Yandex Announces Second Quarter 2022 Financial Results

EquityStory.RS, LLC-News: Yandex N.V. / Key word(s): Quarter Results/Quarter Results Yandex Announces Second Quarter 2022 Financial Results 26.07.2022 / 13:00 MSK The issuer is solely responsible for the content of this announcement. Yandex Announces Second Quarter 2022 Financial Results   MOSCOW and AMSTERDAM, the Netherlands, July 26, 2022 -- Yandex (NASDAQ and MOEX: YNDX), one of Europe's largest internet companies, today announced its unaudited financial results for the second quarter ended June 30, 2022.   Q2 2022 Financial and Operational Highlights1,2             In RUB millions   Three months ended June 30     2021 2022 Change     Total Revenues  81,402  117,748 45%   Online Ad Revenues  39,586  48,430 22%     Total Adjusted EBITDA  5,780  25,694 345% Total Group Total Adjusted EBITDA margin, % 7.1% 21.8% 14.7 pp     Net income/(loss)  (4,664)  8,056 n/m     Adjusted Net Income  1,012  13,134 n/m     Share of Russian search market, % 59.7% 62.1% 2.4 pp     Search share on Android, % 59.5% 61.9% 2.4 pp     Search share on iOS, % 42.2% 48.4% 6.2 pp Search and   Revenues  39,212  51,233 31% Portal   Revenues Ex-TAC  32,151  43,215 34%     Adjusted EBITDA  18,543  28,461 53%   Adjusted EBITDA margin, % 47.3% 55.6% 8.3 pp     Revenues  37,007  56,474 53% E-Commerce, Mobility   GMV of Mobility3  138,580  178,963 29%  and Delivery   GMV of E-commerce4  35,007  58,568 67%     GMV of other O2O services5  15,071  23,439 56%     Total Adjusted EBITDA  (9,062)  2,139 n/m Plus and Entertainment Services   Yandex Plus subscribers, MM  9.0  13.7 53%   (1) Pursuant to SEC rules regarding convenience translations, Russian ruble (RUB) amounts have been translated into U.S. dollars in this release at a rate of RUB 51.1580 to $1.00, the official exchange rate quoted as of June 30, 2022 by the Central Bank of the Russian Federation. (2) The following measures presented in this release are “non-GAAP financial measures”: ex-TAC revenues, adjusted EBITDA, adjusted EBITDA margin and adjusted net income. Please see the section “Use of Non-GAAP Financial Measures” below for a discussion of how we define these measures, as well as reconciliations at the end of this release of each of these measures to the most directly comparable U.S. GAAP measures. (3) GMV (or gross merchandise value) of Mobility is defined as the total amount paid by customers for ride-hailing, car-sharing and scooters rent services booked through our platform, including VAT. (4) GMV of E-commerce is defined as the value of all merchandise sold through our Yandex Market marketplace and Yandex Lavka as well as the value of products sold through Yandex Eats grocery service (delivered and paid for), including VAT. (5) GMV of other O2O (online-to-offline) services includes the total amount paid by customers and partner businesses for Yandex Delivery services, the value of orders, delivered through Yandex Food Delivery service, Lavka Israel, and several other smaller O2O experiments, including VAT.   Financial outlook   Given that uncertainty concerning future geopolitical developments and the macro environment remains high, our visibility over the short- and medium-term is limited and we remain unable to provide any forward-looking outlook at this stage. We aim to remain transparent about the performance and key trends across our businesses with our quarterly Letter to Shareholders.   Corporate and Subsequent Events   On February 28, 2022, Nasdaq and the New York Stock Exchange suspended the trading in securities of a number of companies with material operations in Russia, including Yandex N.V. Class A shares, and as of the reporting date, trading in our Class A shares remains halted. There is still no clarity on when and whether trading may be resumed. The trading on the Moscow Exchange continues, however the international settlement systems remain closed for trading in rubles and in any securities of Russian businesses, and it is currently not possible for trades to settle between shareholders that acquired our shares on Nasdaq and investors on the Moscow Exchange. The