OREANDA-NEWS.  February 22, 2012. MOSCOW AND THE HAGUE, February 22, 2012, Yandex (NASDAQ: YNDX), the leading internet company in Russia operating the country’s most popular search engine and most visited website, today announced its financial results for the fourth quarter and the full year ended December 31, 2011.

Q4 2011 Financial Highlights


Revenues of RUR 6.4 billion (USD 200.0 million1), up 56% compared with Q4 2010

Ex-TAC revenues2 (excluding traffic acquisition costs) up 50% compared with Q4 2010


Income from operations of RUR 2.6 billion (USD 80.8 million), up 44% compared with Q4 2010


Adjusted EBITDA2 of RUR 3.3 billion (USD 101.5 million), up 48% compared with Q4 2010


Operating margin of 40.4%

Adjusted EBITDA margin2 of 50.8%

Adjusted ex-TAC EBITDA margin2 of 60.1%


Net income of RUR 2.1 billion (USD 65.9 million), up 51% compared with Q4 2010


Adjusted net income2 of RUR 2.2 billion (USD 68.3 million), up 50% compared with Q4 2010


Net income margin of 33.0%

Adjusted net income margin2 of 34.1%

Adjusted ex-TAC net income margin2 of 40.4%

FY 2011 Financial Highlights

Revenues of RUR 20.0 billion (USD 622.2 million1), up 60% compared with FY 2010

Ex-TAC revenues2 (excluding traffic acquisition costs) up 56% compared with FY 2010


Income from operations of RUR 7.0 billion (USD 218.5 million), up 46% compared with FY 2010


Adjusted EBITDA2 of RUR 9.2 billion (USD 286.9 million), up 50% compared with FY 2010


Operating margin of 35.1%

Adjusted EBITDA margin2 of 46.1%

Adjusted ex-TAC EBITDA margin2 of 54.2%


Net income of RUR 5.8 billion (USD 179.3 million), up 51% compared with FY 2010

Adjusted net income2 of RUR 6.0 billion (USD 186.5 million), up 51% compared with FY 2010


Net income margin of 28.8%

Adjusted net income margin2 of 30.0%

Adjusted ex-TAC net income margin2 of 35.2%

“Yandex demonstrated strong traffic and revenue growth, capping off results for 2011 at the top end of our guidance range and building upon our clear leadership in the Russian search market,” said Arkady Volozh, Chief Executive Officer of Yandex. “During the past year we continued to innovate and offer new services that make a difference in the lives of our users, including those in Turkey, our first market outside the CIS. This past year’s significant investments in talent and infrastructure, along with our focus on the needs of users, position us well going forward. We will continue to develop a broad range of services that complement our core search platform, including maps and personal services on the desktop and on mobile platforms, emphasizing collaboration with our strategic partners.”

Q4 2011 Operational Highlights

Share of Russian search market averaged 60.8% in Q4 2011 (according to LiveInternet)


SERPs (search engine result pages) grew 36% from Q4 2010


Number of advertisers was more than 173,000, up 43% from Q4 2010 and up 10% from Q3 2011.

For FY2011, the number of advertisers increased by 44% to more than 270,000


Acquisition of the mobile business of SPB Software


Important partnerships in mobile: Yandex became the default search engine on Windows Phone in Russia and bada phones in the CIS


Built upon our launch in Turkey by adding a new map service that includes built-in traffic maps as well as panoramic street images of Istanbul and Ankara.

Text-based advertising revenues, accounting for 85% of total revenues in Q4 2011, continued to determine overall top-line performance.

Text-based advertising revenues from Yandex’s own websites accounted for 68% of total revenues during Q4 2011, and increased by 43% compared with Q4 2010. Text-based advertising revenues from our ad network increased 131% compared with Q4 2010 and contributed 16% of total revenues during Q4 2011. The enhanced performance of our Yandex ad network reflects the addition of Rambler to our ad network in mid-2011 as well as improved monetization from our contextual partner network sites due to improvements in our advertising technology.

Paid clicks on Yandex’s and its partners’ websites, in aggregate, increased 65% in Q4 2011 compared with Q4 2010, while the average cost per click decreased 7% during the same period as a result of our efforts to improve CTR (click through rate) on both our own sites and our ad network, make our platform more attractive to new advertisers primarily from the regions and increase the efficiency of our clients’ advertising spend.

