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 America
Masha Kahn - HSBC
Ulyana Lenvalskaya - UBS
Sebastian Patulea - Jefferies
Alexander Vengranovich - Sova Capital
Vladimir Bespalov - VTB Capital

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by and welcome to the Fourth Quarter and Full Year 2018 Financial Results Conference Call. At this time, all participants are in listen-only mode.

I would now like to hand the conference over to your speakers today. Please go ahead.

Katya Zhukova

Hello, everyone, and welcome to Yandex' fourth quarter and full year 2018 earnings call. We distributed our earnings release earlier today. You can find its copy on our IR website as well as on the Newswire services.

On the call today, we have Arkady Volozh, our Chief Executive Officer; Mikhail Parakhin, our Chief Technology Officer; Tigran Khudaverdyan, our Head of Yandex.Taxi; and Greg Abovsky, our Chief Operating and Chief Financial Officer; Vadim Marchuk, our VP of Corporate Development will be available on the Q&A session. The call will be recorded. The recording will be available on the IR website in a few hours. As usual, we’ve prepared a few supplementary slides, which are currently available on the IR website.

Now, I will quickly walk you through the Safe Harbor statement. Various remarks that we made during this call about our future expectations, plans and prospects constitute forward-looking statements. Our actual results may differ materially from those indicated or suggested by these forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of our Annual Report on Form 20-F dated March 27, 2018, which is on file with the SEC and is available online.

In addition, any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. Although we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our views change. Therefore, you should not rely on these forward-looking statements as representing our views as of any date subsequent to today.

During this call, we'll be referring to certain non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with the US GAAP. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is provided in the earnings release we issued today.

And now, I'm turning the call over to Arkady.

Arkady Volozh

Thanks, Katya, and thank you everyone for joining us today. I’m very pleased to say that 2018 was a truly remarkable year for Yandex. First, we saw a significant acceleration in our revenue and adjusted EBITDA growth rates. This was the highest rate in five years, going back to when we were a quarter of current size.

We also had great results across all of our core business areas including Search, and we saw very strong progress in a number of our recent important initiatives. We had a number of key highlights this year, some of which my colleagues will elaborate on in more detail. But from my side, let me briefly highlight just a few.

We grew our share on Android to approximately 50% and we expect that share to continue to grow. We made significant investments with Alice, our voice assistant, growing the size of its audience, while enhancing and expanding its functionality. We started producing hardware devices this year, with Alice embedded in them, such as the Yandex.Station smart speaker, the Yandex.Ultra onboard computer for trucks and cars and our Experimental smartphone.

We launched Yandex.EATs, which in December delivered over 1 million of orders. Yandex.Drive was launched in February of last year and rapidly became the number one car sharing service in Russia, the second largest in Europe and the third largest in the world. Ideally, it is well-positioned to enter international markets.

Our ride-sharing business reached breakeven and our self-driving car division has significantly progressed over the past year. It operates now in two Russian cities where it drives in a completely autonomous mode, without any one on the driver’s seat at all. In Q4, we extended our tests to the street of Tel Aviv. And finally, recently in January, we demonstrated our self-driving car at the CES Conference in Vegas. And as you may have seen in the press at the time the demonstration blew people away.

For many years since company's inception, we have been following the concept of just one business model. This was focused around search and online advertising. It still continues driving our growth of our core business at 20% per year. But today Yandex is much more than just search. At this point I can say that we’ve effectively built yet another company on top of the original one. As a shareholder I am externally proud to own this stock.

And with this, let me hand over to Mikhail Parakhin. Mikhail over to you.

Mikhail Parakhin

Thank you Arkady and hello everyone. We are very pleased with the results we achieved in Q4. Our consolidated revenue, excluding Yandex.Market from both periods grew 46% year-over-year. Revenues of Yandex.Properties excluding Yandex.Market from both periods grew 27% year-over-year.

Revenues of Yandex ad network grew 16% year-over-year this quarter. Acceleration of growth rate was due to greater contribution from small and medium sized partners. We've always worked hard to provide our clients with great targeting technologies and tools to achieve their goals. And we are only delighted to see new successful used cases. For example, the recent ad campaign of Ostrovok.ru a popular travel website brought 140% return on investment in Yandex advertising network.

Search and Portal segment demonstrated solid growth in Q4 with revenue growth rates of 27% year-on-year. This growth rate was primarily driven by solid performance of search, mainly as a result of campus launches, and mobile search share gains, as well as by robust growth across other Yandex properties, such as Zen, Homepage and Images. Sales of hardware devices contributed approximately 1 percentage point to Search and Portal revenue growth in Q4.