liquidity of our shares remains limited to the number of shares held in the Russian National Stock Depository (NSD) system. The situation has been further complicated by the sanctions that have been imposed on the NSD and the impact such sanctions have had on the relationships within settlement systems. We continue to review different options to find a workable solution for our shareholders to trade our shares. On April 28, 2022, Yandex announced that its principal Russian operating subsidiary, Yandex LLC, has reached an agreement in principle with VK to sell Yandex’s news aggregation platform and infotainment service Zen. Definitive binding documentation has not yet been signed. The transaction would be subject to the approval of Russian Federal Anti-Monopoly Service (FAS). On June 23, 2022, Arkady Volozh, the company’s co-founder, stepped down with immediate effect from his positions as Executive Director and Chief Executive Officer of Yandex N.V. and from his board and executive positions with its international subsidiaries. As the settlor of a trust which holds Class B shares in the Company for the benefit of his family, Mr. Volozh has given an irrevocable undertaking to the trustee not to instruct the trustee as to how to vote such Class B shares for so long as Arkady remains subject to sanctions. Pursuant to the terms of the trust, the trustee will vote such shares on all matters proposed to the shareholders in accordance with the recommendations of the independent members of the Board of Directors. On June 22, 2022, Yandex announced that its 2022 Annual General Meeting of Shareholders (AGM) will be held later this year. The date will be communicated in due course. In June 2022, Yandex announced that it has completed its purchase of 93.2% in aggregate principal amount of its $1.25 billion 0.75% Convertible Notes due 2025 (the “Notes”) pursuant to a Purchase Agreement dated June 15, 2022. Following the amendment of the terms of the Notes made on June 10, 2022, Yandex also has a call option to redeem all of the remaining Notes pursuant to certain conditions, and Yandex anticipates that all of such remaining Notes will either be purchased or redeemed on or prior to September 12, 2022. Neither Yandex N.V. nor any of its subsidiaries is a target of sanctions in the United States, European Union, Switzerland or United Kingdom, and the Yandex group is not owned or controlled by any persons who have been designed under such sanctions. Yandex continues to closely monitor developments in this regard.   Consolidated Results   The following table provides a summary of our key consolidated financial results for the three and six month periods ended June 30, 2021 and 2022:                 In RUB millions Three months ended June 30,  Six months ended June 30,    2021 2022 Change 2021 2022 Change Revenues  81,402  117,748 45%  154,538  223,758 45% Ex-TAC revenues  75,171  110,412 47%  142,906  210,276 47% Income/(loss) from operations  (4,723)  8,746 n/m  (4,990)  (3,688) -26% Adjusted EBITDA  5,780  25,694 345%  16,801  26,965 60% Net income/(loss)  (4,664)  8,056 n/m  (7,884)  (4,981) -37% Adjusted net income  1,012  13,134 n/m  4,020  5,010 25%     Our segment disclosure is provided in the Segment financial results section below. Cash, cash equivalents and term deposits as of June 30, 2022: RUB 75.6 billion ($1,477.6 million) on a consolidated basis, of which RUB 23.7 billion ($463.3 million) was located outside of Russia.   Segment financial results   Starting in Q2 2022, we introduced the following changes to our segments under which we reported our quarterly financial results previously, in order to better reflect operational structure of our businesses:   We renamed the Media Services segment to the Plus and Entertainment Services segment, which better reflects the nature of the included businesses.   Search & Portal   Our Search and Portal segment includes Search, Geo, Yandex 360, Weather, News, Travel, Alice voice assistant and a number of other services offered in Russia, Belarus and Kazakhstan.   