Yandex N.V. (NASDAQ:YNDX) Q2 2020 Earnings Conference Call July 28, 2020 8:00 AM ET

Company Participants

Yulia Gerasimova - Head of Investor Relations
Tigran Khudaverdyan - Deputy Chief Executive Officer
Daniil Shuleyko - Chief Executive Officer of Yandex.Taxi
Greg Abovsky - Chief Operating and Chief Financial Officer
Arkady Volozh - Founder and Chief Executive Officer
Vadim Marchuk - Vice President of Corporate Development
Yevgeny Senderov - Chief Financial Officer of Yandex, Taxi

Conference Call Participants

Cesar Tiron - Bank of America
Ulyana Lenvalskaya - UBS
Vyacheslav Degtyarev - Goldman Sachs
Vladimir Bespalov - VTB Capital
Miriam Adisa - Morgan Stanley
Sebastian Patulea - Jefferies
Lloyd Walmsley - Deutsche Bank
Anna Kupriyanova - Gazprombank
Maria Sukhanova - BCS
Anna Kurbatova - Alfa-Bank
Ildar Davletshin - Wood & Co.
Anna Kurbatova - Alfa-Bank

Operator

The 28^th of July, 2020. We'd 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 Second Quarter 2020 Earnings Call. We do think that our earnings released earlier today, we can find its copy on our IR website as well as on Newswire Services. On the call today, we have Tigran Khudaverdyan, our Deputy Chief Executive Officer; Daniil Shuleyko, our Chief Executive Officer of Yandex.Taxi; and Greg Abovsky, our Chief Operating and Chief Financial Officer.

Arkady Volozh, our Founder and Chief Executive Officer; Vadim Marchuk, our VP of Corporate Development; and Yevgeny Senderov, Chief Financial Officer of Yandex.Taxi will be available on the Q&A session.

The call will be recorded. The recording will be available on the IR website in a few hours, As usual, we prepared a few supplementary slides, which are currently available on the website. Now, I will quickly walk you through the Safe Harbor Statement.

The 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 the forward-looking statements.

As a result of various important factors, including the impact of the ongoing COVID-19 pandemic as well as those discussed in the risk factors section of our Annual Report on Form 20-F dated April, 2, 2020, 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 the 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 Tigran.

Tigran Khudaverdyan

Thank you, Yulia. And thanks to everyone for joining our call today. Despite the difficulties of the second quarter, we managed to mobilize the Company's resources in order to overcome the challenges while supporting our users, partners and employees.

In total, we allocated over 1.5 billion to various initiatives, including our Helping Hand program; our support fund for taxi drivers and couriers; advertising credits to small and medium businesses; as well as our education efforts.

The hard work of all our teams allowed us to minimize the negative impact on our financial performance. And Greg will share more details on these a bit later.

Today, we are focusing on supporting core businesses in the recovery phase, while also capitalizing on new opportunities. One of these opportunities was the launch of logistic services inside our Yandex.Taxi segment, which I believe will further expand the total addressable market for our mobility businesses.

Another important milestone for us in Q2 was the reorganization of our joint ventures with Sberbank. The transaction was closed last week. As a result, and it became the controlling shareholder in Yandex.Market while exiting the Yandex.Money joint venture.

We believe the full integration of e-commerce services into the Yandex ecosystem will unlock significant signatures in multiple areas. We are also excited about the termination of non-compete obligations in financial services, which will allow us to pursue new opportunities in the FinTech space.

Let me give you a brief overview of some of the key trends in Q2. Search and Portal segment performance in Q2 was clearly impacted by COVID related socialization restrictions, particularly in April.

However, our platform remains the destination of choice for our users, which is reflected in the strong growth of our search share, and in the number of the queries. In June, we reached a record 58.5% share on Android; growing 260 basis points for March and 600 bps from June 2019.

Our overall share grew to 59.6% in June up to 170 basis points from previous year. Over half of our Search and Portal revenue comes from mobile.

Strong search query growth continued throughout the quarter, up 29% year-on-year driven by both mobile and desktop traffic. After the peak in April on solid growth in May, we began to see a normalization of total queries growth in June and July on the back of easing lockdown measures.

At the same time, we saw recovering commercial queries, which is important for monetization. Yandex is constantly improving its advertising technologies and in Q2 we launched a fixed CPA model, which is a pay per action model, helping our ad clients to increase the effectiveness of their advertising placements.

We continue to be excited about them and the team keeps introducing new features and demonstrating strong audience growth and user engagement. In June, thence audience reached 16.8 billion daily active users.

An important milestone in Q2 was the full integration of them as the main feed in Yandex Search app on Android as a result of the time spent on them within our search app improved by 10%.

Another important milestone this quarter was the progress on integration of video into the feed. Currently, video accounts for a 15% of total time spent compared to a low single-digit a year ago.

Based on the trends we see month-to-date. We expect then annual revenue run rate to exceed 8 billion in July compared to 7.9 billion in March. In terms of year-over-year growth, we have not come back to pre-COVID dynamics although we are seeing continued improvement here.

Turning to Media Services. As we previously mentioned, the stay-at-home restrictions led to a solid inflow of new users onto our video platform. The total number of media services subscribers reached 4.5 million in June.

The retention rate of new trial subscribers, who joined KinoPoisk during March and April has been better than we anticipated. We are particularly pleased to see that the share of paid subscribers increased significantly compared to March.