On netback front, Templates continued performing well and we estimate that Templates contributed approximately 5% to our Search revenue growth on mobile and 2.5% on desktop.

Experiment with templates is a continuous process and we will keep on bringing really new ad layouts going forward. We continued rolling out Turbo pages, our analog of instant articles. Turbo pages allow websites to significantly increase traffic and time spent on website, as well as decrease bounce rate. Currently, Turbo pages appear on 50% of search result engine pages on mobile. In Q4 international Turbo pages has increased 6 times compared to a year ago. In Q4 the share of mobile traffic reached 49.2% of our total search traffic. Mobile revenues represented 41.4% of our Search revenues. Revenues to traffic ratio improved 320 basis points, compared to the previous quarter.

To continue the mobile topic, it is certainly worthwhile mentioning Geo Services providing users with local-based search experience and helping guests immediate get online. In Q4, local-based mobile searches grew 30% year-over-year. Add pings in Navigator were shown approximately 5 billion times. Just recently, we started experimenting with new native ad formats. Now when a driver stops near a shopping mall, or I gas station, we show them a small but highly relevant ad banner at the bottom of the screen. This is an efficient way to provide drivers with information to convert online to offline traffic for advertisers. It is really impressive the way our Geo Services evolved beyond just navigation.

Now I can arrive at the destination open by Yandex.Navigator app choose the pump number, gas amount and pay inside the app. This is extremely helpful during severe winters in Russia.

Currently the services are available in over 1,000 gas stations. Yandex.Taxi drivers can also use this option in their driving app.

Turning to recent product launches and updates. In November we represented Andromeda our latest search algorithm update. It further improves personalization of user search experience and helps find answers as quickly as possible.

Now we provide increased coverage of inline answers on SERP, feature badges for the most relevant and accurate websites and allow users to save searches in video format in Yandex.Collections. Collections particularly drew large interest among users that are already over 100 million cards added by users and they're up 500 plus percent year-over-year. Another great feature that we've been taking for several months now already in charged with businesses. This is a kind of a messenger that appears right on our search result page and allows users to interact with businesses in the real time manner, while businesses get unique opportunity to reach out to users from the Yandex.SERP.

The quicker the business response to user, the higher the probability that this user converts into a client. There are over 1 million messages per day already including messages generated through the dialogues with our AI systems Alice. An offline business which often doesn't have a website can use our chatting tool as well.

Turning to search share dynamics. In December, our overall search share reached 56.4% down 30 basis points compared to the year ago due to the mobile and desktop mix effect. In January our overall search share increased to 56.9%.

Our search share on desktop reached 68% in December gaining 110 bps from September and 70 bps from a year ago.

On mobile, our search share averaged 47.3% growing 280 basis points year-on-year. Our search share on Android was 49.4% in December up 380 basis points versus a year ago. In January we reached 50.7% on this platform.

Our search share on iOS was 40% in December down 70 bps compared to September 2018 and up 110 bps from a year ago. While we improve user experience in-line our taxi and related businesses help our customers offline.

Tigran will walk you through these services. Tigran, please go ahead.

Tigran Khudaverdyan

Thank you Mikhail and hello everyone. During the past couple of years we have been focusing on services that significantly improve user offline experience, including the ride sharing, food delivery and in the future autonomous vehicles. 2018 was a truly great year for us. We completed the integration for Yandex and Uber’s ride sharing businesses in Russia and CIS. We have learned how to efficiently optimize subsidies without sacrificing growth. This allowed us to achieve profitability on the adjusted EBITDA level in our life sharing business in H2 2018.

Is September we fulfilled 1 billion ride and we will reach 2 billion rides sometime this year. We launched our food delivery business and quickly gained significant market share. We significantly progressed on our self driving front, our self driving cars drive in Skolkovo and Innopolis in Russia without a driver. We also started testing in Israel and successfully demonstrated our capabilities at this year’s CES in Las Vegas. I'm extremely proud of what we have achieved.

Now to details. Full year revenues of Taxi grew 293% year-on-year in Q4 our revenues increased 216%, driven by unit growth and lower subsidies. Adjusted EBITDA loss of the Taxi segment was RUB 129 million in Q4. Our ride-sharing business was consistently profitable but the loss was driven by our investments in food delivery and driverless technology. In Q4, the number of rides grew 112% year-on-year. We believe that our technological expertise in mapping, right dispatch, dynamic pricing and management of the balance between supply and demand are well important competitive advantages which are applicable beyond our domestic markets as well.

