Earnings Call: Q2 2021

Jul 28, 2021

Hello, everyone, and welcome to Yandex's Second Quarter 2021 Earnings Call. You can find our earnings release and supplementary slides on our IR website. The key speakers on our call today are Tigran Puneverdan, our Deputy Chief Executive Officer Danil Shuleika, the Head of E Commerce and Vyter Business Group Svetlana Dimashkevic, our Chief Financial Officer and Vladimir Tuk, our Chief Operating Officer. Evgeny Sendrov, Chief Financial Officer of Yandex. Taxi, will be available on the Q and A session. Now I will quickly walk you through the Safe Harbor statement. Various remarks that we make during the call regarding our financial performance and operations may be considered forward looking, and such statements involve a number of risks and uncertainties that could cause actual results to differ materially. For more information, please refer to the Risk Factors section of our most recent Annual Report on Form 20 F filed with the SEC. During the call, we will be referring to certain non GAAP financial measures. You can find a reconciliation of non GAAP to GAAP measures in the earnings release we published today. And now, I'm turning the call over to Tigran. Thank you, Yuliya, and hello, everyone. Let me give you a quick overview of the key highlights from the Q2. I will start with e commerce, which is a key area of focus for us at the moment. We are encouraged by the progress the team is making. Total e commerce GMV grew 2.6 times in the second quarter, which we expect to be ahead of our major competitors. Yandex. Market on a stand alone basis continued to accelerate its January growth to 144 from 126% in Q1. This is despite coming from a high base. Q2 last year was the strongest for Yandex. Market with GMV growing 3.5 times. We have significantly expanded our assortment and logistics infrastructure, We are also investing time and resources into improving the quality of our service for both customers and merchants. It's important to know that the investments we are making now will not only support our growth this year, At least half of what we spent in 2021 will form the basis for solid growth in the future. Daniel will talk more about our achievements in e commerce later. I would just mention that thanks to the team efforts, We expect to grow faster this year than initially anticipated, and we believe that our new full year target Of up to 3 times GMV growth would help us to improve our market share and narrow the gap with our competitors. Our strong results in e commerce were also supported by our subscription program Yandex. Plus. The total number of subscribers Increased to $9,500,000 in July. The team has been particularly focused on improving the share of paying subscribers, which exceeded 75%. Our strategic goal is to grow the paying subscriber base as fast as possible to cement our leadership in subscription market And to further expand the gap between us and our competitors, relationships between Yandex. Plus and our e transactional services remain highly synergetic, Especially for e commerce, the segment contributes greatly to the issuance of PlusPoints and also benefits from the redemption. This improves our customer loyalty and business growth as Plus members generate more orders per customer and hence higher GMV. Plus subscribers generate around 50% of market in each GMV and over 70% of Lava JV. The success of Yandex. Plus is closely related to the development of our Kinepoix content platform. 1 of our latest hits, A movie called Major Groundflakes Doctor, which Eandex Corp produced was sold to Netflix and was number 1 in the Netflix global charts in July. We are very pleased that in Q2, INAPOIS became the leader in the video on demand market in Russia By both total as well as paying subscribers according to a recent GfK study, let me give you a few words about our key cash generating business, Advertising and revised talent. Starting with advertising. Our core advertising business performed extremely well. We are seeing a recovery in our ad revenue growth on a normalized 2 year stack basis, driven by strong performance in search and other Yandex properties. This has been supported by macro recovery as well as improving search quality, our agtech investments and progress with SMB. In June, We rolled out a new search engine update with more than 2,000 improvements, which among other things helped us to reach a record tire share of 59.5 percent on Android in Q2 2021. We are encouraged by the progress with SMBs and our simplified subscription ad product, which already generates over 20% of all new ad clients for Yandex. Zen continues to be our key platform For video ad development, video content has become the top generator in terms of time spent outperforming articles. The share of video time spent increased from 25% in March to 28% in June And this continuing to grow. We also continue to invest in ad tech to improve ad efficiency For our clients and to further increase our market share, we recently launched Campaign Visa, which not only helps advertisers to simplify the process of creating ad campaigns, but also demonstrates solid retention rate for new clients of Yandex ad business higher than those achieved by the professional interface. With this and a number of other improvements, the share of our ad revenues Based on CPA conversion strategies increased from 20% in April to 25% in June. Within the Yandex. Net for specifically, the share went up from 30% to 40% in the same period. Thanks to these efforts, we have seen faster than expected growth of our advertising business, which