Now, let me give you an update on the Yandex.Market. GMV of marketplace increased by 3.5 times in Q2, supported by wider assortment, higher number of orders, and strong ever check. Similar to other businesses which have benefited during the pandemic of the GMV dynamic for the marketplace has been normalizing in July and month-to-date growth is 2.6 times.

Now about 6000 partners sold their goods on our marketplace and the share of throughput sales in GMV reached 56% in Q2. The assortment expanded to over 1 million SKUs and we expect that it will reach at least 2 million goods by the end of the year.

In our price comparison business, the daily audience reached 4.5 million unique daily users in Q2 and the platform continues to demonstrate solid revenue performance in July.

Turning to Self-Driving. As of the end of June, we drove over 4 million miles in the autonomous mode, which puts us firmly among top three companies globally by total distance driven. Our fleet reached 130 self-driving cars and we expect to add 70 more by the end of the year within the framework of our cooperation with Hyundai Motor.

In Q2, we began commercial usage of Yandex.Rover, our delivery robot with Skolkovo being our first client. We believe there is a great potential for Rover's commercial deployment in FoodTech and e-commerce businesses.

Last but not the least, Education. In April and May of this year, over 2 million children were studying from home with our Yandex.School platform. The users watched our video classes more than 4 million times.

Practicum by Yandex, our online educational platform offering multiple IT career advancement programs launched six new courses and the platform's total bookings in Q2 increased by 1.6 times compared to Q1 and by 6.6 times versus Q2 over the last year.

Education remains an important area of focus for us and it's also central to a number of our corporate social responsibility initiatives. Although we see some continued uncertainty in the short-term, we are confident that we remain very well positioned to deliver a sustainable long-term growth.

With continuous improvements in our core services, the rapid development of new businesses, new FoodTech and logistics, the return of the e-commerce business to Yandex, and the possibility to seek new opportunities in financial services, our ecosystem is stronger than ever.

We believe that after the recent capital raise, we have ample financial flexibility to continue investing into all these projects, while maintaining our usual prudent approach to capital allocation.

And with this, I'm turning the mike over to the Daniil.

Daniil Shuleyko

Thank you Tigran, and hello everyone. Q2 was indeed very challenging, but I'm very pleased with what we were able to achieve during this quarter. The Quarter began with a significant decline in ride-hailing and we had to rapidly adjust with the new reality.

We focused on creating additional demand for our driver partners by connecting them to food delivery last-mile logistics service. This means that our driver supply allows us to quickly expand the coverage of our food and grocery delivery businesses and to provide restaurants with a wider delivery parameter.

While our users were able to order meals from their favorite restaurant, even if these restaurants are located far away from their homes. Because of pre-COVIDs, our restaurants and grocery delivery businesses utilize pedestrian or bike couriers.

Grocery delivery is now available to more than 20 million people in Moscow, Moscow region and Saint Petersburg and new region at work. We started to provide last-mile delivery options for large retail chains e-commerce and classified companies.

Now we offer 1000s of businesses of all sizes a last-mile delivery solution. Our ultimate goal is for companies to see that there is no operational or financial pressure now for them to support their own logistic service given the combination of our logistics, technology, and driver and fuel supply can deliver a low cost fast and a reliable delivery service.

The pandemic became an opportunity to further strengthen our business. Within a short period of time, we were able to make our this platform more flexible and thus allowing us to adjust quickly. We expanded Taximeter our driving special app to callers which allows them to take delivery orders.

This was previously available for drivers only. This led to an improvement in delivery service coverage and quality. Within our Helping Hand program while working on delivery COVID tests, we significantly fine-tuned our route optimization efficiency which were recently rolled out for most of deliveries and batching.

We rolled out our logistics services in 350 cities across 12 countries. And we launched our food delivery in 87 new cities were we can drive in and service by COVID. As a result, Eats is now available in 130 plus cities and 86 of them, we provide our own delivery. All this initiative allowed us to finish the quarter in excellent shape.

Total revenues were up 42% year-over-year driven by FoodTech B2B taxi and B2B logistics. Car-sharing was up 3% in revenues with B2B taxi and B2B logistics together up 49% year-over-year. Taxi and B2B however was down 7% year-over-year. Tax so down 6% year-over-year in total.

The first week was the week of March, so it is right after the official lockdown started. During this week, prices we're down 39% year-over-year. Less than two months later during the week of May 25^th, rate of returns, it was a positive year-over-year growth, while in June they grew in the mid-teens year-over-year.

As we see, it really was a reshaped recovery, JV didn't keep up its growth effect due to the decline in average check. But in July, we have been seen and continue to strengthen in unit trends. July month-to-date JV is single-digit above pre-COVID levels up 20% plus from year-over-year basis.

We see room for further recovery, airport tracks are still down approximately 75% from pre-COVID level. Many of our B2B customers are still working from home while our most active rider cohorts has not come back fully yet.

As far as I've seen in market share trends, we may still we see this some portion of share to our competitor in Moscow, this was because or it was the tariffs in effect. Our share in premium tariffs which were taken during the pandemic has historically been high.

So, this premium tariffs temporarily gone, economic tariffs grew as a percentage of the total and resulted in short-term redistribution of shares. But we strengthen our market position in May and even further in June.

Our competitors share is turned to the pre-COVID levels in the low teens in terms of the number of rates according to our action; obviously in terms of bookings, the share is lowest here.

So, this was a clear beneficiary of COVID, Yandex sees its orders doubled year-over-year. JV grew 2.3 times while GAAP earnings tripled. The number of restaurants exceeded 26,000 in June up 2.5 times versus last year.

