Yandex N.V.
Q1 2021 Earnings Call Transcript

Published: 28 Apr 2021

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the First Quarter 2021 Financial Results Call. I must advise you this conference is being recorded today, Wednesday, the 28th of April, 2021. We would now like to hand the call over to your first speaker today, Yulia Gerasimova, Investor Relations Director. Please go ahead.

[Yulia Gerasimova:]

Hello, everyone and welcome to Yandex First Quarter 2021 Earnings Call. You can find our earnings release and supplementary slides on our IR website. The key speakers on our call today are Tigran Khudaverdyan, our Deputy Chief Executive Officer; Daniil Shuleyko, the Head of E-commerce and Business Group; Greg Abovsky, our Chief Operating and Chief Financial Officer and Vadim Marchuk our VP of Corporate Development. Yevgeny Senderov, Chief Financial Officer of Yandex.Taxi will be available on the Q&A session.

[Tigran Khudaverdyan:]

Thank you, Yulia, and thanks to everyone for joining our call today. We are very encouraged by having started the year with a solid recovery in our advertising and the ride-hailing businesses, as well as continued strong momentum in other verticals such as Media Services, food delivery and logistics. We have also made significant progress in executing against our strategic road map in e-commerce. Since early this year the business has been run by Daniil Shuleyko, who has a great track record in those developing market-leading services as well as improving their profitability within Taxi Group and we are already seeing great results. Total e-commerce GMV including Yandex.Market to marketplace, Lavka and gross related GMV of it grew 186% year-on-year in Q1. This growth has been accelerating from month-to-month with the highest year-on-year growth rate of 199% in March, despite a high base effect from pandemic-related growth in March 2020. Yandex.Market GMV on a stand-alone basis has also accelerated to 126% in Q1 from 71% in Q4 2020 on the back of a significant expansion in assortment and logistic infrastructure. Solid results from targeted investments in performance marketing campaign around the holiday weekend in February and March, as well as improving the product for our consumers and merchants. We are now even more confident in our ability to deliver on our full year guidance to increase total e-commerce GMV by 2.5 times. Let me give you an update on another important initiative Yandex.Plus. The total number of subscribers kept growing above 100% year-on-year and now over $9 million. Yandex services continue to benefit from better integration with Yandex.Plus and we see that our Plus subscribers already generate a material part of GMV for market Taxi, Eats and Lavka. The strength of Yandex.Plus as especially visible in the Yandex market, where about half of the GMV came from Plus members in March, up from 24% in Q4 2020. Yandex.Plus subscribers form a loyal customer base, who spend more and transact more often in our services, if compared to our non-Plus customers.

[Daniil Shuleyko:]

Thank you, Tigran and hello, everyone. Today I will start with the results of the Taxi Group, and particularly, providing more details on the performance of our $6.8 billion. This is 69% year-over-year increase in ruble terms and up 32% from RUB 380 billion December 2019. As of to date we see significant acceleration of year-over-year growth rate as we compare with a very low base. Rates are up almost 3x and GMV is 3.6x higher than the year ago. On 2-year CAGR basis rates in GMV are growing in the range of high service low project in April. Moscow which had a major market growth mid to high teens on the 2-year CAGR basis investment mid to high 20s in June. Now to FoodTech. In Q1 Yandex demonstrated further acceleration in growth rate orders grew 131% year-over-year. Beru grew 147%. This compared to 118% growth in August and 137% growth in GMV Q4. Obviously the UTP grocery business contributed to the growth. However food delivery vertical continued to grow triple digits on a year-on-year basis and did not slow down versus Go for. In Q1 we focused on setting our position on the food delivery market and attracting new customers. The eliminated delivery fee for the short for new users launches program in significantly lowered order confirmation ratio and a property tax. In Q1 we continued to invest in the city grocery vertical. As a result of our efforts the share of gross GMV growth to mid-teens of total GMV growth in Moscow reached 20%. Lavka continues to grow sequentially and this growth is driven by the frequency of usage resident growth in the number of order. In March Lavka orders increased by around 30% compared to December. At the end of Q1, Lavka at 280 stores add just Yandex stores from December. Logistics demonstrated solid growth rate as well. In Q1, the number of deliveries reached 13 million. This is more than half of the entire 2020 amount. We continued to increase our partner base. In March, we had over 16,000 active B2B businesses are amongst our top accounts. And now to e-com. As Tigran mentioned earlier, we have delivered a very strong growth of our total E-Commerce GMV, include which has reached RUB 25 billion in Q1, 45% of the entire full year 2020. GV of our FMCG vertical included GV of our e-grocery and Lavka, reached RUB 11.5 billion.

