Part I [Key Information](index=4&type=section&id=Item%203.%20Key%20Information) This section presents selected consolidated financial data for the five years ended December 31, 2018, and details comprehensive risk factors across global, economic, and business operations [Selected Consolidated Financial and Statistical Data](index=4&type=section&id=A.%20Selected%20Consolidated%20Financial%20and%20Statistical%20Data) Selected financial data for 2014-2018 shows consistent revenue growth to **RUB 127.7 billion** in 2018, with net income surging to **RUB 47.6 billion** due to a one-time gain Selected Consolidated Financial Data (2016-2018) | Financial Metric | 2016 (RUB millions) | 2017 (RUB millions) | 2018 (RUB millions) | | :--- | :--- | :--- | :--- | | **Revenues** | 75,925 | 94,054 | 127,657 | | **Income from operations** | 12,847 | 13,036 | 20,861 | | **Net income attributable to Yandex N.V.** | 6,798 | 8,776 | 47,587 | | **Total assets** | 114,108 | 130,544 | 241,698 | | **Total shareholders' equity** | 77,086 | 82,826 | 202,785 | - The significant increase in net income in 2018 was primarily driven by a **RUB 28.2 billion** gain from the deconsolidation of the Yandex.Market joint venture[12](index=12&type=chunk) - Foreign exchange fluctuations, particularly the RUB/USD exchange rate, significantly impact 'Other income/(loss), net'; in 2018, a **RUB 3.2 billion** foreign exchange gain was recorded due to the ruble's depreciation, contrasting with a **RUB 1.8 billion** loss in 2017 from the ruble's appreciation[13](index=13&type=chunk) [Risk Factors](index=7&type=section&id=B.%20Risk%20Factors) The company faces numerous risks including global scrutiny, volatile Russian economic and political environments, international sanctions, and intense competition - The company operates in an increasingly uncertain environment due to heightened scrutiny of technology companies' business practices, market presence, and strategic direction globally[19](index=19&type=chunk)[21](index=21&type=chunk) - Emerging markets like Russia are subject to significant financial, economic, legal, and political risks, including currency volatility and the impact of international sanctions, which could adversely affect business operations[22](index=22&type=chunk)[23](index=23&type=chunk) - Sanctions imposed by the U.S. and E.U. related to the conflict in Ukraine have adversely affected the broader Russian economy; Yandex's subsidiaries have been directly sanctioned in Ukraine since May 2017, blocking user access to its services[25](index=25&type=chunk)[27](index=27&type=chunk)[28](index=28&type=chunk) - The company faces strong competition from major global and Russian companies, principally Google and Mail.ru, in search, online advertising, and other services[47](index=47&type=chunk)[49](index=49&type=chunk) - Several business units, including Yandex.Taxi (with Uber) and Yandex.Market/Yandex.Money (with Sberbank), operate as joint ventures, which introduces risks related to shared control, integration challenges, and potential partner failures[69](index=69&type=chunk)[70](index=70&type=chunk) - The concentration of voting power with founders, directors, and senior management (**54.92%** as of Feb 15, 2019) limits the influence of public shareholders on corporate matters[178](index=178&type=chunk)[179](index=179&type=chunk) [Information on the Company](index=60&type=section&id=Item%204.%20Information%20on%20the%20Company) This section details Yandex's business structure, operations, and primary segments, including key products, monetization strategies, competition, and the regulatory environment [Business Overview](index=60&type=section&id=Business%20Overview) Yandex is a technology company building intelligent products powered by machine learning, with business organized into six main operating segments - Yandex operates Russia's most popular search engine and provides a range of other services including on-demand transportation, navigation, classifieds, and entertainment[202](index=202&type=chunk) - The company's business is structured into six main segments: Search and Portal, Taxi, E-commerce, Classifieds, Media Services, and Other Bets and Experiments[207](index=207&type=chunk) [Search and