We lowered our cost per order, thanks to an increase in order density as well as the fact that we implemented a new dispatch algorithm, optimized incentives, introduced reflows in couriers and we sold the shares self-employed couriers significantly increased.

July strengthening's continued to be encouraging. Deliveries have been growing in a very high double-digits year-over-year and JVs has been doubled. Lavka is growing rapidly. GAAP revenues net of incentives reached 2.3 billion, we have 175 ducts have opened as of the end of June.

However, our approach to grocery delivery is behind just Lavka. We partner with the retailers across a number of our businesses. Eats now delivering groceries from over 850 stores of Uzbek foods and food store is approximately 7.5000 SKUs in aggregate.

Our last-mile delivery services provides wide level of delivery services for many other retailer chain, including global Metro, Ashan, Gypsy and others. All-in-all, we are entering Q2 with a much more diversified portfolio of exciting businesses.

And what is also important, we are in a strong position from a cost efficiency perspective. In Q2, we got approximately 1.7 billion in fixed cost versus our recorded budget. As a result, pricing continued to be profitable and funded our new initiatives despite a significant decrease in demand on the life-saving fund.

With this, I'm turning the call over to Greg.

Greg Abovsky

Thank you, Daniil, and hello, everyone. As disclosed, our key financials in our press release. It's been a very challenging quarter but we're very pleased that we've managed to finish it with a positive adjusted net income and higher than expected adjusted EBITDA, despite the fact that we had a number of one-off expenses.

We had over 1.5 billion rubles spent in a variety of targeted COVID related initiatives including 408 million of expenses for personal protective equipment, our Helping Hand project, and the driver and courier support fund.

Our adjusted EBITDA also includes 177 million in advisory fees related to the recently announced transactions. Overall, the results exceeded our internal expectations.

The key drivers behind this better-than-expected profitability were rigorous cost control in particular optimization of personnel expenses, advertising and marketing costs as well as other overheads.

Improving new economics in certain businesses particularly in Yandex.Eats, and faster-than-expected revenue recovery in our ride-hailing, advertising, and classifieds businesses.

Now, let me focus on the performance and current trends across our business units. Search and Portal. Search and Portal revenue declined by 12.5% year-over-year on a reported basis and by 8.8% on an ex-TAC basis.

As we said previously, we've seen a sequential recovery in ex-TAC and revenue trends from a high-teen decline in April to a low double-digit decline in May to flat growth in June all in a year-over-year basis. The positive trend is continuing in July.

Our ex-TAC revenue is growing by mid single-digits year-over-year on a month-to-date basis. The performance was primarily driven by SMEs, which recovering faster than large enterprises. There's still a high level of uncertainty over the pace of further recovery given a limited visibility on the economic consequences of pandemic as well as the oil price shock.

We see the actual recovery in Search and Yandex websites compared to those of our partner network, which remains under pressure. We expect this trend to continue and the growth of Yandex Properties is likely to outperform that of our advertising network.

Sector wise, we see recovery in some of the areas that suffered the most during the pandemic, for example, auto, apparel, real-estate and even to a limited extent, travel. All these sectors are still in negative territory in terms of year-over-year growth, however the second derivative is positive in all of them.

Among these sectors demonstrating the highest recovery, our finance and insurance, as well as B2B. We continue to see strong growth in home and garden, consumer electronics and home appliances categories. Two sectors which benefit the most during the pandemic, IT and telecom as well as FMCG continue to perform well.

Although the growth rates are normalizing as the lockdown measures are easing. Overall, slightly more than half of all sector categories we track are demonstrating positive growth in July, while in April this was only a quarter.

Moving to Taxi. Taxi revenues increased by 42% year-on-year primarily driven by the strong growth of our FoodTech services, as well as our B2B business. The team had achieved impressive results in terms of adjusted EBITDA and here I particularly like to highlight the following.

We finished the quarter with an adjusted EBITDA of 253 million and a 2% margin. This number includes a 740 million loss in our Self-Driving business, as well as segment related COVID expenses which amounted 273 billion in Q2.

And it also compares to the adjusted EBITDA of 115 million at a 1% margin in Q1 of this year. The combined adjusted EBITDA of our ride-hailing and FoodTech businesses, i.e. excluding investments in self-driving was 993 million in Q2.

And was driven by solid profitability of our ride-hailing service as we were able to optimize portion of our costs almost immediately after the start of the lockdown, significantly improved losses in Eats which helped to offset increased investments in our grocery delivery business Yandex.Lavka on the back of strong demand for this service.

The adjusted EBITDA margin excluding Self-Driving amounted to 8%, up from 7.6% in Q1.

Turning to other businesses. Media Services again demonstrated very strong revenue growth of 94% year-on-year despite a much higher base from Q2 of last year and close to zero revenues from Odessa on the back of the COVID.

Subscription base revenues of Media Services grew by 164% year-on-year in Q2, an acceleration from the already strong 152% achieved in Q1. We continue to invest in improving content quality and growing our base of paid subscribers. Trends in July to-date are comparable to the Q2 dynamic.

Classifieds revenues decreased to 32% in Q2 primarily as a result of the auto dealerships being shut down from late March to early June and the dealer support mechanisms which we launched immediately after the shutdown.

We are encouraged by the rebound in revenue growth that we saw in June after the dealerships were allowed to reopen, which shows that we were able to monetize the deferred demand from April and May. The improvement is continued in July month-to-date with the revenue growth in the high teens.

Finally, onto other bets and experiments. Our revenues had declined by 18% year-over-year driven primarily by the decline in Yandex.Drive as car-sharing services were completely suspended in Moscow and Saint Petersburg for nearly two months between mid-April and mid-June.