Turning to food delivery. Yandex’s -- our food delivery service has been growing rapidly since its launch in February 2018. In December, the number of orders delivered exceeded 1 million. As of today, we have over 8,000 restaurants. We mostly rely on our own delivery as it allows us to better control the service quality.

We leveraged our proprietary technological set to optimize the routing and logistics. Since February we lowered our delivery time from order to delivery by 35% to approximately 32 minutes currently.

We will continue investing in our food delivery service as we believe that these markets have a huge potential and we are at early stage of its development. Our self-driving technology is another great testament to our deep expertise in machine learning, navigation, mapping tools and cloud technologies. We are very excited to be at the forefront of driverless technology, which will completely change the way people commute within the next decade.

With this, I’m turning the mic over to Greg, who will walk you through the operational performance of business units and our financials.

Greg Abovsky

Thank you, Tigran and thank you all for joining our call today. We delivered another strong quarter. Our consolidated revenues excluding Yandex.Market grew 46% year-on-year in Q4. Online advertising revenues excluding Yandex.Market increased 25% year-on-year. Other revenues grew 235% year-on-year in Q4, primarily driven by the growth of Yandex.Taxi and to a smaller extent of Yandex.Drive. Total tax increased 29% year-on-year, and amounted to 15.9% of total revenues, down 130 bps from Q4 ‘17 and down 40 bps on a sequential basis.

Traffic acquisition costs related to partner advertising network grew 24% year-on-year mainly reflecting partner and products mix shifts. Traffic acquisition costs related to the distribution partners increased 44% year-on-year primarily affected by the growth of Android. In Q4 distribution tax stood at 7.9% of Yandex.Properties revenues, which is 20 basis points higher than in Q3.

Turning to our cost structure. In Q4 total OpEx excluding TAC and G&A grew 44% year-on-year. Excluding stock-based comp, operating expenses increased 47%. The growth was primarily driven by our Taxi and car sharing businesses.

As of December 31, we had 8,767 employees, down 1% compared to December 30. This decrease was mainly due to headcount reclassification, which we implemented to ensure consistency in internal reporting. This primarily relates to customer support positions, which we now treat as outsource labor.

On a year-over-year basis, our headcount was 18% higher. In Q4, our personnel costs amounted 17% of total revenues. Stock based comp grew 18% year-on-year in Q4 and constituted 4.2% of revenues. G&A expense in Q4 increased 6% year-on-year. Our consolidated adjusted EBITDA excluding Yandex.Market grew 38% year-on-year.

This quarter the impact on ForEx was again RUB 904 million related to the depreciation of the Russian ruble during Q4, from $65.6 to a $69.5 to a dollar. Adjusted net income was up 32% year-over-year and adjusted net income margin was 17.9%. Excluding Yandex.Market, adjusted net income was up 53% from Q4 '17. Our CapEx excluding the one-off effect from the headquarter site acquisition was 11% of total Q4 revenues, while on an annual basis our CapEx to revenue ratio was 15%.

We expect our CapEx excluding expense related to new HQ to be in the low-teens as a percent of consolidated revenues in 2019. Just to remind you in late December we announced the purchase of the property site for our new Moscow headquarters for approximately 10 acres situated at the Kosygina Street in Moscow. We're very excited with the opportunity to create our own campus in the heart of Moscow. The acquisition price was $145 million.

Turning to the performance of our business units. Search and Portal revenue grew 27% year-on-year, driven by the growth on our owned and operated properties, as well in partner websites. Adjusted EBITDA Search and Portal for 24% year-on-year in Q4 and adjusted EBITDA margin was 43.5%, down 100 bps compared with Q4 of last year and down 230 bps compared to the previous quarter. This decrease was mainly due to the sales of hardware devices as we previously talked to you about.

In 2019, we expect margins of Search and Portal to be down 100 to 200 basis points, primarily due to sales of hardware devices. Since Tigran just updated you on the taxi business, let me turn to Classifieds. Revenue in Classifieds business grew 61% year-on-year in Q4, primarily driven by revenues from listing fees and VAS, which grew 90% year-on-year. Auto.ru continues to strengthen its market positions in its core markets. Adjusted EBITDA Classifieds was negative RUB 18 million the quarter.

Turning to Media Services. In Q4, Media Services revenues were RUB 679 million and grew 69% year-on-year, primarily driven by subscription services, video advertising and to a smaller extent by commissions from ticket sales. Media Services adjusted EBITDA loss was negative RUB 215 million and mainly reflected the growth of advertising and marketing costs, our continuing investments in content and product development.