again allow us to upgrade our expectations for the full year. Svitlana will talk about this in more detail. Continue with the right talent. Our year on year growth was obviously high Given the low base from last year, but what is important is that we are also seeing an improving 2 year stack Growth for both RISE and GMV. Danil will share more details about this later. This quarter, we disclosed the adjusted EBITDA margin for our rightsizing business for the first time. I'm extremely proud for the progress we have made since we first became profitable at the end of 2018, making us the most efficient ridesharing company globally with a margin of 3.5% of GMV. Overall, we are very confident in the growth and profitability prospects for the ride hailing business as well as in our market position. Together, our high margin advertising and the right talent businesses should allow us to continue reinvesting into new attractive growth opportunities and to extend our total addressable market. Lastly, our self driving group. We signed a partnership with Grubhub for robot delivery In U. S. College campuses, Grubhub partners with more than 250 campuses across the U. S. With a population of over 3,000,000. Yandex will act as a delivery management company. The first 50 rollers are now being sent to Grubhub, and we will be rolling out the service at This partnership is an international validation of our technology and Proof of its competitiveness versus other local and global players. It demonstrates the quality of our autonomous technology and shows that we can tap into a substantial addressable market beyond the existing ecosystem. In conclusion, I wanted to say that we are focused On investing in future growth across many verticals, including e commerce, media services, cloud, self driving and fintech. In all these segments, we see an opportunity for Yandex to become one of the leading players, and we expect our investments to translate into market share gains and creating additional shareholder value. With this, let me turn the mic over to Danil. Thank you, Tigran, and hello, everyone. 2nd quarter was another excellent quarter for the e commerce and ITI business growth. Let me start with the e commerce business. We have delivered strong GMV growth of 155% of total e com and 144% for Yandex. Market alone, despite the tough comparison with prior year. And we have seen a future acceleration of growth rates in July with total e commerce Approximately 2.8 times to 2.9 times. In Q2, share of 3P GV in Yandex. Market increased to 70% Compared to 56% a year ago, Yandex. Market orders were up 140% year over year and reached 6,900,000. More importantly, we have seen a solid trend in order frequency. The average orders per active customers in Yandex. Market increased by Approximately 10% compared to the Q1 of 2021 and keep improving. We are continuing the Exact migration of merchants from price comparison to marketplace, categories like consumer electronics and appliance, FMCG, as well as significant part of kids category have been moved to CPA only for me during the quarter. As a result, we expanded our positions in the top categories, especially in the capital cities. Based on our internal estimates, we have nearly closed the JV gap with our key competitor in Moscow. We have achieved an impressive expansion in Assertum. Just 3 months since the end of the Q1, total number of SKUs increased by 4.5 times to almost 17,000,000. Please note that our price comparison experience allows us to more accurately avoid double counting in the number of SKUs compared to the standard market practice. We have also made a material progress in logistic infrastructure. The total fulfillment capacity reached 257 1,000 square meters across 7 warehouses and another 32,000 square meters across more than 50 owned and 3PL sourcing centers. As Ivan already mentioned, this investment will not only support our growth in the second half of the year, but will form the basis for a rapid expansion of our businesses in the future. Delivery metrics also saw significant improvement. We finished the Q2 with almost 70% of orders delivered by our own platform. This is compared with less than 50% in March. To remind you, all last mile delivery provides for the best customer experience and has low defect rates, while higher shelf Our own delivery allows us to improve the quality of service for our customers. Improving the quality of service for our merchants It's a top priority for us. We have streamlined the merchant onboarding process and it now takes only 7 days to start selling on our marketplace. This is a 3 day improvement since January. As we saw encouraging results in the growth of audience, volume of traffic, improving efficiency of operations And merchant's experience of working with us, we began to increase take rates. Since early July, we have increased our base commission from 2% flat previously to a range of 2% to 9% depending on the category. Nevertheless, it's important to note that even with the new commission rates, Yandex. Market remains the most attractive marketplace for merchants relative to our key competitors. We expect the take rate increase to help us gradually improve unit economics going forward. In conclusion, I want to highlight that we are confident in our strategy in e commerce as we see good progress in JV growth and in other operation metrics. This indicates that our investments are beginning to paying off. To reflect our more upbeat outlook on this business, We upgrade our full year guidance for total e commerce NAV growth to up to 3 times from 2.5 times