Demand for car-sharing is now recovering, which drives an improvement in cars utilization as of now we have fully recovered to pre-COVID levels in terms of car utilization. The trends in revenue are even better supported primarily by the change of user's behavior post-pandemic. Consumers now rent a car for a longer period and an average order duration in Moscow is now 30% higher than in Q1.

Revenue growth in other businesses and the other bets and experiments line was positive. In absolute terms Geo and Zen were the key contributors to Q2 revenue. While the growth rates in both businesses have slowed down, we're now seeing an improvement on the back of increasing advertiser’s activity.

Despite making sure the revenue had taken by Yandex.Drive, we've managed to contain the losses for this business, which in absolute terms were actually better than in Q1 due to the optimization of our lease agreements and some other costs optimization.

Total losses of other bets and experiments and added 2.3 billion with Geo and Cloud contributing the most after Yandex.Drive.

Now, let me give you an update on the performance of Yandex.Market. In our Q2 results, we still accounted for Yandex.Market using the equity method. We will be consolidating the business of the Yandex.Market from July 23^rd when the Geo actually was closed.

Total revenues of Yandex.Market grew amounted to 7.2 billion, which implies year-over-year growth rates of 89%.

Revenue from the price comparison segment accelerated to 33% in Q2 compared to 27% in the previous quarter. The adjusted EBITDA loss in Q2 of Yandex.Market was 1.8 billion and adjusted net income was negative 1.8 billion as well, if we had included Yandex.Market into our Q2 financial results.

Our consolidated adjusted EBITDA corrected for entire company's eliminations would be around 6.6 billion and our adjusted net income would have been around 1.2 billion. Yandex.Market had 17.8 billion of cash in term deposits on its balance sheet as of the end of June and no outstanding debt.

Our balance sheet remains strong. We have 3.5 billion in cash as of the end of Q2 excluding 250 million related to Yandex.Market. And this includes the proceeds of the recent capital raise. Around two-thirds of the cash is in U.S. dollars.

Our cash position allows us to maintain strategic flexibility in our capital allocation decisions, including our decisions to invest into existing businesses or look for potential new opportunities.

With this, I'm turning the mike to the operator for the Q&A session.

Question-and-Answer Session

Operator

Thank you, very much. [Operator Instructions]. The first question we have today comes from the line of Vyacheslav Degtyarev from Goldman Sachs. Please go ahead.

Vyacheslav Degtyarev

Yes, thank you very much for the conference call. My question is on Taxi, you executed better versus your and June guidance on Taxi line both from revenues and EBITDA. What was driving that lease and so was there any material incremental acceleration of rate growth?

Yevgeny Senderov

Yes hi Vyacheslav, its -- Vyacheslav, its Yevgeny Senderov. So look, if you are to compose our 42% revenue growth rate right, the main contributor as Daniil already said were Lavka, Eats, and B2B, including B2B logistics in a descending order.

Ride-hailing revenues excluding B2B were slightly down but include B2B itself grew 49% year-over-year gave us about 8 percentage points out of the MOU revenue growth rate. And B2B logistics which partly accounted and B2B was roughly half of that growth.

So, FoodTech droves the rest of the growth, Eats revenues tripled, Lavka revenue reached 2.3 billion. Lavka revenues booked in gross basis less incentives and they're actually about just under 20% of MOU revenue.

If we're looking getting back to ride-hailing, looking at July our GMV month-to-date is growing a 20% year-over-year and rides are roughly in line with that number as well over 20%.

Vyacheslav Degtyarev

Okay, thanks. And my follow-up would be also on taxi. There were press comments about DiDi entering the Russian taxi markets in the coming months. Do you have any thoughts about their ambitions in the local market and the potential strategy to defend the market share on your side? Thank you.

Yevgeny Senderov

Thanks, Vyacheslav. Well look, DiDi obviously is a strong player with access to capital in sophisticated technology. Obviously their launch when it happens will increase the competition level both on user side and on driver front. But we believe that first and foremost DiDi will be the market position off smaller-share players.

As far as competition for driver supply is concerned, we think that multi app are I think capacity for drivers is limited. They really cannot use efficiently more than two driver apps at the same time. And we believe that our Yandex.Driver app will remain one of the main stage for the drivers.

It provides the highest utilization rate on the market and the higher utilization rate the higher driver earnings are and this has always been our primary focus. As far as users are concerned, I mean, DiDi's been sitting in the overall both and get for that matter already have sophisticated user apps.

And they're backed up by good technology. So, they provide similar user experience. Both companies are well capitalized and Citi and DiDi and both compete for audience by subsidizing meaning initially the target audience are going to be very similar and we expect them to primarily compete for the same riders.

So, looking ahead we feel confident about our competitive position and strategy on the market. I think we have a clear plan on how to protect our leadership. And by focusing on superior efficiency of service, higher driver utilization, quicker ETA rates, as well as driver and partner earnings as I said, it's -- for already for us, and by model utilizing our multi-brand approach.

So, we feel pretty confident about our market position long-term.

Vyacheslav Degtyarev

Thank you very much.

Operator

Thank you, very much. The next question today comes from the line of Ulyana Lenvalskaya from UBS. Please go ahead.

Ulyana Lenvalskaya

Hi, everyone. Thanks very much for the call. I just want you to elaborate on taxi a bit more. The self-driving car revenue we see for the first time ever is just from the delivery robot you've mentioned and do you have any longer-term targets for the self-driving car units in terms of potential revenue contribution?