[Greg Abovsky:]

As many of you know after more than eight amazing years at Yandex, I've decided to take on a new challenge. While I'll miss Yandex greatly, I know I'm leaving things in excellent hands with many exciting prospects ahead.

[Vadim Marchuk:]

Thank you, Greg, and hello, everyone. I am pleased that, we have delivered yet another quarter of robust results with solid growth and execution across multiple verticals. Our core and most cash-generative businesses, advertising and ride-hailing, accelerate on the back of the team's efforts supported by the post-pandemic recovery of the economy, and social activity. Most of the other segments have demonstrated strong performance as well including e-commerce, FoodTech, Media Services Zen and Cloud. We see that the investments we are making into these businesses are already delivering results and improving our market position. We are confident that our capital allocation strategy will help us to unlock their full strategic potential in the years to come. During Q1, we made a few changes to our segment reporting, to enhance our disclosure and further improve the transparency of our results. We have included the Geo advertising business into our Search and Portal segment, and at the same time moved devices to other business units and initiatives, a segment which previously was referred to as other best and experience. We believe the new title is a better reflection of the businesses in this setting. The changes were applied retrospectively to Q1 2020. All my further comments will be based on this new structure. Additionally, we have disclosed GV figures for Yandex.Market and total e-commerce and provided a detailed breakdown of Yandex.Market revenues. We will continue working on further improvements to our disclosure by segment. Now, let me walk you through the Q1 performance across our business units. Search and Portal, we are very encouraged by the Search and Portal revenue growth, which significantly accelerated from the previous quarter by nine percentage points to a solid 15% year-over-year from 6% in Q4 2020.

[Operator:]

Thank you. And as a reminder, only one question and one follow-up question is allowed for participants asking questions. We will now pause for just one moment. Okay. So we will now take our first question from Slava Degtyarev from Goldman Sachs. Please go ahead.

[Slava Degtyarev:]

Yes. Thank you very much for the call. My question is on the ride-hailing margins, which are continuously improving. Would you highlight any factor that can reverse the trends in the medium term? And does it make sense to expect further margin expansion with the ongoing increase in ride and potentially improving the driver supply conditions? And if you can also comment how the food delivery margins are progressing recently and the medium-term outlook? And I will have a follow-up then.

[Yevgeny Senderov:]

Hey, Slava. How are you? It's Yevgeny. So on ride hailing, we had a great first quarter. Daniil already mentioned some top line numbers in his remarks. We had really strong GMV growth and as he highlighted, some of it was driven by one-time factors, such as unusually cold and snowy winter, even for Russia, in January and February. Persistent driver undersupply and also vehicle undersupply, which hopefully is a temporary issue in the medium term. So if you talk about EBITDA, ride-hailing grew almost 200% year-over-year and 86% sequentially. Again on the back of GMV growth, adjusted EBITDA margin was extremely strong. Adjusted EBITDA on pre-overhead basis was 7% of GMV in the first quarter. And really -- again, GMV, but also taking sort of -- utilizing the cost efficiency discipline that was put in throughout 2020 and getting the benefit of those measures, again, in the first quarter. I'm not going to promise you that we're going to deliver the same margin every quarter in ride-hailing, as we see in the first quarter. But in the long term, I think, margins of the ride-hailing business can reach Search and Portal levels. But if you look for 2021, with all things being equal, we don't expect a significant increase in our net take rate, because we do care about our drivers and our partners, as Daniil already mentioned, the growth in numbers that they're receiving in his remarks. We think, in 2021, ride-hailing margins are still going to expand versus 2020, all things being equal, of course. As far as Eats margins, well, we did have the same factor that cold and snowy winter makes it hard to hire couriers. So we had an increase in CPO in our business. We are also investing significantly in something we believe in very strong and this is 3P growth delivery. As CPO there is currently higher than our restaurant delivery business, but we think it's sort of -- that should improve as the density of orders improves and we improve our technology and approach, as we did in the restaurant delivery business. On absolute basis, we're probably going to see higher -- again, at this point, we're probably going to see higher absolute number in terms of EBITDA loss in 2021 versus 2020, but in margins it's going to be roughly the same. And that accounts for the significant investment in grocery delivery.

[Slava Degtyarev:]

Thanks. And my second question would be on the e-commerce GMV. So it -- overall it's trending above the full year expectation of 150% growth. But the non-grocery part of Yandex.Market is a bit lagging. Where do you see the medium-term mix between the two businesses Yandex.Market and the growth rate initiatives? And maybe the relative growth rates this year?