Display advertising revenue, accounting for 13% of total revenues during Q4 2011, increased 72% compared with Q4 2010 reflecting the strong commitment of our display advertising clients to maintaining their presence online.

Online payment commissions accounted for 2% of revenue during Q4 2011, and increased 40% compared with Q4 2010.

Operating Costs and Expenses


Yandex’s operating costs and expenses consist of cost of revenues, product development expenses, sales, general and administrative expenses (SG&A), and depreciation and amortization expenses (D&A). Apart from D&A, each of the above expense categories includes personnel-related costs and expenses, including related share-based compensation expense. Increases across all cost categories, excluding D&A, reflect investments in overall growth, including personnel. In Q4 2011, Yandex added 149 full-time employees, an increase of 5% from September 30, 2011, and up 39% from December 31, 2010. The total number of full-time employees was 3,312 as of December 31, 2011. Total share-based compensation expense increased 50% in Q4 2011.

TAC increased from 14.4% of text-based revenues in Q4 2010 to 18.4% in Q4 2011, resulting primarily from growth in the percentage of our text-based revenues generated from our ad network for the period and, in turn, the growth in the share of those revenues paid to our ad network partners.

Other cost of revenues in Q4 2011 increased 68% compared with Q4 2010, reflecting principally an increase in datacenter-related costs and utilities, personnel expenses and content acquisition costs. The number of people employed in the departments allocated to costs of revenues increased 48%, from 219 as of December 31, 2010 to 325 as of December 31, 2011, with 6 employees added since September 30, 2011.


The increase in product development expenses in Q4 2011 primarily reflects the increase in personnel-related expenses. Headcount in development staff increased 40% from 1,313 as of December 31, 2010, to 1,842 as of December 31, 2011, with 104 employees added since September 30, 2011.

The increase in SG&A in Q4 2011 was driven primarily by increased personnel-related costs as well as increased advertising and marketing expenses. Headcount in departments whose costs are allocated to SG&A increased 34%, from 853 as of December 31, 2010 to 1,145 as of December 31, 2011, with 39 employees added since September 30, 2011.

Total SBC expense increased 50% in Q4 2011 compared with Q4 2010. The increase is primarily related to share-based compensation on options granted to employees in 2010 and 2011, which had fair values significantly higher than previous grants.

D&A expense increased 70% in Q4 2011 compared with Q4 2010, primarily reflecting our considerable recent investments in servers and data centers.

As a result of the factors described above, income from operations was RUR 2.6 billion (USD 80.8 million) in Q4 2011, a 44% increase from Q4 2010, while adjusted EBITDA reached RUR 3.3 billion (USD 101.5 million) in Q4 2011, up 48% from Q4 2010.

Interest income in Q4 2011 was RUR 105 million, up from RUR 46 million in Q4 2010. We derive a considerable portion of our interest income from ruble term deposits held in major Russian banks. Investments of our cash held in USD in the Netherlands in bank deposits, money market funds and debt securities generally yield considerably lower returns. Interest income increased principally due to investing more of our cash provided by operating activities in Russia, where our investments earn higher returns. Additionally, we earned significantly more interest income in the Netherlands due to the investment of our IPO proceeds.

Foreign exchange gain in Q4 2011 was RUR 6 million, compared to a foreign exchange loss of RUR 5 million in Q4 2010. Because the functional currency of Yandex’s operating subsidiaries in Russia is the Russian ruble, changes in the ruble value of these subsidiaries’ monetary assets and liabilities that are denominated in other currencies (primarily U.S. dollar-denominated cash, cash equivalents and term deposits maintained in Russia) due to exchange rate fluctuations are recognized as foreign exchange gains or losses in the income statement. Although the U.S. dollar value of Yandex’s U.S. dollar-denominated cash, cash equivalents and term deposits was not impacted by these currency fluctuations, they resulted in upward and downward revaluations, respectively, of the ruble equivalent of these U.S dollar-denominated monetary assets in Q4 2011 and Q4 2010.