Greg Abovsky

Hey Ulyana, it's Greg. Let me jump in on that. The revenue represents both the small contribution from Skolkovo as well as some revenues generated from the Robo-Taxi service that we will be launching in Michigan later this year.

In terms of longer-term plans, obviously the goal is to develop a fully-fledged robo-taxi service where we're developing just the driver. And that's why we're investing as much as we are and putting driverless miles and testing in real world conditions on city streets and in Moscow and elsewhere.

And hoping that over time this will be something that will really differentiate both the Yandex.Taxi business model and as well as provide further revenue streams beyond the applications outside of the footprint of Yandex.Taxi.

Ulyana Lenvalskaya

Sounds very cool, thank you. And I also want to talk about the services. You reported that the subscribers are 4.5 million which is basically more or less unchanged first quarter.

So, I was really surprised why that was stronger during the lockdown and maybe you can comment on that. And if possible, to explain and KinoPoisk versus Music. And on that, could you maybe speak for a while about Yandex.Plus, how the strategies there.

Greg Abovsky

Sure, so a couple of things. The number of subscribers did grow and in terms of total subscribers, they're growing strongly in a year-over-year basis. In July, we're already at 4.6 million subscribers. And Q1 level, I think was probably the low fours 4.2, 4.3.

And I think we're generally very happy with what we're seeing on the subscription front. If you take a step back and think about kind of what is the goal of Yandex.Plus.

Plus is this sort of umbrella subscription service which includes access to music, to videos, to movies, to TV shows, to discounts on Yandex.Taxi to other benefits from within the Yandex ecosystem, whether that's in Drive or whether that's e-commerce or anything else.

And so over time what we'd like to do is we'd like to get as many subscribers as we can, paying a certain fixed monthly subscription fee and benefiting from the entire variety of Yandex services that we have to offer.

So, I think like the differentiation if you will between a standalone streaming music service and us is that for the same price you essentially get a whole lot more. You get original content in the form of TV shows and movies.

You get discounts on Yandex.Taxi, you get discounts on shipping on our marketplace, e-commerce business and so on and so forth. So, that's we believe this is going to be one of the key differentiating factors of the Yandex ecosystem going forward.

Ulyana Lenvalskaya

And what's the number of Yandex.Plus users now, can you disclose?

Greg Abovsky

It's 4.6 as of July.

Ulyana Lenvalskaya

Cool, thank you.

Operator

Thank you, very much. [Operator Instructions]. The next question comes from the line of Lloyd Walmsley from Deutsche Bank. Please go ahead.

Lloyd Walmsley

Hi, thanks. Two questions, first on marketplace. Can you talk a bit more about how full ownership frees up kind of strategic considerations for e-commerce and its payments, a strategic focus for you all now that Yandex.Money is fully separated.

And then, the second one also related to marketplace. Can you help us understand Beru and kind of some of the KPIs that how much of the business is 1P versus 3P and how to think about unit economics maybe to take rates on the 3P side gross margins on the 1P side.

And kind of how you'll be accounting for revenue on a gross versus net, any kind of high level color you can share on that would be helpful.

Greg Abovsky

Hi, Lloyd. So yes, the transaction closed last Thursday and we've obviously been very busy working on how best to integrate the various assets together. Those include kind of utilizing the full breadth of services that we offer to merchants on Yandex.Market.

And then driving them to advertise on other places in Yandex, in Yandex.Direct and vice versa taking e-commerce advertisers and moving him over to the Yandex.Market side. I'd say that's one area of focus.

The other one is just driving more traffic to our marketplace business from various Yandex Properties. I see the third one where the focus is on increasing number of transactions in terms of improving conversion rates and then more traffic.

And then finally, it's the integration of the logistics piece that is offered by the Yandex.Taxi platform.

In terms of accounting, it's currently the marketplace generates approximately 56%, i.e. 3P generates approximately 56% of the business and the other 44% is 1P. 1P is obviously accounted on a gross basis, 3P businesses accounted as a commission based business. Obviously, our take rates are currently low and we expect that they will evolve and grow overtime.

The other thing to keep in mind is within that revenue number that I gave in my prepared remarks, it also includes the price comparison business, which is the kind of the original Yandex.Market where people go and compare prices on different goods and where merchants can bid for traffic with CPC like advertising.

That business is alive and well, it's growing rapidly. It's up 33% in Q2 compared with a 27% growth in Q1 and it has extremely high EBITDA margins. So in Q2, it had 44% EBITDA margins. So, taking a step back, you obviously have the marketplace business which we're developing, which consists of 1P and 3P, where 1P is 44% of the GMV and 3P is 56% of the GMV.

That business is loss making, so we're still working on improving the unit economics there. And attached to it as a price comparison business which is healthy and growing and in some ways it helps to develop. And we think by integrating it together with Yandex, we can even accelerate even more the rate of growth of our e-commerce business.

Your second part of your question was on payments. And I would say that it's I would say our ambitions are probably bigger than just payments. I think we are very interested in financial services in general. We're spending a lot more time on it.

And I think importantly, post the sale of our minority stake in Yandex.Money, we are free and clear to go and pursue those opportunities. We'll probably do those that prudently and slowly but we think that this is a very important business for us to have together with e-commerce together with Taxi together with all the other businesses that we have.

Lloyd Walmsley

All right, thank you.

Operator

Thank you, very much. The next question today comes from line of Cesar Tiron from Bank of America. Please go ahead.