[Vadim Marchuk:]

Slava, Hi, this is Vadim speaking. Look, we -- as we guided last quarter, we expect the overall 2.5 times growth for the total e-commerce GV. And we do expect to see the kind of the similar breakdown between the two categories, broadly speaking. And so far what we're seeing, we're tracking quite well with those numbers and with that guidance.

[Slava Degtyarev:]

Okay. Thank you very much.

[Operator:]

We will now take our next question from Cesar Tiron from Bank of America. Please go ahead.

[Cesar Tiron:]

Yes. Hi. Thanks for the call and the opportunity to ask questions. So just two very quick ones, I guess, the one on Taxi I guess, and specifically ride-hailing is the -- do you think the GMV going ahead of rides is sustainable, or was it just a kind of just a Q1 impact on the -- because of the circuit pricing, or do you think that's sustainable? And then, the second one would be on the, search and portal. Could you please make any comments on the – obviously, you have very easy comps in Q2. So can you please make any comments on the past couple of weeks, how that business was growing on a year-on-year basis? Thank you so much.

[Yevgeny Senderov:]

Hi, Cesar, it's Yevgeny again. Let me take the first of your questions. Yeah, we already mentioned sort of the onetime factors, but an interesting thing is for example we saw in cross -- on a growth in non-economy tariffs as part of our business. I think that will continue. Some -- big part of our business is still relatively depressed to where it was before pre-pandemic. The airport rights, the B2B business has continued to grow. But we do not like, for GMV to grow well ahead of trips. So we believe in balanced growth. And we will invest in the quality of the service and driver acquisition, as we prefer that balanced growth. So for the year, our expectation would be that, GMV would go trips would grow 40% on GV about the same maybe slightly less, also affected by that our regions are going to grow faster than Moscow and a slight difference, at least 40% in trips growth.

[Vadim Marchuk:]

And Cesar, hi, this is Vadim speaking. Let me take the second question. So look, as we said in Q1, we grew by 15% quarter-over-quarter, what we're seeing in April and what you do need to keep in mind that, April last year in Russia and especially for us was probably particularly the most, weakest month. So we're definitely seeing a very material acceleration, compared to April of last year, because again the base was very low. As such what would -- I would say it doesn't really make sense to talk about April month-to-date because it's not representative in terms of what to expect for Q2. We do focus on two-year stack, which is improving. And we expect it to accelerate further in the coming quarters. And this is one of the reasons why we are comfortable enough to increase our expectations for Search and Portal revenue guidance from mid-teens to high-teens. And the upgrade is based on the better than expected performance of Search and other Yandex properties and as we see a broad-based recovery across many sectors.

[Cesar Tiron:]

Thanks. Very helpful. Just to confirm, so you basically are expecting a reacceleration of Search and Portal on a -- if you look at growth on a two-year basis right in the next quarters?

[Vadim Marchuk:]

Yes that is correct.

[Cesar Tiron:]

Thank you so much.

[Operator:]

We will now take our next question from Vladimir Bespalov from VTB Capital. Please go ahead.

[Vladimir Bespalov:]

Hello. Thank you for taking my questions. My first question would be on fintech. You haven't commented about this area. But curiously you have mentioned a lot of times that is one of the key focus. Maybe could you update us where do you stand now? And what should we expect from this? And the second question will be on your net profit and adjusted net profit. As far as I understand this was pressured by some nondeductible expenses. Maybe you could provide more color on that, and how should we look at this going forward for this year? And also how the change of the tax treaty between Russia and the Netherlands will affect your bottom line and your taxes and whether there will be a one-off effect, whether it's going to be extended over a certain period of time from this or no effect at all? Thank you.

[Vadim Marchuk:]

Vladimir, hi, this is Vadim speaking, so let me take this one. So essentially three questions. Let me start with the first one, the fintech. Look, I mean, it's pretty much what we said before. It's the work-in-progress. We do believe -- we made a decision for ourselves that we will enter the financial services market. It is a rather competitive and crowded space in Russia. And we believe that investing more time to prepare is the proper way to proceed and it will pay off in the future. We are working on obtaining all the relevant and required licenses. And the only thing frankly what I can say at this moment just stay tuned for more updates that will be coming shortly. Moving on to the adjusted net income. The impact on adjusted net income that you see in our reported results is essentially a combination of a couple of factors. Search and Portal, ride-hailing and Classifieds performed better than -- they actually increased their profitability in absolute terms. However, that was offset by our investments in our other businesses. Such as, for example, whether it's going to be FoodTech, whether it's immediate services and Yandex.Market in particular. So this is the overall mix of the impact as well. Now moving to the third question related to the double taxation treaty between Netherlands and Russia. So look first and foremost, the situation is still rather unclear and uncertain at this stage. What we do understand is that the likelihood of initiation of the tax agreement with Netherlands is relatively high. However, we also do hope that the negative consequences of such development would be addressed at the legislative level in Russian federation. But in any case, what you do need to keep in mind is that, we have planned liquidity at the Dutch level as of now. Because this is where we keep our convertible debt proceeds and equity raise proceeds done in 2020. And on top of that, we do generate all our cash in Russia. And given the fact that we have quite a few highly rewarding and promising project to reinvest, our net income in Russia we do not expect to be upstreaming any cash in the kind of call it in the near future.