KinoPoisk keeps expanding its content library, which currently includes over 5,000 movies and TV shows available via subscription. In Q4 KinoPoisk launched premium subscription in partnership with Amediateka exclusive distributor of HBO content in Russia.

On the Experiments front. In Q4, revenues Experiments primarily represented by Yandex.Drive, Zen and Cloud reached RUB 1.2 billion led by Yandex.Drive and Zen.

Adjusted EBITDA loss of Experiments was RUB 665 million, primarily due to our investments in Yandex.Drive and Yandex.Cloud. Yandex.Drive maintained its leading position with total seat of 8,000 cars and over 11 million rides completed since launch. In Q4, we expanded Yandex.Drive to same peak where we also became the market leader. In December we introduced our car sharing service and the cargo segment. Our personalized content feed service Yandex.Zen continues to actively developing its published content platform, which currently generates over 50% of Zen’s feed content.

According to recent operator's data monthly audience of Zen reached over 39 million people, while spent averaged approximately 35 minutes per day. Number of daily unique users reached 9.5 million, while number of visitors and devices exceeded 15 million on a daily basis.

In late December, Zen became available to users who operate desktop browser in Russia. Zen's annualized revenue run rate was RUB 5.9 billion in December.

Moving on to Yandex.Market which we no longer consolidate in our financial results. In Q4 revenues of Yandex.Market on a like-for-like basis grew 136% mainly driven by the marketplace launches as well as solid performance and price comparison service. Adjusted EBITDA loss of Yandex.Market was RUB 1.3 billion in Q4 reflecting our investments in fulfillment, delivery and marketing expenses primarily related to the launch of the Beru marketplace.

In Q4 our marketplace Beru came out of beta with 15 shopping categories and 100,000 SKUs. In November, we introduced first Beru operated fulfillment center in Rostov region to ramp up fast delivery across the southern part of Russia. In addition, Yandex.Market launch is cross-border marketplace.

Getting back to corporate matters. We ended the quarter with approximately RUB 68.8 billion in cash equivalents, which is approximately $990 million for the exchange rate as of December 31st. This includes the cash of Yandex.Taxi, which amounted to RUB 27 billion.

Cash and equivalents of Yandex.Market of approximately RUB 29.1 billion are not included in the consolidated results of the Yandex N.V. In December we repeated in full the amount of convertible senior notes in the face amount of $321 million.

Turning to guidance. Based on our recent solid performance we provide an early outlook for the Search and Portal business to be in the range of 18% to 20% year-over-year in 2019. Excluding Yandex.Market from 2018 results, we expect our total revenues to grow 28% to 32% in 2019 compared to 2018.

With this, I'm sharing the mic over to the operator for the Q&A session.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Your first question comes from the line of Lloyd Walmsley of Deutsche Bank. Please ask your question.

Lloyd Walmsley

Thank you. I have two if I can. First, just on the template, it sounds like it's really starting to move the needle in revenue, wondering if that contribution is mostly helping O&O or that's also part of the network strength? And can you kind of talk about the timing of that inflection point. Was it really kind of a 4Q event because you all have been downplaying the impact to somewhat to revenue. So it sounds like a bit of a change in turn there? And then the second question would just be on kind of scaling the robo-taxi business. Can you talk about what your plans are this year and what really needs to happen from a technical standpoint, operationally, from a compliance kind of regulatory perspective to really scale that business in Russia or any other markets I guess around the world? Thanks.

Mikhail Parakhin

Hi, Mikhail here. I'm going to take the first one and then maybe Greg will take the second one. So on templates as we repeatedly said Templates are not like a one thing, alright? It's constant work in progress where we release new bids every month essentially. So as you correctly pointed out the inner calculation you could see already the impact quite a bit and we are going to continue rolling out new templates going forward. Now this is -- so templates is mainly search result, so its search only it’s not Yan, they do not impact Yan results.

Greg Abovsky

Hey Lloyd and then on self driving cars, what I would say is we’re still very much in the investment phase, we’re looking to ramp up the fleet of vehicles that we will be deploying, mostly in development and test mode. I am not sure there’s going to be a whole lot of live deployments, such as the one that you saw with Innopolis and the Skolkovo but we will look to ramp those up as well.

Overall, I’d say we’re extremely bullish by the technology, that we’ve created around self-driving and we think that obviously over the long-term this is definitely the future of transportation and we want to be one of the companies globally that’s at the forefront of this innovation.

Operator

Your next question comes from the line of Miriam Adisa, Morgan Stanley. Please ask your question.