previously. Moving to the Q2 performance of our footy services. Despite high base comparison with the Q2 of last year, Both Itz and Lafe demonstrated solid growth. Itz orders grew 50% and GV increased 53% year over year, where on the 2 year CAGR basis, orders were up 74% and GV grew 87%. Growth was driven in part by our investment in user acquisition As well as by the growth of our id grocer vertical, whose share reached 14% in total id orders and 19% in JV in Q2. The introduction of 0 delivery fee for first orders of new users earlier this year facilitated solid growth of its user base. Its monthly active users were up 43% in Q2 compared to Q4 of last year. According to internal estimates, our investment in user base and in each grocery vertical in particular allowed us to grow faster than our competitors in Q2. We expect this investment to position us well to accelerate 2 years' tech growth in the second half of twenty twenty one. Speaking about Vavka, by the end of Q2, Vavka operated 3 62 owned dark stores, up 82 stores compared to Q1. Half of the new drug stores were opened in Moscow and St. Petersburg as an increasing number of stores had reached peak capacity due to a high demand in the capitals. VASCO orders increased 3 times year over year in the Q2 and 25% compared to the Q1. Orders per DAS store per day increased 45% year over year, while DAS stores older than 1 year grew much faster than average in the range of 80% to 110%. LAFCA order frequency per user has also grown. Approximately 20% of Lava users order more than 8 times per month and contribute over 50% of Lava GMV. Both, Safka and Diets benefited from enhancement of Plus offering in these services. Currently, 40% of its users As 70% plus of Lavka users are Yandex. Plus subscribers, JV per Yandex. Plus user is 44% higher in it And 33% high in LOVCA. Now to Taxi. Rice headwind trends were very encouraging in Q2. On the year over year basis, rates increased 104%, and GV was up 161% on the back of low comparison base. On the 2 year CAGR basis, our ride hailing grew 37% in rides and 43% in GMV. In the Q2, GMV continued to grow faster than that as driver supply and vehicle constraints persisted amidst a sustained recovery in consumer demand. JV growth was also supported by growth in non economic tariffs, share of which increased by approximately 200 basis points in June versus March. As we mentioned on the earnings call in April, in Q2, we invested in driver acquisition in order to maintain the high quality of the service and facilitate First penetration of RISE hearing in the daily life of our users. We see that RISE hearing has become a habitual mobility service used by 30,000,000 people across All our geographies. On average, our STF Friday completes R6.5 dollars per month. Our cohort continue to grow. 2018 cohort is currently at over 7 rides per month in Russia and approximately 11 rides in the CIF, While 2020 cohort is approaching 7 rides per month in Russia and 8 rides in ICIS, we see better cohorts in the region with less developed public Transport infrastructure. We expect covers to continue to improve in line with regional growth as well as with increasing frequency of use in our mature markets. Overall, we are very excited about the prospects of ride hailing business. Now turning to Yandex. Delivery, our last mile logistics solution for both Individuals and business alike. Manitization model of our last mile delivery businesses is very similar to what we have in life hearing. We take a commission from the total transaction amount that we receive from individual users and B2B clients for delivery services. This is an asset light business, which is focused on building its own driver and carrier supplier. In June, we had over 24,000 active drivers and carriers per day, While the annualized deliveries run rate exceeded 73,000,000, on a daily basis, we did over 200,000 deliveries in June, 46% of which came from B2B clients, whose number reached 19,500 in June. This excludes SMB clients, which are responsible for another 30% of deliveries. While we are in an early stage of delivery development, we see Strong demand for such services across a wide range of industries like e commerce, social e commerce and general classified, Groceries and ready to eat industry as well as garden variety business correspondence. These industries are expected to grow significantly over the next few years, while we plan to increase our share in each of these indices up from the current level of low single digits. On the product side, the team is currently focused on developing the same day and the next day delivery services as well as significantly increased batching efficiency. We expect to reach 1,000,000 deliveries per day in 2023. Overall, I'm very proud of what we have achieved across All of which have exciting growth opportunities ahead. With this, I'm turning the mic over to Svetlana. Thank you, Benil, and hello, everyone. I would like to start with a comment on our approach to disclosure. Transparency as well as detailed and consistent disclosure is obviously crucial, particularly as the complexity of our business increases. We have taken an important step forward by disclosing all key performance indicators for different businesses within the Taxi Group. We have updated our investor presentation materials, which now include a significantly expanded range of key operating and financial indicators as well as more detailed disclosure by segments. And we also recently published our first sustainability report. We trust that this more robust disclosure will benefit our investors and we will