Cesar Tiron

Yes, hi everyone. Thanks for the call and thanks for taking my question. I have two actually, they're linked to your Search and Portal business.

The first one, I wanted to understand how do you think the Search and Portal revenue or the Context revenue in general will evolve versus social networking in Russia in the next couple of quarters. Of course, it underperformed in Q2. But do you think that will normalize in the next couple of quarters?

And then the second question that I have was really on the cost side of the Search and Portal. It looks like the TAC was very low in the quarter. Is there anything delayed or is there any savings that you've made and what do they relate to? Thank you, so much.

Greg Abovsky

Hi Cesar, it's Greg. Thank you for your question. So, I think we are very optimistic about the outlook for the Search and Portal business. We're seeing extremely strong trends, I believe in that segment.

And I could just walk you through sort of the pacing's if you will over the last couple of months. Right, March which was sort of a last month here before COVID shutdown really took place, our Search and Portal ex-TAC revenues were up about 7%.

A month later in April, this was kind of the trough and revenues in Search and Portal and ex-TAC basis were down, high-teens about 17% down. May, down about 10%; June, flat; and now in July we're actually seeing 5% to 6% growth in Search and Portal business and ex-TAC basis.

Which I think is pretty remarkable. And I think compares us extremely favorably versus other digital advertising platforms.

And as I said on the previous calls, I think the main reason for that is just the extremely high ROI that we are driving for our customers especially on Search. So, inside that Search and Portal business, obviously we have different parts of advertising right, you have our ad network, our Yandex websites, you have Search.

But I'd say most importantly is that Search is growing the most. And then on your question on TAC, I think that what we've also done is we have gone in and looked to optimize our traffic acquisition cost both on the partner side as well as on the distribution side.

And you see the benefits of that flowing through and we expect that those will continue into Q3 and later.

Cesar Tiron

Thank you so much, that was very clear. Thank you, so much.

Operator

Thank you, very much. The next question comes from Vladimir Bespalov from VTB Capital. Please go ahead.

Vladimir Bespalov

Hi everyone, thank you for taking my questions. My first question would be on the competitive environment for recently heard that 45 [indiscernible] to provide services there. Or maybe you could comment there what do you expect from these new player from the market.

How you would compete with those. And then share on maybe not only with them but with the players on the market. And the second question would be on CapEx. I see on your slides that there what would be spike in cost expense as that something [indiscernible] quarter.

Maybe you could provide more color what is behind this and what to expect going forward. Thank you.

Greg Abovsky

Hey, Vladimir. I'll take that CapEx question first, to just be a really simple one. That's a timing question. So, we're sticking to sort of our initial guidance that we kind of set out at the beginning of the year which is we expect low to mid double digits, so call it 12% to 15% in terms of CapEx to sales.

And we are not expecting any changes from that. We've made some optimizations inside of that and kind of realign where we're spending that CapEx during the year but overall same as it was and so you should expect it to come down as a percentage in the second half of the year.

On the competitive front, look I'd say competition is not new. Russia is a very competitive market, it's one of the as far as I know one and only two really open markets where companies like Google have real competition.

There Google is not limited any way, shape, or form, from participating in this market and despite of that, our market share on Android, which is Google's our own operating system is almost 60% compared to Google's 40%. So, whether it's DiDi or Spotify, I think we've always operate in environment of competition.

We take it very seriously and our focus is on just develop the best products we can and provide value to consumers. And if we take somebody like Spotify, I think that's not it's not benefits, its real value that we drive to consumers.

So, if the consumers buying the same subscription to Spotify or to Yandex.Plus, the value that he's going to get out of that subscription for Yandex.Plus is considerably higher. We have incredible content assembled on KinoPoisk.

We have the best ride-hailing service in the country and which you get significant discounts and the list goes on-and-on. So, you're sort of comparing apples and oranges. And beyond that I think I'm pretty sure we're the leading player in streaming music in Russia.

We gave great recommendations, great playlists, lots of AI that's used there and people really do like the service. So, on the question of DiDi, I think Yevgeny kind of addressed that really well as well.

So, look I think it's great that Russia's a very open, very competitive market. I think it drives us to build better products and deliver more value to our consumers.

Operator

Thank you, very much. The next question comes from the line of Ildar Davletshin from Wood & Co. please go ahead.

Ildar Davletshin

Yes, good afternoon. Thank you very much for taking my question. So, I'd like to follow-up on a couple of points, one on this Search and Portal business and your margin which seems to be pretty good despite challenging macro environment.

So, I'm wondering how much of it was due to your kind of redistribution of expenses, maybe some kind of one-off cost saving such as reduced compensation sort of management which you introduced earlier that this year.

How much of it did you benefit in the second quarter or how much it's really due to resilience of the business and going forward into the year-end what do you think about your margin in that segment.

Also, I'd read your content, I think you invested previously which was part of your costs, as part of your Search and portal. And then separately on food and Tech -- FoodTech, sorry, like profitability, like I understand these still lots making businesses but maybe in your outlook, when this could be particularly Lavka or Eats achieving profitability, any milestones. Thank you.

Greg Abovsky

Hi Ildar, it's Greg. That’s quite a lot of questions packed in there. Let me try if I can crease them apart. In terms of what helped Search and Portal margins in Q2, the optimization of TAC that we've undertaken was certainly a big help and that's going to be something that's going to be with us going forward as well.

We've also did take a number of targeted measures at optimizing our cost structure at slowing the pace of hiring at being more aggressive with performance management at reducing top management salaries and eliminating top management cash bonuses and in many other things.