Income tax expense for Q4 2011 was RUR 573 million, up from RUR 441 million in Q4 2010. Our effective tax rate decreased from 23.8% in Q4 2010 to 21.3% in Q4 2011, primarily reflecting a change in our treasury policy following the IPO. In recent years, Yandex’s principal Russian operating subsidiary had been paying dividends to its Netherlands parent company and incurred a 5% withholding tax in Russia when these dividends were paid. Under the new treasury policy, however, management does not currently expect the company’s Russian operating subsidiary to pay dividends to the parent company out of 2011 earnings. Therefore, no accrual for dividend withholding tax was required for 2011.

Adjusted net income in Q4 2011 was RUR 2.2 billion (USD 68.2 million), a 50% increase from Q4 2010, broadly in line with the underlying operating results. It was positively impacted by a change in the effective income tax rate resulting from the elimination of the dividend withholding tax accrual. Adjusted net income margin was 34% in Q4 2011, compared to 36% in Q4 2010.

Net income was RUR 2.1 billion (USD 65.9 million) in Q4 2011, up 51% compared with Q4 2010. The higher growth in net income compared with adjusted net income was primarily the result of SBC expenses representing a smaller portion of other operating costs and expenses when comparing Q4 2011 to Q4 2010.

As of December 31, 2011, Yandex had cash, cash equivalents, term deposits (including long-term deposits) and long-term debt securities of RUR 20.7 billion (USD 642.3 million).

Net operating cash flow and capital expenditures for Q4 2011 were RUR 2.7 billion (USD 85.0 million) and RUR 1.8 billion (USD 54.3 million), respectively.

The total number of shares issued and outstanding as of December 31, 2011 was 323,838,731, including 159,217,348 Class A shares, 164,621,382 Class B shares, and one Priority share and excluding Class C shares outstanding solely as a result of conversion of Class B shares into Class A shares; all such Class C shares will be cancelled. There were also options outstanding to purchase up to an additional 14.3 million shares, at a weighted average exercise price of USD 4.19 per share, of which options to purchase 9.8 million shares were fully vested; and equity-settled share appreciation rights equal to 0.8 million shares, at a weighted average measurement price of USD 20.80, none of which were vested.

Outlook for 2012


Yandex expects to report full-year ruble-based revenue growth of 40-45% for the full year 2012.

Conference Call Information


Yandex’s management will hold an earnings conference call on February 22, 2012 at 9:00 AM U.S. Eastern Time (6:00 PM Moscow time; 2:00 PM London time).

To access the conference call live, please dial:

US: +1 631 510 7498

UK: +44 (0) 1452 555 566

Russia: 8 10 800 20972044


Passcode: 45285902#

A replay of the call will be available through February 29, 2012. To access the replay, please dial:

US: +1 866 247 4222

Russia/International: +44 (0) 1452 550 000


Passcode: 45285902#

A live and archived webcast of this conference call will be available at http://investor.shareholder.com/media/Yandex/eventdetail.cfm?eventid=108335

ABOUT YANDEX


Yandex (NASDAQ: YNDX) is the leading internet company in Russia, operating the country’s most popular search engine and most visited website. Yandex also operates in Ukraine, Kazakhstan, Belarus and Turkey. Yandex’s mission is to answer any question internet users may have.

FORWARD-LOOKING STATEMENTS


This press release contains forward-looking statements that involve risks and uncertainties. These include statements regarding the planned growth of our business and our anticipated revenue for full-year 2012. Actual results may differ materially from the results predicted or implied by such statements, and our reported results should not be considered as an indication of future performance. The potential risks and uncertainties that could cause actual results to differ from the results predicted or implied by such statements include, among others, competitive pressures, changes in advertising patterns, changes in the legal and regulatory environment, technological developments, unforeseen changes in our hiring patterns, and our need to expend capital to accommodate the growth of the business, as well as those risks and uncertainties included under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Prospectus dated May 24, 2011, which is on file with the Securities and Exchange Commission and is available on our investor relations website at http://company.yandex.com/investor_relations/sec_filing.xml and on the SEC website at www.sec.gov. Additional risk factor disclosure and related information will also be set forth in our Annual Report in Form 20-F for the year ended December 31, 2011. All information provided in this release and in the attachments is as of February 22, 2012, and Yandex undertakes no duty to update this information unless required by law.