continue working on further improvements as we go forward. In terms of results, we delivered a solid 70% like for like revenue growth this quarter, driven by strong performance across many verticals. We saw a rapid recovery in advertising and ride hailing, not only because of The low base effect, but also on the back of the economic rebound as well as our strong execution, which is reflected in steadily improving 2 year step trends. We continued to see strong growth in Yandex market, media services and food tech despite the high base effect of last year. Our 2 largest businesses, advertising and ride hailing, keep generating a high and stable cash flow, which we are able to reinvest in other attractive and fast growing segments. We will continue investing while, of course, maintaining financial discipline as well as stable or improving margins in these two businesses. Now Let me walk you through the headline financial numbers for the quarter. Our search and portal revenue grew by 54% year on year. Such fast growth is obviously affected by low base effects from Q2 2020. But it's important to note that we also accelerated growth on a 2 year SEK basis to 16% in Q2 from 13% in Q1. Industry wise, This acceleration was primarily driven by the following sectors: IT and Telecom, Home Appliances, Consumer Electronics and Healthcare. As of now, only 2 industries remain in negative territory on a 2 year basis, travel and real estate. We are seeing continued solid growth in July. Though the year on year dynamic is lower than Q2 Due to the visibly higher base from Q3 2020 when we began to see an improvement in ad revenue growth, 2 year stack remains around mid teens. Taking into account recent trends and the stronger than expected performance of our ad business in Q2, we are upgrading Our full year 2021 guidance for search and portal revenue growth to the mid-20s, up from our previous guidance in the high teens. The adjusted EBITDA margin for Q2 2021 came in at 46.2% versus 43% in Q2 2020, reflecting an improved operating leverage effect, partially offset by investments into AdTech, our search market share and support of Yandex. Plus We expect margin in the second half to be higher than in the first half due to seasonally stronger revenue And continued improvement of online ad industries. We are confident in our ability to deliver a stable margin in Search and Portal for the full year compared to last year. Turning to taxi. In ride hailing, we delivered RUB 4,700,000,000 Of adjusted EBITDA, which made a meaningful contribution to the group results this quarter. Our adjusted EBITDA margin, including all overheads, Came to 3.5% as a percentage of GMV. On our estimates, this is the highest among all global public peers and reflect our solid execution and operational efficiency. It's important to note that these results were achieved By the material increase in our investments into the stabilization of driver undersupply. In FoodTech, we continued to demonstrate Solid growth despite a high base effect, which we believe is related to a change in consumer behavior and habits And low penetration of the services in Russia. The adjusted EBITDA losses have peaked this quarter and amounted to rup3.1 billion. This is because of our investments into scaling up our grocery delivery model in Itz as well as an increase in delivery CPO on the back Of full year capacity constraints, we expect the losses in FoodTech businesses to come down in second half compared to first half on the back of growing order density and improvements in efficiency. Turning to Yandex. Market. As Tigran and Daniel already highlighted, we have accelerated our GMV growth for Yandex. Market this quarter despite the high base effect. We expect to deliver faster growth in the second half, which is reflected in our upgraded full year guidance. To achieve such fast growth, we have to increase our investments. Our spending is evenly split between customer acquisition and retention And our logistics infrastructure scale up. During the quarter, we expanded our warehouse footprint by 70% and nearly tripled Our owned and operated last mile capabilities. The utilization of this capacity is low at the start, but will gradually improve as we grow the scale of our operations. With an adjustment to reflect the relative underutilization of new infrastructure in the initial period, Our unit economics increased by 5 percentage points throughout the Q2 with improvements each month. We envisage this positive trend of improving unit economics to continue in second half, supported by increase of take rates and capacity utilization. E Commerce remains one of our key strategic priorities, Given its large total addressable market and attractive growth opportunities, we are confident in our ability to become one of the leading players in this space. Internally, we are very pleased with the progress achieved so far and are prepared to invest more, especially if these investments translate into an acceleration of growth, improving competitiveness of our product, operating efficiency and increased shareholder value. Apart from investments into our current stellar growth, this year we are investing into the foundation for future business expansion, including our fulfillment and logistics capabilities. Consequently, against the backdrop of the strong performance to date, we feel reassured That accelerated investments now will yield sustainable outsized growth going forward and thus plan to invest more than initially budgeted. Revenue of Media Services, Classified and All Key Verticals within other business units and initiatives