I'd say bottom-line is we've had quite a number of cost savings already in Q2. Some of them will stick around, some of them will obviously return over time. For example we cut back on some advertising and marketing expenses or office and utilities were obviously lower as offices mostly were empty.

And we essentially were able to save on utilities. That's temporary. But I think it shows you kind of the steps that we took early on and how we try to manage the business proactively and manage the profitability there.

As far as things like investments in media and content, of course we're going to be doing more of those. We are really happy with how media services is doing. We're also investing in content and in Search and Portal as well. And look, those are decisions that we're making because we think that they have positive MPT for the business.

Now let me address your question on FoodTech. So, we saw really strong improvements and on the restaurant delivery side of the business. And despite that, we actually supported our restaurant partners to very large extent during the quarter.

We spent just under 200 million in Q2 on support measures for our restaurant partners which we think is very important. It's a three-sided marketplace and it's very important to make sure that your restaurant partners are happy and that they are able to survive and that you are supporting them through the cycle.

And so, I'd say we're much more positive on the food delivery business because of the unit economics that we're seeing there because of the optimization measures that we are able to implement. For example, we decreased our cost per order by about 10% in June versus March which I think is pretty significant.

We also had a number of implementations which improved the utilization rates for our couriers and we introduced batching which also lower our delivery costs. I'd say Lavka our grocery business is probably earlier stage. We're quite excited about it but it's just given that it's less than 12 months old, it's too early to judge.

We are happy with what we're seeing in terms of kind of same store sales improvements and so on but that's kind of a longer-term investment. Hopefully, that kind of clears things up a bit.

Ildar Davletshin

Yes, it does. Thank you.

Greg Abovsky

Thank you.

Operator

Thank you, very much. The next question today comes from the line of Anna Kupriyanova from Gazprombank. Please go ahead.

Anna Kupriyanova

Good afternoon. Thank you very much for presentation and the opportunity to ask question. My question will be regarding your other bets and experiments. Maybe you could provide some more color regarding how much is the exits for the online education in cloud part, which one's operating.

Greg Abovsky

Hey Anna, it's not something that we provided yet. We'll probably provide it over the course of the year. But basically, in terms of size, the biggest contributor is that other bets and new initiatives line is Drive. Geo, Zen and after that it's Cloud and after that it's education.

So, that's kind of the rough order which hopefully give you some color. And in terms of losses in that segment, they were up slightly on a sequential basis but based on what we're seeing in Drive for example we -- we're probably more optimistic about it going to Q3 especially because most of Q2 Yandex.Driver is essentially shut down.

So, we had a lot of the rental costs, so that any revenues to offset them, so.

Anna Kupriyanova

And maybe you can add some details regarding year-on-year growth rates for Geo or Cloud to online education, and maybe if it's double triple user list.

Greg Abovsky

Yes. I think we've said that education was up like 6x year-over-year and Cloud is up massively as well. So, it's like -- hundreds of -- but --.

Anna Kupriyanova

Okay.

Greg Abovsky

It's still a small line.

Anna Kupriyanova

Uh-huh, thank you very much. And just a quick follow-up. If you could provide some details regarding your new building, if you can give any estimates for the cost of building and [indiscernible] stuff?

Greg Abovsky

Yes. We're obviously still waiting to get all of necessary permits into place. The expectation is just our construction sometime this fall. I think rather than give you sort of estimates on how much is going to cost us to build, I'd rather give you kind of the expected MPT of this project which is massive.

We think that by building it we're going to generate 100s of millions of dollars of MPT to our shareholders potentially as much as half a billion versus comparable market rents in Moscow. So, we're quite excited about it.

Anna Kupriyanova

That sounds very good. Thank you very much for your answer.

Greg Abovsky

Thank you.

Operator

Thank you, very much. The next question today comes from the line of Anna Kurbatova from Alfa-Bank. Please go ahead.

Anna Kurbatova

Hi, yes good afternoon. Thank you, very much. I have also two questions. First of all about your outlook or better to say that you abstained from giving the outlook for the remainder of the year.

So, generally you sound quite confident in terms of that they advertising your market or demand recovery and the gross other business lines. So, would be great to understand what is counter balancing you're up like positive observations, what do you see on the negative sides.

What's because you point in the press release micro economic developments. So, would be great to understand if businesses generally going well. Where are the risk that do not allow you to give some guidance's for the next for quarter.

And my second question would be again on the techs maneuver in the Russian IT industry, so some industry player already say that this is an opportunity for them to save of certain cost items like social tax contribution from the software developers etcetera.

So, would be great to hear once again your estimates expectations. Would it be would you be able to leverage positively on this tax risen changes or not. Thank you.

Greg Abovsky

Hi, Anna. So look, I think we're withholding guidance at this point just because it's unclear how the situation will develop and primarily I think what's not clear is what will happen as the economy starts to reopen, will there be a second wave, how significant will it be, will there be further shutdowns.

I would say if there are no further shutdowns of the economy from the coronavirus pandemic, I'd say our outlook is quite robust. I think the trends that we're seeing in the Search and Portal business, again we're seeing ex-TAC revenue growth of 5% to 6% which is I think extremely healthy under the current environment.

Obviously things will turn out quite well. I would also say that if you look at the trends that we're seeing in the taxi business in July, those are extremely strong. We are growing GMVs as Yevgeny said or rise around 25% year-on-year, right.

Which is I think compares as extremely favorably and on top of that obviously you have all of the revenue coming from Eats and groceries and so on. So, assuming that there is no shutdown measures, we should do quite well.

