Yandex N.V. (YNDX)

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Yandex N.V. (YNDX)

Q3 2012 Earnings Call

October 30, 2012 9:00 am ET


Katya Zhukova

Arkady Volozh - Founder, Chief Executive Officer and Director

Alexander Shulgin - Chief Financial Officer

Dmitry Barsukov - Corporate Finance Director


Edward Hill-Wood - Morgan Stanley, Research Division

Lloyd Walmsley - Deutsche Bank AG, Research Division

Alexander Balakhnin - Goldman Sachs Group Inc., Research Division

Charles Eugene Munster - Piper Jaffray Companies, Research Division

Olga Bystrova - Crédit Suisse AG, Research Division

Mariya Rubanovskaya - BofA Merrill Lynch, Research Division

Anastasia Obukhova - VTB Capital, Research Division

Alexander Vengranovich - OTKRITIE Securities Ltd., Research Division

Anna Lepetukhina - Sberbank Investment Research



Thank you for standing by, and welcome to the Yandex Third Quarter 2012 Financial Results Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today, on a Tuesday, the 30th of October 2012. And I would now like to hand the conference over to your speaker today, Katya Zhukova. Please go ahead.

Katya Zhukova

Hello, everyone, and welcome to Yandex' Third Quarter 2012 Earnings Call. We distributed our earnings release earlier today. You can find a copy of the press release on the company's Investor Relations website, as well as on NEWSWIRE services.

Today, we have on the call our CEO, Arkady Volozh; and our CFO, Alexander Shulgin. Mr. Barsukov, Yandex's Director of Corporate Finance, will be available during the Q&A session. Our call will be recorded. The recording will be available on the Yandex Investor Relations website in a few hours. We also put together a few slides to supplement the story. These slides are currently available on our IR website as well.

And now, I will quickly take you through the Safe Harbor statement. Various remarks that we make during this call about our future expectations, plans and progress 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 2, 2012, 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 will be referring to some non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with the 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 before I turn the call over to Arkady, I would like to give you a quick update about Internet usage trends in Russia. Summer month is seasonally slow, with Internet penetration usually remaining unchanged compared with the spring. This year was no different, and according to the Public Opinion Foundation, Internet penetration remained at 51% on a monthly basis, corresponding to 59.4 million people online. This represents 14% growth year-on-year. The growth continues to come primarily from the region. Central and Northeastern federal [ph] districts with more [indiscernible] growth respectively seeing a big growth. Demonstrated year-on-year increase in penetration from 48% to 65%, and from 56% to 68% this past year. At the same time, Euro and southernmost Baltic [ph] regions demonstrated much faster growth in penetration, increasing year-on-year from 43% to 51%, and from 41% to 49%, respectively.

According to the most recent research of ACM consulting, household broadband penetration in Russia reached 39% as of the end of H1 2012. This is a 2% increase over the same data as of the end of 2011. In Moscow and St. Petersburg, household broadband penetration increased to 81% and 78%, respectively.

And now, I am turning the call over to Arkady Volozh.

Arkady Volozh

Thanks, Katya, and thank you all for joining us today. Before I begin, I would like to send my best wishes to those affected by the hurricane in the United States, and we're hoping that things will be back to normal soon.

And now over to the business. Over the past 15 years, Yandex has grown from a local search provider into a leading company in Europe providing search and related services to the world. Last September, we celebrated our 15th anniversary. Yandex was launched in 1997 and it took us 3 hard years to attend to leadership taking the Russian market, and we have maintained the #1 position ever since.

And now, we now have over 3,600 full-time employees in Yandex offices throughout Russia, Ukraine, Pakistan, Belarus, as well as in the United States, Turkey and Switzerland. And Yandex is an important part of the daily lives of our users and our advertisers. Q3 marks yet another strong quarter, with our core contextual search business earning top line growth. [indiscernible] our financial struggling, it is enough to say that we are pleased with the results.

And now I will cover some of the operational highlights. I am pleased with the performance of our search products over the past few months, as we maintained more than 60% market share in Russia. Importantly, we increased our share of searches across all major browsers and platforms. This is due to a noticeable improvement in the quality of our search, including freshness, response time and quality of answers to open-ended [ph] queries. I'll add that approximately 11% of searches are now coming to Yandex from mobile devices, including smartphones and tablets. A key contributor to our strength in search is product quality and market management is working to keep the quality standards high.

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