Portal](index=64&type=section&id=Search%20and%20Portal) The core Search and Portal segment offers search and information services, with Yandex Search holding a **56.3%** market share in Russia in 2018, monetized primarily through advertising Russian Search Market Share (2018) | Platform | Yandex Search Share (%) | Google Search Share (%) | | :--- | :--- | :--- | | Overall | 56.3% | 40.0% | | Desktop | 67.1% | - | | Mobile | 46.5% | - | - The percentage of total search traffic from mobile devices grew from approximately **39%** in Q4 2017 to **49%** in Q4 2018, with mobile search revenues increasing from **31%** to **41%** of total search revenues in the same period[211](index=211&type=chunk) - Alice, the company's conversational intelligent assistant, launched in October 2017, has expanded to over **50,000** skills and is integrated into various Yandex products and third-party platforms[216](index=216&type=chunk) - Monetization is primarily through Yandex.Direct, an auction-based advertising platform for performance-based ads, and the Yandex Advertising Network, which extends ad reach to thousands of third-party websites[227](index=227&type=chunk)[229](index=229&type=chunk) [Taxi](index=71&type=section&id=Taxi) The Taxi segment, including ride-sharing, food delivery, and self-driving cars, expanded significantly in 2018, notably through a joint venture with Uber in Russia and neighboring countries - On February 7, 2018, Yandex.Taxi and Uber combined their ride-sharing businesses in Russia and neighboring countries, with the combined company approximately **59.3%** owned by Yandex and **36.9%** by Uber[241](index=241&type=chunk) - The Taxi service expanded its operations to **16** countries by the end of 2018, launching in new markets including Finland, Israel, and Ivory Coast under the brand Yango[242](index=242&type=chunk) - The food delivery service, Yandex.EATs, grew rapidly, expanding to over a dozen cities in Russia and delivering over **1 million** orders in December 2018[243](index=243&type=chunk) - The self-driving car program received a license to operate in Nevada, USA, and began testing on public roads in Tel Aviv, Israel, in late 2018[247](index=247&type=chunk) [E-commerce](index=73&type=section&id=E-commerce) The E-commerce segment, centered on Yandex.Market, formed a joint venture with Sberbank in April 2018, launching new domestic and cross-border marketplaces - In April 2018, Yandex and Sberbank formed a joint venture based on Yandex.Market, with each partner holding an equal stake; Sberbank invested **RUB 30 billion** (approx. **$500 million**)[249](index=249&type=chunk) - Following the JV formation, Yandex deconsolidated Yandex.Market and now records its share of the financial results under the equity method of accounting[250](index=250&type=chunk) - The joint venture launched a domestic marketplace named 'Beru' in beta in May 2018 and a cross-border marketplace 'Bringly' in beta in November 2018[250](index=250&type=chunk)[251](index=251&type=chunk) [Classifieds](index=73&type=section&id=Classifieds) The Classifieds segment includes Auto.ru, Yandex.Realty, and Yandex.Jobs, with Auto.ru holding a leading position in Moscow and St. Petersburg for car sales - The Classifieds segment includes Auto.ru (vehicles), Yandex.Realty (real estate), and Yandex.Jobs (employment)[252](index=252&type=chunk) - Auto.ru holds a leading position in Moscow and St. Petersburg, generating **76%** and **66%** of all calls from auto classifieds to dealers in these cities, respectively, in December 2018[255](index=255&type=chunk) [Media Services](index=75&type=section&id=Media%20Services) The Media Services segment offers entertainment services like Yandex.Music and KinoPoisk, with the Yandex.Plus subscription bundling benefits across the Yandex ecosystem - Media Services encompass Yandex.Music, KinoPoisk, Yandex.Afisha, and Yandex.TV Program, with a combined monthly audience of over **50 million** people[258](index=258&type=chunk) - Yandex.Plus, a subscription service launched in May 2018, provides a bundle of services including unlimited music, ad-free movies on KinoPoisk, and discounts for other Yandex services like Taxi and Drive[262](index=262&type=chunk) [Other Bets and Experiments](index=77&type=section&id=Other%20Bets%20and%20Experiments) This