Miriam Adisa

Hi, good morning everyone. Two questions from me. Just firstly on the Search guidance of 18% to 20%. Just wondering how much of an impact from smart speaker is baked into that as that looks little conservative based on the guidance the margins deteriorate by up to 200 bps? And then secondly on Taxi, based on the current trajectory, it looks like you’ll reach profitability in Q1 this year. Is that a fair statement, or is there any reason to think why that will be the case? Thank you.

Greg Abovsky

Hey Miriam, its Greg, let me try to take them one by one. On the Search and Portal, so what we said is, we expect that the margins will be down about a 100 to 200 basis points in the Search and Portal segment. Obviously the revenues are also in that 18% to 20% guidance, a little bit of them in there. Given that they are either done at breakeven or even the slight loss, they have quite an impact. And then the rest of the margin compression is just a result of the fact that we continue to invest in new products, right? The Search business has very natural operating leverage and every year we reinvest that operating leverage back into important products that the team develops, whether it’s the Alice, Intelligent Voice Assistant, the Collections that Mikhail was just talking about, that chart of businesses that we recently rolled out, the neighborhood, social network that we are currently deploying, so on and so forth. All of those require investments, all of those require investment in people first and foremost. And so what we like to do is we like to maintain this kind of high teens low 20s types of growth rates in the Search and Portal over the long-term and that requires coming up with new things constantly rather than just focusing on Search and Search only. Hopefully that answers your question about the guidance.

On the Taxi front, just as a reminder within the Taxi segment you have sort of four different buckets, if you will. You have Russia, or Russia CIF ride sharing business which is profitable -- increasingly profitable I would add over the last few quarters and we expect it to keep getting better and better. It includes sort of the emerging countries where we launched service recently and obviously many of those are loss making and we’re still kind of in the investment phase there. It also includes the self-driving business that I just talked about in response to Lloyd’s question.

And finally it includes the EATs segment, EATs is a new business -- relatively new business for us. We started in food delivery in December of 2017, in only the course of a year we grew the size of that business to 10x and are now a significant and important player in this business. We think that food delivery is a very attractive part of the business and we'll continue to invest in it. So net-net of that is we expect that the losses in the segment will moderate in 2019, driven by very healthy economics in the core Russians CIS segments offset by investments in earlier stage undertakings.

Operator

Your next question comes from the line of Slava Degtyarev of Goldman Sachs. Please ask your question.

Slava Degtyarev

I have a couple of questions. Firstly, can you comment on the Taxi gross bookings dynamics or if possible disclose some of the weekly recent run rate for the Taxi business? And the second question is maybe you can comment on the advertiser behavior by the key sub segments at the beginning of the year. Do you see directly or maybe indirectly the facts from the increase in value-added tax started from January this year? Thank you.

Tigran Khudaverdyan

Hello. This is Tigran question. Gross bookings are -- let’s start from rides, rides are growing 112% year-over-year in Q4. The gross bookings GMV NOIs run rate reached US$4.2 billion based on December, let’s keep in mind please that December is high season. And talking about gross revenues, revenues grew 170% year-over-year in Q4, this is slight slowdown from 200% growth rate last quarter. And also we are continually optimizing subsidies. They declined as a percent of gross revenues and in absolute terms also.

Mikhail Parakhin

Mikhail here, for the advertisers question. So while we just gave the outlook on Search and Portal revenue growth 18% to 20%, so that's sort of reflective of what we see right now. And basically what how we see the business, we will give a bit on trends probably in April. So far, we see that our key advertising categories are continuing to grow well. The top auto, finance, eating out, the IT, they are all growing at healthy double-digits 30%, 40% range.

Operator

Your next question comes from the line of Cesar Tiron of Bank of America. Please ask your question.

Cesar Tiron

I have 3 questions, if that's okay. The first one, I just wanted to clarify on the margins for core search in 2019. Do you expect those to trend down? Second question is on food delivery. Is it fair to say that we're seeing some rationalization in the market, it looks like subsidies are being reduced and you're now charging for deliveries also. And then the third question would be on potential regulation for Taxi, I mean, I think there were some proposals, for example, to ban foreigners to drive taxis and further things if you can clarify? Thank you so much.

Greg Abovsky

Hey, Cesar. Let me try to take these. On margins, I think we’ve sort of said everything that there is to say, which is we expect that they will be down about 100 to 200 basis points driven almost entirely, if not entirely, by sales of hardware devices, whereas the natural operating leverage of core search gets reinvested in new products that we just named or new ones that we will launch over the course of the year. So there's not much to add on that front.