have all more than doubled on a year on year basis, while cloud and devices are growing at 3 times. Though the amount of investments Across these businesses increased compared to last year, the unit economics improved for almost all of them. More details These businesses are available in our press release. Let me finish with our 2021 financial outlook. We are upgrading our full year group revenue forecast to a range of RUB 330,000,000 to RUB 340,000,000,000 on the back Faster than expected growth across key business units. Revenue growth guidance for Search and Portal is upgraded from high teens to mid-20s, And we reiterate our expectation for a stable segment margin for the full year 2021 compared to 2020. We now expect our total e commerce GMV to grow at 3 times, which is faster than our previous guidance of 2.5 times for the full year 2021. We expect our right tailing GMV to increase by around 60% for the full year. With this, let me turn the microphone back to the operator for the Q and A session. The first question we have today comes from the line of Vyacheslav Degtyarev from Goldman Sachs. Please go ahead. Yes. Thank you very much for the presentation. Two questions. I will start with the first one on the e commerce. So you have an update on the e commerce GMV outlook, which you increased, is there a better visibility on the investments for this year? So it looks like directionally you are willing to And more, but how would you contextualize versus your initial guidance of $400,000,000 to $400,000,000 or $500,000,000 of investments For 2021? And even probably more importantly, how do you see the investment outlook for the medium term, At least directionally, do you think investments will increase in absolute terms in the coming years or decrease? Well, thank you for your question. And To be honest, personally for me, it was probably one of the most important questions for the last 2 months. At the moment, as you know, we are growing faster than expected versus our own expectations. And in our internal estimates, we believe we are Forming the peers and gaining market share, it actually means that we plan to invest Around $650,000,000 this year, more than we previously guided, but it will allow us To grow 33% faster in terms of GMV this year as well as to cover almost half of the expected GMV growth next year. About half of these investments is on expansion of our logistics infrastructure, warehouses, sorting centers and delivery capabilities. We expanded our warehouse capacity by 1.8x during the quarter to 257 1,000 square meters and we'll finish the year with over 300,000 square meters of just warehouse space. With sorting centers, total logistics capacity will likely to be even higher. Currently, we have 50 sorting centers versus 20 8 in the end of Q1. We have invested in our own delivery platform and expanded our parcel volumes Processing capacity by 4x since the beginning of this year and significantly improved our quality. As far as we understand, all this new infrastructure is usually underutilized, but it's just a temporary issue. It puts pressure on our unit economics, but we already see positive dynamics. If we adjust on under utilization of new infrastructure in the initial period, our unit economics increased by 5 percentage points throughout the Q2 with improvements each month. We also Invest in business expansion, processes improvements and warehouse automation. All these Developments will help us to boost utilization and then our unit economics. It's also important to remember that investments we're making now not only allow us to demonstrate faster than expected growth this But also form the basis for the future rapid expansion of our operations. If we look at the next year and going forward, of course, e commerce is our biggest point of growth. And considering the growth of the business, size of the market opportunity as well as improvements In quality of offering and unit economics, we are committed to allocate substantial capital in our e commerce initiatives. It's probably hard to estimate exact amount of investments we will make next year and beyond, But let me put this way. Taking into account infrastructure objects lead time, trajectory of growth, Competitive environment and again the size of the opportunity, it is reasonable to expect comparable spending on e commerce initiative in the near term. The exact amount of investment depends on many factors, including competitive environment and market situation, but you can be Sure that we are reviewing our developments on a regular basis and rationalize our investments against our progress. We are seeing promising trends in unit economics, which adjusted for infrastructure allowed costs Improved, as I already mentioned, 5 percentage points during the quarter, which is all new is a very good progress. We're also highly satisfied with the closely track and we closely track our progress in quality of operations, Assortments and cohorts improvements, value creation through Plus as well as, of course, market share gain. Further progress in those metrics will warrant our ongoing commitment to investing into e commerce further. Our strategic goal, as you know, is not only to become number 3 player, but to make sure we are constantly improving our market position and closing the market We need to make a journey which took others many years significantly faster, But the value of the opportunity justifies the speed and the investments. Okay. Thank you very much for the detailed answer. My second question would be on the self driving, basically the partnership with