category includes developing services and new business models such as Zen, Yandex.Cloud, Yandex.Drive (a market leader in car-sharing), and various Geolocation Services - Yandex.Cloud, a public cloud platform, launched in September 2018, offering infrastructure and AI-based services to businesses[267](index=267&type=chunk) - Yandex.Drive, a car-sharing service launched in February 2018, operates over **7,500** cars in Moscow and **850** in St. Petersburg, making it the leading car-sharing network in Russia[269](index=269&type=chunk) - Geolocation Services include Yandex.Maps, Yandex.Navigator, and Yandex.Auto, an in-car infotainment system being integrated with various car manufacturers[271](index=271&type=chunk)[274](index=274&type=chunk) [Competition](index=83&type=section&id=Competition) Yandex faces significant competition across its businesses, primarily from Google and Mail.ru Group in search and advertising, and various players in vertical markets Russian Search Market Share by Traffic (2016-2018) | Company | 2016 (%) | 2017 (%) | 2018 (%) | | :--- | :--- | :--- | :--- | | Yandex | 56.0% | 55.1% | 56.3% | | Google | 37.1% | 39.6% | 40.0% | | Mail.ru | 4.1% | 3.4% | 2.2% | - The company's primary competitor in search and online advertising is Google; it also competes with Mail.ru Group, particularly for advertising budgets directed towards social networks[285](index=285&type=chunk)[286](index=286&type=chunk) - In vertical markets, Yandex.Taxi competes with Vezet, Citymobil, and Gett; Yandex.EATs competes with Delivery Club (owned by Mail.ru); and Classifieds services compete with Avito[290](index=290&type=chunk) [Government Regulation](index=89&type=section&id=Government%20Regulation) The company is subject to complex and evolving Russian regulations, including laws on advertising, data protection requiring local storage, and mass media ownership limits - The company is subject to extensive and evolving regulations in Russia, including laws on advertising, data protection, intellectual property, and mass media[307](index=307&type=chunk) - Russian data protection laws require companies to store all personal data of Russian users in databases located within Russia and mandate that "organizers of information distribution" retain user data for a period and provide it to authorities upon request[337](index=337&type=chunk)[338](index=338&type=chunk) - Russian law limits non-Russian ownership of mass media to **20%**; if Yandex's services were required to register as mass media, it would materially impact the company's ownership structure[331](index=331&type=chunk) [Operating and Financial Review and Prospects](index=99&type=section&id=Item%205.%20Operating%20and%20Financial%20Review%20and%20Prospects) This section provides management's discussion and analysis of financial performance, detailing revenue growth drivers, operating expense trends, liquidity, capital resources, cash flows, and critical accounting policies [Results of Operations](index=110&type=section&id=Results%20of%20Operations) In 2018, total revenues grew **36%** to **RUB 127.7 billion**, driven by online advertising and the Taxi segment, with net income surging to **RUB 45.9 billion** due to a non-taxable gain Revenues by Source (2017 vs 2018) | Revenue Source | 2017 (RUB millions) | 2018 (RUB millions) | YoY Growth | | :--- | :--- | :--- | :--- | | Total online advertising | 87,400 | 102,737 | 17.5% | | - Yandex websites | 65,149 | 78,696 | 20.8% | | - Yandex ad network | 22,251 | 24,041 | 8.0% | | Taxi segment | 4,891 | 19,213 | 292.8% | | Other revenues | 1,763 | 5,707 | 223.7% | | **Total revenues** | **94,054** | **127,657** | **35.7%** | - The growth in online advertising revenue was driven by a **10%** increase in paid clicks and a **7%** increase in average cost-per-click (CPC) in 2018 compared to 2017[385](index=385&type=chunk) - Cost of revenues increased by **49.9%** in 2018, primarily due to a **RUB 4.4 billion** increase in Taxi-related costs and a **RUB 3.2 billion** increase in traffic acquisition costs (TAC)[400](index=400&type=chunk) - The effective tax rate decreased from **36.3%** in 2017 to **15.8%** in 2018, primarily due to the non-taxable gain from the Yandex.Market