On food delivery, I think it's early to draw conclusions, whether or not this market is rationalizing or not. We have been extremely disciplined in terms of our piece of investment in this segment and so far I think we've achieved very significant results without the sort of irrational exuberance in this segment.

With respect to delivery fees, yes, we do introduce them from time-to-time and we test them out. But our primary focus is on product, which means that getting the click to eat time down to the 30 minutes or so is that consumers in the Western world are sort of used to. As you know historically delivery times for Russian restaurants were an hour or more and which is just completely different type of experience. I would draw the parallel to calling up a taxi aggregator company back five, six years ago and having to wait 45 minutes for a taxi. Now you open up your Yandex.Taxi app and within three, four minutes, there's a car waiting for you, any type, class, size, whatever you want. So it's quite an investment that you need to make, but it's also quite a difference in product that consumers really appreciate.

And then finally on regulation. Look, I'd say that, we're in constant dialogue with regulators kind of regarding a wide array of questions that come up. And it covers sort of many different aspects of the business, both ride sharing, news aggregation, and so on. I think our position is consistently to be in a constructive dialogue with regulators, we're sometimes sort of at the forefront of regulation, working with other industry participants to introduce new regulation that is been official for everyone. I’d kind of draw your attention to the video anti-piracy memorandum that was signed in Q4 in early November, where Yandex together with other Internet players such as Mail and Rambler, got together with the media companies, the guests from medias, the -- and MGs of the world, Channel Ones and so on and signed a memorandum which has drastically cut the amount of video piracy that is accessible on the Russian Internet.

So I think that that's certainly a very legitimate approach to regulation, which is trying to identify problems that come up from time-to-time and trying to introduce kind of self regulatory mechanisms that address the concerns of all of the parties involved.

Operator

Your next question comes from the line of Question comes from the line of Masha Kahn of HSBC. Please ask your question.

Masha Kahn

Hi, thank you so much for the opportunity. Just wanted to ask the tick up of your Cloud business and that’s my number one question. And second question I think investor would be interested to hear, what you’re doing in terms of addressing the single person risk in your shareholder structure? Thank you.

Mikhail Parakhin

Mikhail here. On the Cloud question, so, overall I am delighted with how Cloud is progressing. We rolled out our public usage in December 2018. So it’s bit early to be able to estimate the rates of growth. Overall, we have 50,000 registered users right now and 10,000 retailers active. We are continually adding new services, just recently we added like five services in last week and things like data-based managed service and data visualization tool. Of course all of them are available on service located in Russia. So, right now all I’d say it performs in line with what we would expect.

Greg Abovsky

Hey Masha, it’s Greg. On the second question, look I don’t think there’s anything kind of new to add to the statements we have made in the past, which is to say that the Board is committed to get corporate governance and it kind of evaluates any potential steps towards achieving optimal capital or governance structure of the Group or its subsidiaries and obviously the long-term view is to protect the long-term interest of the company and all of the stakeholders. So, there’s not much to add to what we said before.

Operator

Your next question comes from the line of Ulyana Lenvalskaya of UBS. Please ask your question.

Ulyana Lenvalskaya

Hi, everyone and congratulations on very strong quarter. The first question will be on the car-sharing. Can you if possible disclose the number of cars you currently have and also the regional status like how big is this business in Moscow versus regions and just plans about the potential expansion outside of Russia?

Greg Abovsky

Hi, Ulyana, it’s Greg. On drive, I think it currently has about 8,000 cars, we’re adding a lot of cars every single month. Of the cars almost all of them with the exception of roughly a 1,000 are in Moscow. We have expanded this service to Saint Petersburg, back in December, where we very quickly became the largest player there.

We’re looking to expand the service to other cities within Russia, and we’re also evaluating opportunities for international expansion of Yandex.Drive. I think the achievements that this team has demonstrated are remarkable driven by their single minute focus on product, which is quite unique in the marketplace. So, we’re very excited about the prospects for Yandex.Drive.

Ulyana Lenvalskaya

I agree the achievements are truly remarkable. In that sense that business would you consider to start reporting a separately outside of Experience?

Greg Abovsky

Absolutely I think, we constantly look for how to provide optimal level of disclosure to our shareholders and I think generally speaking we’re sort of at the forefront of transparency and we always want to give you guys more information about how we make investment decisions and providing more disclosure around Drive is certainly one way of achieving that.