Grab on the Rover Roberts. So would you consider similar type of international partnerships on the side of the self driving technology, specifically on the side of the car segment? Is it more difficult to agree on those kind of partnerships on the self driving side versus the rover side? Is it due to the complexity of the technology or lack of real use cases to apply or maybe any other reasons? So any color would be helpful. Thank you very much. Slava, hi, this is Vadim. Let me take this one. So look, I think during the NDR Earlier this summer, we were talking about self driving technology vis a vis rover technology, right? One of the points we were making was that we believe that Rovers is the product That is, we can monetize earlier compared to self driving cars. And this is due to the much more complex Regulation that exists or frankly doesn't exist yet for self driving cars. Rollers on the other hand, they travel much slower, They are much smaller. They do not present danger to humans, etcetera, etcetera. And therefore, we see Grubhub partnership as something that Allows us to test at scale the user case whereby the rover will actually substitute a courier, right, For the last mile delivery of whether it's going to be food from restaurants or maybe like small parcels, etcetera, for e comm. And if you look at the announcement itself, right, I mean, we did this partnership with Grubhub Campus, which operates at 250 university campuses in the U. S, which I think has combined population of around 3,000,000 students. The cool thing here, right, the rollers, the use is somewhat they have a more limited use case because they can only get to the building, but they cannot go up the stairs. And it works perfectly well in campuses because the couriers typically are not allowed to enter dormitories. And therefore, the students are used To come down the stairs and pick up food. So this is going to be similar user experience, right? We're not going to sacrifice user experience in exchange for combining these rollovers. Now going back to SDG, the self driving group, right, Even though I did mention earlier that the regulation is going to take longer for us to get there, it depends country by country. At the same time, I do think it's important to mention that in Russia, there was a new federal law that was recently signed, which established a regulatory sandbox for, call it, digitally innovative products and projects. And we plan to use this opportunity to create a regulatory sandboxes So in some places to switch to completely and fully autonomous taxis and maybe even launch Kind of fully autonomous taxi in one of the Moscow districts. The launches of those products or projects It's a function of government approval of those specific projects. Thank you very much. We will now move to our next question from Cesar Turon from Bank of America. Please go ahead. Your line is open. Hi, Bhavan. Thanks so much for the call and the opportunity to ask questions. I'll ask my first question on e commerce. What's your long term ambition for 3P versus 1P mix? And how long do you think you need to get to that right mix? Because this is probably when we should start to see some reacceleration of e commerce revenue, not talking about GMV, but revenue. Thank you. Cesar, hi, this is Wadeem. Let me take this one as well. Look, I mean, it's a very good question, right? And I think we wish we would know the future. We could debate like what is the ideal or what is the kind of the end State model would be for any large marketplace and what the proper combination. The way we think about it, Obviously, from a perspective of kind of the user experience, right, In order for us to and from perspective of our economics in order for us to maximize our P and L and our kind of unit economics, We would obviously would want to have more 3P compared to 1P. At the same time, we're going to be focused on balancing the revenue mix To maximize customer success satisfaction, user experience, assortment growth and economics, at the same time, we do need to have 1P in order to make Sure. That's we fully cover the whole shelf of SKUs and the highly demanded and highly thought for products are present on our marketplace. Therefore, we do need to have some of 1P in order to drive 3P in the correct direction. Thank you so much. That was very clear. And then just a follow-up on e commerce. What has been the initial response from And your competitors as well on the increase in take rates. And do you think there's room to further increase those Hi, Suneet. This is Vladimir Yet again. So look, We didn't resolve take rates, right? And this is coming after a significant decrease back at the beginning of the year. And I think we spoke again the same roadshow that I referred Slava to that we had with you earlier this summer. The way we think about take rates, right, this is just one of the components of overall product for merchants, right? So you shouldn't only look at kind of monetary terms, you also need to look at how much traffic we're providing, how much support for them, How easy it is to get onboarded on our site, how easy it is to actually list the products on our properties, etcetera, etcetera. So when we think about take rates, right, as we improve other components of our like merchants platform, we feel that we Can increase our take rate as well. So if you were kind of around 2% flat across the categories, Now we are between 2% to 9% depending on the category and that increase happened since July. The way The response from the merchant so far has been fairly constructive. We more than