deconsolidation[433](index=433&type=chunk)[434](index=434&type=chunk) [Liquidity and Capital Resources](index=127&type=section&id=Liquidity%20and%20Capital%20Resources) As of December 31, 2018, the company held **RUB 68.8 billion** in cash, with operating cash flow at **RUB 28.2 billion**, and significant capital expenditures and debt repayments impacting financing activities Cash Flow Summary (2017-2018) | Cash Flow Activity | 2017 (RUB millions) | 2018 (RUB millions) | | :--- | :--- | :--- | | Net cash provided by operating activities | 23,772 | 28,212 | | Net cash (used in)/provided by investing activities | (7,788) | 25,959 | | Net cash used in financing activities | (587) | (32,804) | - Capital expenditures increased significantly from **RUB 12.4 billion** in 2017 to **RUB 28.3 billion** in 2018, which included **RUB 9.7 billion** for the acquisition of a property site for a new Moscow headquarters[366](index=366&type=chunk)[458](index=458&type=chunk) - In December 2018, the company's **1.125%** convertible senior notes matured, and the remaining outstanding principal of **$321.3 million** was repaid in full[447](index=447&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=137&type=section&id=Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks are foreign currency exchange risk, mainly from U.S. dollar-denominated assets and expenses, and interest rate risk, which was eliminated with the repayment of convertible notes - The company is exposed to foreign currency risk as its Russian subsidiaries hold U.S. dollar-denominated cash and have U.S. dollar-denominated expenses, such as rent for its Moscow headquarters and capital expenditures for imported equipment[476](index=476&type=chunk)[477](index=477&type=chunk) - A hypothetical **15%** strengthening/weakening of the U.S. dollar against the ruble as of December 31, 2018, would have resulted in a foreign exchange gain/loss of **RUB 2.0 billion**[476](index=476&type=chunk) - Interest rate risk related to the company's convertible notes was eliminated as the notes were fully repaid upon maturity in December 2018[484](index=484&type=chunk) [Directors, Senior Management and Employees](index=76&type=section&id=Item%206.%20Directors,%20Senior%20Management%20and%20Employees) This section details the company's leadership, including executive officers and board members, compensation, corporate governance structures, employee equity plans, and workforce headcount growth - The board consists of one executive director, Arkady Volozh (CEO), and seven non-executive directors, including Chairman John Boynton[487](index=487&type=chunk) Employee Headcount by Function (2017-2018) | Function | 2017 | 2018 | | :--- | :--- | :--- | | Product development | 4,290 | 4,582 | | Sales, general and administration | 2,716 | 3,712 | | Cost of sales | 439 | 473 | | **Total** | **7,445** | **8,767** | - The company grants equity awards under its 2016 Equity Incentive Plan, which allows for awards in the parent company (Yandex N.V.) or in specific business units like Taxi and Classifieds[513](index=513&type=chunk)[514](index=514&type=chunk) [Major Shareholders and Related Party Transactions](index=82&type=section&id=Item%207.%20Major%20Shareholders%20and%20Related%20Party%20Transactions) This section details the company's ownership structure, including founder voting power, and significant related-party transactions, particularly with Sberbank as a joint venture partner Major Shareholder Voting Power (as of Feb 15, 2019) | Shareholder | Class A Shares (%) | Class B Shares (%) | Total Voting Power (%) | | :--- | :--- | :--- | :--- | | Arkady Volozh | <1% | 85.03% | 48.41% | | Vladimir Ivanov | 3.19% | 8.76% | 6.36% | | All directors & senior management (group) | 0.46% | 85.03% | 48.56% | - The company has a dual-class share structure where Class A shares have one vote and Class B shares have ten votes, concentrating significant voting power with holders of Class B shares[526](index=526&type=chunk) - Sberbank holds a priority share, giving it veto power over the accumulation of a **25%** or greater stake by any single party and over the sale of substantially all company assets[546](index=546&type=chunk) - The company has significant joint ventures with Sberbank for its Yandex.Money and Yandex.Market businesses[550](index=550&type=chunk)[552](index=552&type=chunk) [Financial Information](index=87&type=section&id=Item%208.