Key operational trends: Share of Russian search market, including mobile, averaged 62.1% in Q2 2022, up from 59.7% in Q2 2021 and 61.0% in Q1 2022, according to Yandex Radar Search share on Android in Russia was 61.9% in Q2 2022, up from 59.5% in Q2 2021 and 59.9% in Q1 2022, according to Yandex Radar Search share on iOS in Russia was 48.4% in Q2 2022, up from 42.2% in Q2 2021 and 46.1% in Q1 2022, according to Yandex Radar Mobile search traffic was 67.2% of our total search traffic in Q2 2022. Mobile revenues represented 58.6% of our search revenues in Q2 2022 Search queries in Russia grew 6% in Q2 2022 compared with Q2 2021               In RUB millions Three months ended June 30,  Six months ended June 30,    2021 2022 Change 2021 2022 Change Revenues 39,212 51,233 31% 74,157 95,067 28% Revenues Ex-TAC 32,151 43,215 34% 60,767 80,340 32% Adjusted EBITDA 18,543 28,461 53% 35,649 46,860 31% Adjusted EBITDA margin 47.3% 55.6% 8.3 pp 48.1% 49.3% 1.2 pp   Revenues increased by 31% and Revenues Ex-TAC grew by 34% year-on-year in Q2 2022. The growth was driven by solid trends in both the Yandex Advertising Network and our core search business (supported by further improvement of our search share, especially on iOS) with SMB (small and medium business) clients leading the growth. This solid performance was underpinned by the ongoing improvement in ad technologies and products (including for SMB) as well as market share gains resulting from the reallocation of advertising budgets on the back of the changes in competitive landscape. Adjusted EBITDA margin came to 55.6% in Q2 2022 significantly improving compared with 47.3% in Q2 2021. The key drivers behind the margin expansion were rigorous cost control and optimization of the volume and timing of certain operational expenses (in light of the overall group’s focus on cash preservation and stricter capital allocation) as well as a positive operating leverage effect driven by strong advertising revenue growth.   E-commerce, Mobility and Delivery   The E-commerce, Mobility and Delivery segment includes our transactional online-to-offline (O2O) businesses, which consist of (i) the mobility businesses, including ride-hailing in Russia and other countries across CIS and EMEA and Yandex Drive, our car-sharing business for both B2C and B2B and scooters; (ii) the E-commerce businesses in Russia and CIS, including Yandex Market, our multi-category e-commerce marketplace, Yandex Lavka Russia, our hyperlocal convenience store delivery service, and the grocery delivery service of Yandex Eats; and (iii) other O2O businesses, including Yandex Delivery, our last-mile logistics solution for individuals, enterprises and SMB; Yandex Eats Food Delivery, our ready-to-eat delivery service from restaurants; Lavka Israel, our hyperlocal convenience store delivery service; and several smaller experiments.   Key operational trends: Total E-Commerce GMV increased by 67% year-on-year in Q2 2022 Yandex Market The share of GMV sold by third-party sellers on our Yandex Market marketplace reached 84% in Q2 2022 compared to 70% in Q2 2021 Marketplace’s assortment was 39.9 million SKUs as of the end of Q2 2022, up from 16.8 million SKUs as of the end of Q2 2021 and 26.1 million SKUs as of the end of Q1 2022 The number of active buyers6 on Yandex Market marketplace increased by 60% year-on-year and reached 11.4 million as of the end of Q2 2022 The number of active sellers7 on Yandex Market marketplace increased by 137% year-on-year and reached 30.8 thousand as of the end of Q2 2022 Mobility The number of rides in the Mobility services increased 28% compared to Q2 2021 GMV of the Mobility services grew 29% compared to Q2 2021   (6) An active buyer is a buyer who made at least 1 purchase in the last 12 months prior to the reporting date. (7) An active seller is a seller who made at least 1 sale in the last 1 month prior to the reporting date.                 