[Vladimir Bespalov:]

Okay. Thank you very much.

[Operator:]

We will now take our next question from Kirill Panarin from Renaissance Capital. Please go ahead.

[Kirill Panarin:]

Hello, everyone. Thanks for taking my questions. Firstly, on your investments at the Yandex.Market, you mentioned quite a lot of initiatives in Q1 including assortment expansion, lower commissions, fulfilment, delivery marketing, could you comment on which of these areas are more efficient in driving faster GMV growth? And so presumably will be the largest focus for you. And it would also be helpful if you shared your thoughts on the midterm growth and margin outlook for the price comparison business given the conversion of merchants to the marketplace? That's the first one. Thank you.

[Vadim Marchuk:]

Kirill. Hi, this is Vadim speaking. So let me take this one. Look, all the initiatives that we kind of mentioned and highlighted during our last call in February, namely the expansion of the -- our fulfillment and sortation center capacity, the expansion of the delivery capabilities including the last mile expansion of assortment, improving the take rates for our partners, for our merchants and improving the delivery accuracy. I mean, all of those things essentially view as equally important. Because at the end of the day what is important this overall experience of the platform both for the buyers and for the sellers. We do believe -- and as we measure our progress in our e-com initiative, we actually take stock in pretty much the same level of importance and allocate the same way to all of those initiatives. So overall, if you go one-by-one there, the expansion of our fulfillment and sortation centers actually increased from 100,000 square meters to 170,000 square meters. We also expanded our delivery capabilities and added one point 3000 pickup points and more than 1000 lockers. And I think we added approximately 1000 cargo, the small ones that actually do intra city deliveries the last mile deliveries. As Tigran mentioned in his opening remarks, we expanded our assortment quite significantly. We went from two million SKUs at the end of 2020 up to six million SKUs in April. And all of those pieces right, I mean, the kind of the build the overall experience again for the buyers and the sellers, when we think about the commission levels that we lowered in January or February of 2020. If you look at the overall experience for our sellers on our platform and it has to work in balance. Now moving to CPC. The CPC business will obviously be affected by the merchant transition to CPA model. You will see great results in -- from that transition on our marketplace side. That will potentially lead to somewhat slower growth in CPC revenues. And -- but overall we look at this as one whole experience in e-commerce for Yandex.

[Kirill Panarin:]

Great. Thanks a lot. And just a follow-up on Media Services, if I may. Can you share your thoughts on the sustainable long-term market structure in online videos? And how far do you think the market leaders are from breakeven? That's it for me. Thanks a lot.

[Vadim Marchuk:]

All right. So good question, right? And frankly, I mean, this is the question that we probably could spend the next 45 minutes, kind of, discussing and debating, which we don't have. So I think, it's -- to a certain extent it's a function of the market size, right? So Russia is sizable enough. You're looking at 140 million population overall. So it's definitely large enough to support in our thinking. And again, this is something that's kind of the future will tell us. But it's probably the market of two to three players. How far are we from getting to breakeven? Well it's -- frankly it's a function of a market share. How the market structure will actually will split between first, second and third player. And obviously, it could be -- I probably would speculate that assuming the first player gets a significant market share earlier that will get to breakeven faster compared to other players?

[Kirill Panarin:]

Great. Thanks a lot.

[Operator:]

We will now take our next question from Anna Kupriyanova from Gazprombank. Please go ahead.

[Anna Kupriyanova:]

Hi. Good afternoon. Thank you very much for presentation and opportunity to ask question. So my first question will be regarding software pre-installation or the gadgets. I understand it's too early to make a final conclusion or full picture how it goes on. But given it's already started maybe you can give us some understanding how we can assume impact over your online revenues and your market share in this segment? And my second question will be regarding Yandex.Market again. And a couple of them actually. The first one how do you see correlation between Yandex.Plus users and the Yandex.Market users if you can give some maybe share of the Yandex.Plus subscribers who are doing in Yandex.Market as a result of first quarter for example? And second question on the market will be regarding your change in e-commerce GMV and of first quarter versus end of the year, if you could give such number? Thank you.