Ulyana Lenvalskaya

And if I may, just can you clarify on the distribute outlook. So with the core business, it's very clear. The guidance is straight forward. Taxi you said the loss should be smaller year-on-year, but it’s still a loss, right? And then how about the Classifieds and Media Services. Should we expect the losses to stay there too in 2019?

Greg Abovsky

Sure. So I won't cover them Search, Portal and Taxi since I think you've got those covered. On Classifieds, our strategy is unchanged from the previous year, which is, we expect very robust growth in Classifieds as we are increasingly taking share away from the leading competitor there in the regions and we will continue to invest all of the incremental revenues back in the business as we sort of turbocharge this segment and with respect. So I assume that it kind of operates as more or less breakeven, maybe slight positive, maybe slight negative, depending on kind of the pacing of the business.

On Media Services, we will invest slightly more this year, as compared to last year as we invest more in content and as we look to grow our subscription base of Yandex.Music subscribers as well as videos service subscribers.

Ulyana Lenvalskaya

Thank you. And just final on the music, can you disclose the number of users you currently have?

Greg Abovsky

I don't think we’ve disclosed it yet, but it's just tracking nicely.

Ulyana Lenvalskaya

Okay. Thank you.

Greg Abovsky

I should say we haven't disclosed it recently since we disclosed it in the past, but it continues to grow month-on-month and helpfully year-on-year.

Operator

Your next question comes from the line of Sebastian Patulea of Jefferies. Please ask your question.

Sebastian Patulea

Hello everyone. Sebastian from Jefferies here. I’ve got some questions please. Firstly we've seen an interview of one of your main competitors in the taxi vertical in Russia saying that they are open to probably upselling that business. I realized this topic sensitive, but would you be open deploy the consolidation or do you believe that now you've achieved industry scale to grow organically and profitably for the foreseeable future? That's the first one. And the second question still regarding unexpectedly global ride companies are typically more and more towards a strategy of last mile mobility. And one of collaboration to authorities for example, as you know, guests are recommending bus or train routes is giving you the other destination both faster and cheaper. Everything within the same app. So with Moscow being one of the most congested cities in the world, do you guys see any benefit to go through the strategic shift yourselves? And if so what’s the opportunity here? Thank you very much.

Greg Abovsky

Sure. Hi, Sebastian. First of all, on your second question with last mile mobility, I think that's an excellent question. And one of the remarkable things that the Department of Transportation has done in Moscow is 3 or 4 years ago they introduced regulation, which really enables car sharing initiatives. I think Bloomberg just did a story about this last week, which was very interesting. What they're doing is they're allowing for car sharing vehicles to pay lower parking rates than normal cars. And so what that has done is it made Moscow the largest car sharing market in the world.

While bikes and scooters are sort of one aspect of the last mile mobility, I would say Yandex.Drive is kind of an important participant in the space given kind of the weather conditions and the fact that bikes and scooters and probably not the best ways of getting around 250 days of the year here, or maybe slightly less than that.

But we're also looking to integrate our offerings with the Yandex.Transport which provides live information about the movements of buses, trams and so on throughout the city. And we're looking to see if we can integrate it even further within Yandex.Taxi.

On the question of M&A. Look, we obviously don't comment on speculation or market rumors about consolidation. I think the business is in excellent shape and grows strongly organically and is improving its margin profile domestically. So there's not much to add.

Operator

Your next question comes from the line of Alexander Vengranovich of SOVA Capital. Please ask a question.

Q - Alexander Vengranovich

So two questions from my side. So first again on taxi, one of your competitors Citymobil is actually expanding Moscow markets. I just wanted to understand whether you see any rising competition from their side and in case they become like more aggressive how they plan to handle this situation? Do you think that you might continue further shrink subsidies for the drivers in this environment? That's the first question. And the second question is regarding your office. So have you already estimated a total construction costs and when do you plan to start building the new headquarters? So how should the plan -- the impact of that construction for financial results? Thank you.

Greg Abovsky

Hi, Alexander. On competitive front, I think that the overall market is to the benefit of the consumer, right? What ride sharing enables is it allows consumers to summon a car at the push of a button within a few minutes and get from point A to point B at extremely competitive rates. And so our single minded focus is on investing in the product and providing the best consumer experience. That's what we worry about.

And from that point of view, I'd say we've done extremely well in terms of growing the number of rides, in terms of growing GMVs and increasing utilization rates for drivers, which is an extremely important metric to keep in mind, right?

The thing that matters most for drivers is how much earnings they generate per hour? And we basically use all of our expertise and machine learning and artificial intelligence to increase the utilization rates for those drivers and maximize their earnings per hour. And this is I think really where kind of the strength of the Yandex ecosystem bears its fruit.