%20Financial%20Information) This item directs the reader to the full audited consolidated financial statements and accompanying notes, which begin on page F-1 of the report - This item directs the reader to the full audited consolidated financial statements, which begin on page F-1 of the annual report[555](index=555&type=chunk) [The Listing](index=88&type=section&id=Item%209.%20The%20Listing) The company's Class A ordinary shares are listed on the NASDAQ Global Select Market and have a secondary listing on the Moscow Exchange (MOEX) - The company's Class A shares are listed on the NASDAQ Global Select Market (YNDX) and the Moscow Exchange (YNDX)[558](index=558&type=chunk) [Additional Information](index=88&type=section&id=Item%2010.%20Additional%20Information) This section provides supplementary information on articles of association, material contracts, exchange controls, and taxation implications for shareholders in the Netherlands and the United States - Material contracts include the joint venture agreements with Uber for Yandex.Taxi and with Sberbank for Yandex.Market, as well as a 2018 agreement for the purchase of a property site for a new Moscow headquarters[563](index=563&type=chunk)[566](index=566&type=chunk)[570](index=570&type=chunk) - Dividends paid on Class A shares are generally subject to a **15%** Dutch dividend withholding tax, though exemptions or refunds may be available for certain non-resident entities or U.S. holders qualifying under the U.S.-Netherlands tax treaty[578](index=578&type=chunk)[587](index=587&type=chunk) - For U.S. holders, the company believes it was not a Passive Foreign Investment Company (PFIC) for the 2018 tax year and does not expect to become one, but this status is determined annually and cannot be guaranteed[194](index=194&type=chunk)[610](index=610&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=98&type=section&id=Item%2011.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section refers to the market risk disclosures provided in 'Item 5. Operating and Financial Review and Prospects,' covering foreign currency exchange and interest rate risks - This item refers the reader to the market risk disclosures located within Item 5 of the report[614](index=614&type=chunk) Part II [Controls and Procedures](index=98&type=section&id=Item%2015.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2018, with an unqualified audit opinion from JSC KPMG - Management concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of December 31, 2018[615](index=615&type=chunk) - Based on an assessment using the COSO 2013 framework, management concluded that the company's internal control over financial reporting was effective as of December 31, 2018[617](index=617&type=chunk) - The independent auditor, JSC KPMG, provided an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2018[621](index=621&type=chunk) [Audit Committee Financial Expert](index=101&type=section&id=Item%2016A.%20Audit%20Committee%20Financial%20Expert) The board of directors has determined that Mr. Charles Ryan qualifies as an audit committee financial expert as defined in Item 16A of Form 20-F - The Board of Directors has identified Mr. Charles Ryan as the audit committee financial expert[629](index=629&type=chunk) [Principal Accountant Fees and Services](index=101&type=section&id=Item%2016C.%20Principal%20Accountant%20Fees%20and%20Services) This section details fees billed by the independent registered public accounting firm, JSC KPMG, and its predecessor, AO Deloitte & Touche, for audit and other services Principal Accountant Fees (JSC KPMG) | Fee Type | 2017 (RUB millions) | 2018 (RUB millions) | | :--- | :--- | :--- | | Audit Fees | 18.1 | 69.1 | | Tax Fees | 1.8 | — | | All Other Fees | 6.7 | 1.1 | | **Total Fees** | **26.6** | **70.2** | [Corporate Governance](index=102&type=section&id=Item%2016G.%20Corporate%20Governance) As a foreign private issuer, Yandex follows Dutch corporate governance practices, deviating from certain NASDAQ rules regarding shareholder meeting quorum and proxy statements - The company follows Dutch corporate governance practices instead of certain NASDAQ rules, particularly regarding quorum requirements for shareholder meetings and the provision of proxy statements[636](index=636&type=chunk) Part III [Financial Statements](index=110&type=section&id=Item%2018.