[Vadim Marchuk:]

Anna, hi, this is Vadim speaking. So let me take it one by one and let's start with preinstallation. So look, so far, we see no impact. And overall it is likely to be rather limited at first, given that it applies to new devices only. And there is always a few months lag before a newly produced device would actually hit the shelves in the stores and people buy them and start using them. So there is a lag. As Tigran mentioned though again in his opening remarks, there is an opportunity to increase the actual usage of Yandex apps on iOS devices, as we believe the real customer preferences would imply higher market share for us. What we are also doing in addition to -- at the same time as the preinstallation is rolling out, we are making targeted investments to support distribution of our products on iOS devices. That should help us to gain access to a more affluent customer base and to improve monetization overall. Now, going to your second question, with respect to Yandex.Market and how you should think about Yandex.Plus users and their behavior in Yandex.Market. So look, what we see in Yandex.Market and frankly across some of our other services is that, the Yandex.Plus users are typically a higher frequency users and they do generate a higher average transactions. So, when we talk about specifically for Yandex.Market currently, somewhat I would say somewhat more than 50% of market GMV comes from Plus subscribers. And Plus subscribers generate on average more than 40% higher GMV and 50% higher frequency in transactions. What we also see that the Plus members show better retention and stronger cohort behavior. And then question number three, could you repeat it?

[Anna Kupriyanova:]

Thank you. My third question was, if you could give us some numbers regarding your GMV for e-commerce in first quarter of this year versus fourth quarter of last year. Maybe I missed somewhere, but I have the number for the full year 2020 and now I have first quarter versus first quarter. But I'm interested to understand dynamics versus fourth quarter of last year?

[Vadim Marchuk:]

Anna, we did not disclose the breakdown between the different GMVs in our e-commerce platform in the fourth quarter.

[Anna Kupriyanova:]

Understand. Okay. Thank you, very much again.

[Operator:]

It appears there are no further questions. Excuse me, one question is just coming. We will now take our next question from Alexei Cercacer from Prosperity. Please go ahead.

[Unidentified Analyst:]

Hello, gentlemen. Thank you very much for the alert, and for the call overall. Can you give us some update on your 2021 CapEx? How much do you plan to spend? And how does kind of headquarter also fits into the situation?

[Vadim Marchuk:]

Alexei, hi, This is Vadim speaking. Look there is no change to what we guided to previously.

[Unidentified Analyst:]

Okay. Thank you.

[Operator:]

We will now take our next question from Anna Kurbatova from Alfa-Bank. Please go ahead.

[Anna Kurbatova:]

Yes. Thank you very much. So basically my question was also with relation to CapEx but could I formulate in such a way? So there is no change from your earlier guidance in terms of CapEx, but could you maybe give some update on what do you expect in terms of works type of work like engineering, I don't know construction et cetera, to start or to continue during this year in relation to new HQ? Thank you.

[Vadim Marchuk:]

Hi, Anna, this is Vadim. Look so the way you should think about our CapEx the way we typically spend it it's two-third allocated to our infrastructure and servers. And another third is essentially allocated to our other businesses.

[Anna Kurbatova:]

Yes. Thank you. But I just wondered what works – you will be – what will be your progress in terms of HQ construction project construction this year. So are you still busy with the project documentation? Will you be like starting to destroy that old building on the Kosygina Street? Will you be able to start constructing the new building? So what's going on there? Thank you.

[Vadim Marchuk:]

Got it. Anna, thank you for the clarification. So look where we stand with the – our kind of new campus construction. We actually demolished the old building, I think towards the end of last year. We started construction of the foundation. And all the – clearly, all the paper work and permits already received and in place. And the construction is fully ongoing. So hopefully, within a reasonable period of time, we all can celebrate do the housewarming in our new headquarters.

[Anna Kurbatova:]

Okay. Very helpful. Thank you very much. Thank you.

[Operator:]

It appears there are no further questions at this time. I will pass the call back over to Yulia Gerasimova for any addition or closing remarks.

[Yulia Gerasimova:]

Well, thank you very much for all your questions. As usual, if there's any follow-ups please contact IR team. Thank you and have a good day.

[Operator:]

Thank you very much. That does conclude the conference today. Thank you for participating. You may now all disconnect.