On the question of the office. I don't think we're in a position to provide any meaningful updates to you, other than to remind you that the office lease for our main office runs through the end of 2021 and obviously we'd love to start migrating to a new facility at some point in 2022.

Alexander Vengranovich

Okay, just quick clarification then on the office side. Do you already include any costs associated with the construction in the ‘19 guidance?

Greg Abovsky

We would breakout those separately.

Operator

Your next question comes from the line of Vladimir Bespalov of VTB Capital. Please ask your question.

Vladimir Bespalov

Hello, thank you for taking my question, just congratulations on the result. My first question would be one your hardware initiatives, you’re increasingly moving into this area and probably it gives you another angle to look at your technology and solutions with cloud, maybe you could share what you learned developing this initiative and what probably would be the next steps, are you going to do something in this area for example the -- in the autonomous drive technology? And one more question I have on Media Services and we have heard quite a lot of news on different developments, so I think from the League of Legends contract some content production but maybe you could give in a more strategic way the outlook where this Media Services has developed -- how this Media Service is developing, where its heading and what you see like say in two, three years through this vertical? Thank you.

Mikhail Parakhin

Hi, Mikhail here, I am going to take the first one. Well, what we learned, we learned that hardware is there for a reason, it actually turned out to be surprisingly non-obvious where the pitfalls might be and we learned a lot about difficulties of manufacturing and even things like you would think that nothing can go wrong and then something definitely goes wrong. We learned how to overcome those. Long-term we don’t really disclose our plans but we are super committed to growing all kinds of digital assistance and smart home presence. We of course would prefer not to become a hardware company, we’d prefer to stay on software side, but if we need to do something to grow in the market we will do. We’re still I would say in a learning curve period where we sort of manage to overcome manufacturing and now learning to sell things.

Greg Abovsky

Hi, Vladimir, on your question with respect to Media Services. Look, our strategy there is focused on kind of three main pillars, subscription music, where we aim to be one of the leading players in this field. We compete with Apple Music and VK to some extent. But our focus is on sort of providing the best consumer experience on creating really compelling playlist for consumers to listen to and for them to have a reason to come back to the service.

On the video side, look it’s not a secrete, the consumers tend to watch lot of video online from sometimes it’s short form content, sometime it’s long form content and then with respect to kind of our own content creation, I’d say creating our own content is not a goal in itself, the goal is to provide consumers with what they want to watch. We’re happy to partner with content owners, but in some cases the content that we need to see they are not available on the market or at prices that are not reasonable. And so in no instances we would look to create our own and go into content production.

But look in an ideal world, obviously we’re happy to partner with content owners, happy not to invest into content production our own. What we provide is obviously robust monetization opportunities driven by advertising or subscription services, we'll provide as a powerful distribution platform. We provide data analytics obviously and we provide the physical infrastructure to stream all that content, which we have in-house.

And then, so the last pillar of Media Services is on ticketing. And over the last year, we have made a real push into ticketing services, initially was focused on movies, but increasingly it's focused on concerts and also on being able to provide sort of end-to-end services to artists, which include ticketing, promotion, and subscription sales for music and driving more and more consumers to listen to their content. So I think all of those things combined make us bullish on Media Services and make us want to invest in this business more.

Operator

Your next question comes from the line of Alexander Vengranovich of SOVA Capital. Please ask your question.

Alexander Vengranovich

Yes. Thanks again. So quick question. So I’ve noticed you have quite a substantial increase of your distribution TAC in the fourth quarter, it was up 44% year-over-year. Can you please provide little color …?

Mikhail Parakhin

Sure, Mikhail here. So well, you might have noticed that our share on mobile and especially drive grew significantly. And also last year, we were able to get much better placements on OEM distribution deals. And of course, that provided an upward pressure on distribution TAC. And some of the changes for quite large like even if you take Huawei where we were likely to get very good installation configuration and first screen, their sales grew from 15% in December 2017 to 38% in December 2018, generally quite a large shift in the market. So going forward, we still can expect distribution factor grow somewhat. We would say next year it might grow as high as maybe 100 basis points up from Q4.

Greg Abovsky

I would just add that those increases in TAC have been fairly modest. If you look at a full year 2018 compared to full year 2017 TAC has gone up a bit. Will go up a bit more in 2019, but it'll also come with increased Android share, which we’re obviously very excited about.

Operator

We have no further questions at this time.

Katya Zhukova

Thank you so much for joining our call today. We hope to see you back on our Q1 [Audio Gap].

Operator

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