In RUB millions Three months ended June 30,  Six months ended June 30,    2021 2022 Change 2021 2022 Change GMV:             Mobility  138,580  178,963 29%  257,982  346,381 34% E-Commerce  35,007  58,568 67%  59,493  123,148 107% First party (1P) business model  14,228  17,418 22%  25,612  36,595 43% Third party (3P) commission business model  20,779  41,150 98%  33,881  86,553 155% Other O2O services  15,071  23,439 56%  27,728  47,760 72% Revenues:             Mobility  18,496  29,938 62%  36,550  56,499 55% E-Commerce  14,429  19,653 36%  26,630  40,397 52% Revenues from sale of goods (1P)8  11,791  14,140 20%  21,187  29,700 40% Commission and other e-commerce revenues9  2,638  5,513 109%  5,443  10,697 97% Other O2O services  4,424  7,966 80%  8,375  16,761 100% Eliminations  (342)  (1,083) n/m  (417)  (2,284) n/m Total revenues  37,007  56,474 53%  71,138  111,373 57% Adjusted EBITDA E-commerce, Mobility and Delivery:  (9,062)  2,139 n/m  (12,223)  (6,064) n/m   (8) Revenues related to sales of goods include revenues from Yandex Market 1P sales, revenues from Yandex Lavka 1P sales in Russia, where we use a first-party (1P) business model and act as a direct retailer, and excludes delivery fee revenues related to these businesses. (9) Commission and other e-commerce revenues include Yandex Market marketplace (3P) commission, delivery, service fee and advertising revenues of grocery delivery services of Yandex Eats, as well as delivery fee and advertising revenue of Yandex Lavka in Russia and other revenues.   The growth in GMV of Mobility reached 29% year-on-year in Q2 2022, driven by the similar increase in number of rides, driven by growth of rider base and their frequency. The growth in GMV of E-commerce reached 67% year-on-year in Q2 2022 affected by the higher focus on cash preservation this quarter as well as the normalization of the overall e-commerce market growth post peak demand in March 2022. The growth in GMV of other O2O services reached 56% year-on-year in Q2 2022, with Yandex Delivery, closely followed by Yandex Food Delivery service, being the largest contributors.   The E-commerce, Mobility and Delivery segment revenues increased by 53% year-on-year, mainly driven by Mobility and E-commerce services (where Yandex Lavka was the largest contributor to growth, followed by Yandex Market). Mobility revenues increased by 62%, driven by solid growth in rides and GMV in ride-hailing as well as by improvement in marketplace efficiency and driver supply. E-commerce revenues increased by 36% in Q2 2022 compared to Q2 2021. The slower-than-GMV revenue growth is primarily explained by the changes in 1P/3P revenue mix in Yandex Market (increase in the share of 3P GMV to 84% in Q2 2022 compared with 70% in Q2 2021). 1P revenues grew 20% year-on-year supported by the growth of Yandex Lavka (on the back of the controlled expansion in the number of dark stores in selected regions) and partly offset by a decrease in Yandex Market 1P sales (mostly as a result of planned strategy to preserve stock aimed at reduction of shortages in light of the increased complexity of the supply chain). Commission and other E-Commerce revenues grew by 109% due to 3P GMV growth and an improved effective take rate in Yandex Market. Other O2O services revenues delivered solid 80% year-on-year growth primarily driven by the growth of Yandex Delivery and Yandex Food Delivery, with Yandex Lavka Israel being the third largest contributor to the revenue growth.   Eliminations related to the E-commerce, Mobility and Delivery segment represent the eliminations of intercompany revenues between different businesses within the segment. The year-on-year dynamic was mainly attributed to a higher volume of E-commerce orders fulfilled by our Yandex Delivery business growing from a low base as well as the growing volume of Yandex Market orders delivered using our Yandex Drive fleet.   Adjusted EBITDA of E-commerce, Mobility and Delivery was RUB 2,139 million in Q2 2022 compared to an adjusted EBITDA loss of RUB 9,062 million in Q2 2021. This significant increase in profitability was driven primarily by improvements in operational efficiency across most of the key businesses included in the segment, as well as a group-wide focus on cash generation and stricter cost control, which included a hiring freeze, optimization of marketing expenses and other overheads, among others.   