%20Financial%20Statements) This section presents the company's audited consolidated financial statements for 2016-2018, prepared under U.S. GAAP, including balance sheets, income statements, cash flows, and comprehensive notes [Consolidated Balance Sheets](index=193&type=section&id=Consolidated%20Balance%20Sheets) Consolidated balance sheets show total assets increased from **RUB 130.5 billion** to **RUB 241.7 billion** by December 31, 2018, driven by goodwill and investments, while liabilities decreased due to debt repayment Consolidated Balance Sheet Highlights (as of Dec 31) | Metric | 2017 (RUB millions) | 2018 (RUB millions) | | :--- | :--- | :--- | | Cash and cash equivalents | 42,662 | 68,798 | | Goodwill | 9,328 | 52,662 | | **Total Assets** | **130,544** | **241,698** | | Convertible debt | 17,834 | — | | **Total Liabilities** | **37,897** | **25,878** | | **Total Shareholders' Equity** | **82,826** | **202,785** | [Consolidated Statements of Income](index=194&type=section&id=Consolidated%20Statements%20of%20Income) Consolidated income statements show strong revenue growth to **RUB 127.7 billion** in 2018, with net income attributable to Yandex N.V. dramatically increasing to **RUB 47.6 billion** due to a deconsolidation gain Consolidated Income Statement Highlights | Metric | 2016 (RUB millions) | 2017 (RUB millions) | 2018 (RUB millions) | | :--- | :--- | :--- | :--- | | Revenues | 75,925 | 94,054 | 127,657 | | Income from operations | 12,847 | 13,036 | 20,861 | | Effect of Yandex.Market deconsolidation | — | — | 28,244 | | Net income attributable to Yandex N.V. | 6,798 | 8,776 | 47,587 | | Diluted EPS (RUB) | 20.84 | 26.49 | 141.98 | [Consolidated Statements of Cash Flows](index=196&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Cash flow statements indicate net cash from operating activities increased to **RUB 28.2 billion** in 2018, with investing activities generating a net inflow, while financing activities saw a major outflow due to debt repayment and share repurchases Consolidated Cash Flow Highlights | Metric | 2016 (RUB millions) | 2017 (RUB millions) | 2018 (RUB millions) | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | 25,286 | 23,772 | 28,212 | | Net cash (used in)/provided by investing activities | (13,106) | (7,788) | 25,959 | | Net cash used in financing activities | (5,549) | (587) | (32,804) | [Notes to the Consolidated Financial Statements](index=198&type=section&id=Notes%20to%20the%20Consolidated%20Financial%20Statements) The notes provide detailed explanations of accounting policies and financial figures, covering business combinations, joint ventures, segment reporting, and the financial performance of each reportable segment - Note 4 details the business combination with Uber's regional business in February 2018, which resulted in the recognition of **RUB 42.0 billion** in goodwill and **RUB 7.3 billion** in intangible assets[756](index=756&type=chunk)[760](index=760&type=chunk)[761](index=761&type=chunk) - Note 4 also explains the formation of the Yandex.Market joint venture with Sberbank in April 2018, which led to the deconsolidation of Yandex.Market and the recognition of a **RUB 28.2 billion** gain[772](index=772&type=chunk) - Note 16 provides a breakdown of revenues and adjusted operating income by segment, highlighting that the Search and Portal segment generated an adjusted operating income of **RUB 38.5 billion** in 2018, while the Taxi segment had an adjusted operating loss of **RUB 4.5 billion**[932](index=932&type=chunk)

Yandex N.V. (NASDAQ:YNDX) Q4 2018 Results Earnings Conference Call February 15, 2019 8:00 AM ET Company Participants Katya Zhukova - Investor Relations Arkady Volozh - Chief Executive Officer Mikhail Parakhin - Chief Technology Officer, Head of Search and Portal Greg Abovsky - Chief Financial and Chief Operating Officer Tigran Khudaverdyan - Head of Taxi Business Conference Call Participants Lloyd Walmsley - Deutsche Bank Miriam Adisa - Morgan Stanley Slava Degtyarev - Goldman Sachs Cesar Tiron - Bank of ...