And then, on the question of TACs, yes we will have some savings next year. We expect a positive effect from the social tax impact. We expect some minor negative effects from the cancellation of the Europe per cent VAT for certain activities.

Net of it, net-net is we probably think that this should be a tailwind in the order of kind of low single-digit percentage of EBITDA in 2021 which I think is in line of what said -- what we said in the previous call.

Anna Kurbatova

Thank you, very much.

Operator

Thank you, very much. The next question today comes from the line of Sebastian Patulea from Jefferies. Please go ahead.

Sebastian Patulea

Hi everyone and thank you for taking my questions. Sorry if it maybe for my line drops for a few minutes. The first one is about taxi. And can you please talk a bit about the Moscow market in particular, said it would be looks to be quite strong there lately.

Is there something that they've been better than you or is it just a resolve that your corporate taxi business is not operating fully at the moment.

And secondly, you mentioned the benefits when operating the multi-brand approach in taxi, as such as the Yandex and Uber brands. Would you say the benefits in operating the same brand across verticals such as taxi when Yandex.Taxi food delivery Yandex.Eats, car-sharing with Yandex.Drive versus Citi Mobile delivery car, DiDi, so on and so forth. Or it doesn’t matter in this case.

Thank you, very much.

Yevgeny Senderov

Hi Sebastian, it's Yevgeny. Look, if we look at our overall competitive position in Russia ride-hailing, we have been pretty stable over the past several months. You ask in Moscow in particular, so in Moscow in April, we did have a slight decrease in our share as a result of the tariff mix effect.

We had premium class as where restricted and that's for us historically pre-COVID that's a large share of our total GMV in Moscow. Economy tariff per portion as percent of dollar increased. And actually after the premium tariff restrictions were withdrawn, it took us a couple of weeks but we did get back to pre-COVID levels in terms of market position very quickly.

And in June, we strengthened our market position even further. So, based on our competitive intelligence, our competition in market share returns from high-teens in April to low-teens in June in terms of rides and in terms of GMV they're even lower.

Greg Abovsky

And Sebastian, on the question of the multi-brand approach, we recall that we operate both the Yandex.Taxi brand as well as the Uber brand and we position them slightly different for our consumers and that gives us I think additional flexibility in terms of how we run that business.

But, I mean ultimately the proof is in the pudding and so if you look at our competitive position of if you look at the ability to sustain strong margins in this business. I think we feel very good about where we are and I think we're very happy with kind of how this business has been executing.

The other thing that we recently rolled out is we've rolled out a second driver app. So, we actually have two consumer apps and two driver apps. There is Yandex.Taxi and there is Uber for consumers and there is Taximeter and Uber Driver for drivers. And that is a strategy that has also served us well.

Sebastian Patulea

Okay, thank you.

Operator

Thank you, very much. The last question today comes from the line of Vladimir Bespalov from VTB Capital. Please go ahead.

Vladimir Bespalov

Hi, thank you for taking my follow-up questions. I have actually two. Then first of all be on be ex-TAC year. So far, Yandex has been developing, at least this is my question, this area is more a social kind of thing.

But this tax rate definitely ready for disruption and online education administration is very well. So, maybe you could talk a little bit about strategic and business opportunities that you see in this sector. And say how maybe you're going to take advantage of those opportunities.

And the second question is on the cost per click trend. There was a pretty big decrease in the second quarter which implies that the prices were under pressure during the quarter. When you're speaking about the recovery in the third quarter, do you see -- is it coming from like more type clicks or the prices increase, maybe you could provide some color on that. Thank you.

Greg Abovsky

Sure, Vladimir. On the education initiative, there we kind of see our mission is two-fold. On the one hand, we're focused on providing free education services to students and middle schools and high schools and so on.

And there it's more about corporates are for responsibility if you will. And I think we take that matter very seriously. And we are extremely grateful to the sort of the Russian education system.

In terms of the students that are able to graduate, the people they were hiring, the very strong foundation in data analytics and data science. Beyond that, we also have a focus on paid education initiatives. There the program called Yandex Practicum which has been growing as I said in terms of revenue buy, something like 6x year-over-year.

And we are very excited about that service. That one is focused on paid education, it's a combination of online learning with follow-ups with kind of professionals in the field and one-on-one tutoring. And so, these are I would say real focus areas for us and something that we will continue to invest in over time.

On the CPC question, obviously this is a result of the pandemic. So, what happens is as you obviously have a huge increase in the total volume of queries which you could sort of see in terms of clicks and in terms of the queries that we report, in Q2.

You kind of there is less demand from advertisers for this traffic and therefore they end up pulling back and then the auction cools down. And that's why in fact our ROI start going up massively for advertisers and that's why they turn to search.

And they flock to search to the advantage of other forms of digital advertising. So, for example, it sounds like Russian social networks are actually struggling a bit with advertising revenue growth in July, right with sort of flat revenue growth on social network side where search is up much more than that.

And our Search and Portal business is up 5% to 6%. So, you see advertisers redistributing their ad dollars to higher ROI platforms. And so over time, you would you will see those CPCs start to come back up and you will start to see clicks slow down a bit.

And that's I think just kind of normal tendency of the auction.

Vladimir Bespalov

Okay, thank you very much.

Greg Abovsky

Thank you.

Operator

Thank you, very much. There are no further questions, please continue.

Yulia Gerasimova

Thank you very much everyone for all your questions today. If you have still any other follow-up questions, please come back to the IR team. I wish you a good day, and see you next time. Thank you, bye.