Plus and Entertainment Services   The Plus and Entertainment Services segment includes our subscription service Yandex Plus, Yandex Music, Kinopoisk, Yandex Afisha and our production center Yandex Studio.   Key operational trends: Number of Yandex Plus subscribers reached 13.7 million as of the end of Q2 2022, up 53% from the end of Q2 2021                 In RUB millions Three months ended June 30,  Six months ended June 30,    2021 2022 Change 2021 2022 Change Revenues 4,094 6,150 50% 7,580 11,981 58% Adjusted EBITDA (1,732) (2,595) 50% (2,989) (5,766) 93% Adjusted EBITDA margin -42.3% -42.2% 0.1 pp -39.4% -48.1% -8.7 pp   Plus and Entertainment Services revenues grew 50% in Q2 2022 compared with Q2 2021. The increase was primarily driven by the growth of subscription revenue on the back of the expanding base of paid subscribers and changes in tariff mix, as well as good performance in other revenue streams (including licensing and Afisha). Adjusted EBITDA loss of RUB 2.6 billion reflects the increase of the business growth to underpin expansion of the Yandex Plus subscriber base.   Classifieds   The Classifieds segment includes Auto.ru, Yandex Realty and Yandex Rent.                 In RUB millions Three months ended June 30,  Six months ended June 30,    2021 2022 Change 2021 2022 Change Revenues 1,995 2,085 5% 3,778 4,257 13% Adjusted EBITDA 728 541 -26% 1,113 818 -27% Adjusted EBITDA margin 36.5% 25.9% -10.6 pp 29.5% 19.2% -10.3 pp   Classifieds revenues increased by 5% in Q2 2022 compared with Q2 2021. The positive growth was supported by improvements in our monetization strategies and value-added services, increased dealers’ retention as well as strong performance of Yandex Realty, which offset the adverse impact of the significant downturn on a new car market. Adjusted EBITDA amounted to RUB 0.5 billion in Q2 2022 compared with RUB 0.7 billion in Q2 2021 with margin decreasing 11 pp year-on-year as a result of the revenue growth deterioration, partially offset by the group-wide cost optimization.   Other Business Units and Initiatives   The Other Business Units and Initiatives segment includes our self-driving vehicles business (Yandex SDG), Zen, Yandex Cloud, Yandex Education, Devices, FinTech, Toloka, RouteQ and number of other experiments.                 In RUB millions Three months ended June 30,  Six months ended June 30,    2021 2022 Change 2021 2022 Change Revenues 4,929 10,185 107% 9,741 17,450 79% Adjusted EBITDA (2,779) (2,896) 4% (4,927) (9,023) 83% Adjusted EBITDA margin -56.4% -28.4% 28 pp -50.6% -51.7% -1.1 pp   Other Business Units and Initiatives revenues increased 107% year-on-year in Q2 2022, driven mainly by Devices, Cloud and Education. Devices revenue increased 165% year-on-year to RUB 4.3 billion in Q2 2022 driven by solid demand for our smart devices, including the recently launched second generation of the flagship Yandex Station, supported by the gradual recovery of logistics and production in China after COVID-related lockdowns. Cloud revenue grew 207% year-on-year, which was driven by the increasing demand for Cloud services and solid improvement in our market share on the back of the product portfolio expansion and changing competitive landscape on the domestic market.   The adjusted EBITDA loss amounted to RUB 2.9 billion (including RUB 1.5 billion investments on SDG), compared to RUB 2.8 billion in Q2 2021. The segment demonstrated a material improvement of relative losses as a percentage of revenue primarily driven by solid performance in Cloud and Devices, which have now both reached positive Adjusted EBITDA for the first time.   Eliminations   Eliminations related to our revenues represent the elimination of transactions between the reportable segments, including advertising revenues, intercompany revenues related to brand royalties, data centers, devices intercompany sales and others.                 In RUB millions Three months ended June 30,  Six months ended June 30,    2021 2022 Change 2021 2022 Change Revenues:             Segment revenues 87,237 126,127 45% 166,394 240,128 44% Eliminations (5,835) (8,379) 44% ...