 40% in Q3 2019 compared to Q3 2018.The growth was mainly driven by the increase of personnel costs as a result of salary and other personnel expenses growth as well as new hires, and due to the increase of advertising and marketing expenses to support growth of our business units.

Share-based compensation (SBC) expense

SBC expense is included in each of the cost of revenues, product development, and SG&A categories discussed above.

In RUB millions

Three months ended September 30, 

Nine months ended September 30, 

2018

2019

Change

2018

2019

Change

SBC expense included in cost of revenues

47

72

53%

126

204

62%

SBC expense included in product development

1,139

1,663

46%

3,343

4,674

40%

SBC expense included in SG&A

530

935

76%

1,441

2,258

57%

Total SBC expense

1,716

2,670

56%

4,910

7,136

45%

As a % of revenues

5.3%

5.9%

5.5%

5.8%

Total SBC expense increased 56% in Q3 2019 compared with Q3 2018. The growth was primarily related to new equity-based grants made in 2018-2019.

Depreciation and amortization (D&A) expense

In RUB millions

Three months ended September 30, 

Nine months ended September 30, 

2018

2019

Change

2018

2019

Change

Depreciation and amortization

3,118

3,788

21%

8,934

10,801

21%

As a % of revenues

9.6%

8.4%

10.1%

8.7%

D&A expense increased 21% in Q3 2019 compared with Q3 2018. The D&A expense increase was mainly driven by our investments in servers and data center equipment as well as by costs related to purchases of office and other equipment.

Income from operations

In RUB millions

Three months ended September 30, 

Nine months ended September 30, 

2018

2019

Change

2018

2019

Change

Income from operations

5,959

7,437

25%

13,380

19,809

48%

Income from operations increased 25% in Q3 2019 compared with Q3 2018.

Segment financial results

In RUB millions

Three months ended September 30, 

Nine months ended September 30, 

2018

2019

Change

2018

2019

Change

Revenues:

Search and Portal

25,816

31,172

21%

71,350

87,371

22%

Search and Portal, excluding IoT*

25,801

30,894

20%

71,335

86,680

22%

E-commerce**

-

-

-

1,697

-

-100%

Taxi

5,109

9,654

89%

12,289

26,103

112%

Classifieds

988

1,371

39%

2,609

3,779

45%

Media Services

414

924

123%

1,230

2,534

106%

Other Bets and Experiments

1,480

4,088

176%

3,389

9,986

195%

Eliminations

(1,237)

(2,195)

77%

(3,749)

(6,078)

62%

Total revenues

32,570

45,014

38%

88,815

123,695

39%

Adjusted EBITDA:

Search and Portal

12,593

15,467

23%

34,808

42,061

21%

Search and Portal, excluding IoT*

12,666

15,669

24%

34,956

42,556

22%

E-commerce**

-

-

-

(263)

-

-100%

Taxi

(711)

170

n/m

(4,305)

477

n/m

Classifieds

78

43

-45%

(165)

(20)

-88%

Media Services

(238)

(636)

167%

(595)

(1,514)

154%

Other Bets and Experiments

(962)

(1,180)

23%

(2,318)

(3,366)

45%

Eliminations

41

55

34%

99

146

47%

Total adjusted EBITDA

10,801

13,919

29%

27,261

37,784

39%

Adjusted EBITDA margin:

Search and Portal

48.8%

49.6%

0.8%

48.8%

48.1%

-0.7%

Search and Portal, excluding IoT*

49.1%

50.7%

1.6%

49.0%

49.1%

0.1%

E-commerce**

-

-

-

-15.5%

-

-

Taxi

-13.9%

1.8%

15.7%

-35.0%

1.8%

36.8%

Classifieds

7.9%

3.1%

-4.8%

-6.3%

-0.5%

5.8%

Media Services

-57.5%

-68.8%

-11.3%

-48.4%

-59.7%

-11.3%

Other Bets and Experiments

-65.0%

-28.9%

36.1%

-68.4%

-33.7%

34.7%

Total adjusted EBITDA margin

33.2%

30.9%

-2.3%

30.7%

30.5%

-0.2%

Financial results of segments are presented in the new segment structure that we introduced in Q1 2019. The historical data is provided in the supplementary slides.

*IoT stands for Internet of Things

**Our E-commerce segment revenues include revenues of Yandex.Market through April 27, 2018. As a result of deconsolidation, we record our share of Yandex.Market’s financial results within the loss/(income) from equity method investments line in the consolidated statements of income.

  • Search and Portal segment offers a broad range of services in Russia, Belarus, Kazakhstan, Uzbekistan and Turkey, other than those described below. Since Q1 2019 our Search and Portal segment also includes Yandex.Health, previously reported in Other Bets and Experiments;
  • E-commerce segment includes Yandex.Market for the period prior to April 27, 2018, the date of the completion of the Yandex.Market joint venture between Yandex and Sberbank;
  • Taxi segment includes our Taxi business (including Yandex.Taxi and Uber in Russia and neighboring countries), Food Delivery business (including Yandex.EATs, UberEATs and Yandex.Chef, a meal kit subscription service) and Self-Driving Cars division;
  • Classifieds segment includes Auto.ru, Yandex.Realty and Yandex.Jobs;
  • Media Services segment includes KinoPoisk, Yandex.Music, Yandex.Afisha, Yandex.TV program, our production center Yandex.Studio and our subscription service Yandex.Plus;
  • Other Bets and Experiments category includes Zen, Yandex.Cloud, Yandex.Drive, Geolocation Services and Yandex.Education. Geolocation Services and Yandex.Education previously were a part of our Search and Portal segment;
  • Eliminations in our revenues represent the elimination of transactions between the reportable segments, primarily related to advertising. Eliminations related to our adjusted EBITDA mainly reflect reallocation of a portion of Search and Portal D&A expenses related to leasehold improvements to office rent expenses of our business unites.

The full version of the press release is available at: https://ir.yandex/news-releases/news-release-details/yandex-announces-third-quarter-2019-financial-results

Contacts:

Investor Relations
Katya Zhukova
Phone: +7 495 974-35-38
E-mail: askIR@yandex-team.ru

Media Relations
Ilya Grabovskiy
Phone: +7 495 739-70-00
E-mail: pr@yandex-team.ru