doubled and the way to think about it, right, We more than doubled the amount of business for them since the beginning of this year. And our other components Our offering to the merchants continued to improve and therefore onboarding improved, we continue to Streamlined our processes. So frankly, we haven't seen that much of kind of complaining and they're fine with that. In terms of what can be done in the future, so look, let me say the following. We still remain the most attractive in terms of pricing on the market right now. Obviously, how far we can go in the future is very much is the equation of what our competitors are going to And at the same time, how well we're going to improve other components of our merchant offering. Thank you so much. Very helpful. And we'll now move to our next question From Vladimir Bespalov from VTB Capital. Please go ahead. Your line is open. Hello. Congratulations on the number and thank you for taking my questions. I Actually, I have two questions. One is on ride hailing and profitability profile. We see some Decrease in the EBITDA margin in the 2nd quarter compared to the Q1, even though the margin is still very high. So maybe could you provide some color what is behind this? And in general, how you are going to Manage and to balance investments, managing competitive pressures, growth and things like this. Plus, in addition to this, is the margin that you showed in the Q2 kind of sustainable In the short term or in general, how do you see the trajectory, let's say, over the next 1, 2 years for retailing? And my second question will be on e commerce. If we split your e commerce exposure into Yandex. Market and the grocery, Yandex. Market is accelerating. But in the grocery, if we look both year end year and quarter on quarter, There is some kind of slowdown. Maybe could you comment what is going on? This looks a little bit counterintuitive. And given that you expect a further acceleration of the total GMV in e commerce in the second half of the year, How to this is going to be split between Yandex. Market and the grocery exposure? Thank you. Hey, Vladimir, it's Evgeny. Good to hear from you. Let me tackle your question on ride hailing and I'll pass it on to the rest of the team On ecom. So let me walk you through to sort of the trends of what was happening in the second quarter. You may remember that on the Paul, last quarter, we mentioned that profitability was very high, but it was also held by unusual even for Russia Snowy and cold conditions for a long period of time in the Q1 and it certainly helped profitability. And you said it's unlikely that it will stay that high for the year. And then in the Q2, we also invested RUB 1,400,000,000 in driver incentives and acquisition And also vaccination initiative sort of to address the increasing level undersupply in the system and driver's demand supply remains a significant issue for us The whole market, the borders remain closed. And we're also now facing seasonal competition from other industries Such as construction and agriculture. But given our initiatives combating this, we think we brought undersupply down to 20% level versus what it would have been something like 40% if we haven't done anything and haven't invested. This 1.4 does not include the cost of competition with Didi. In the Q2, we don't really break down for obvious competitive reasons how much we invest in that. But Didi launched in 2020, in the cities where the sort of their Initial launches happened. We think their share has come down to half of what it was at peak times there. They recently launched in 20 new cities in May in Russia, and that probably represents something like 10% of our total GMV. But as you see, we've been very efficient and effective in competing with them across all geographies. I think this will remain the case. Obviously, competition comes with additional cost, but I think our experience demonstrate that these costs It's limited in time and they actually expand the total market and market leaders actually benefit from Sort of trip inflation and pressure on smaller players. So, ergo, in June, our rights grew 70 6% in those 20 cities where they launched, while total rights grew something like low 60s year over year. But all in all, our EBITDA margin, including overhead costs as well already mentioned on Peru On the initial remarks, it came in at 3.5% of GMV. And we believe if we're not the most efficient or certainly one of the most Efficient ride hailing companies globally versus our public peers, our operational expenditures and HR costs are half of our closest public peer as a percentage of GMV. And this allows us to be one of the most profitable ride hailing companies since 2018. And that's despite us maintaining a low effective take rate of 10% or below. Now looking to the second half of the year, We will invest in driver supply. We will invest in vaccination initiatives and we will focus on key new social initiatives for drivers and couriers as well. However, all things being equal, we think adjusted EBITDA margin as a percent of GMV in 2021 will increase Versus 2020, of course, barring any sort of very significant changes in the competitive landscape or any severe Adverse COVID related measures. We believe looking forward that ride hailing has Substantial room for growth in Russia and beyond. And going forward, we'll continue to improve operational leverage and benefit from our efficient cost structure. We will reinvest a portion of that in growth, but we target to improve profitability each sequential years in the 2 years, again, all things being equal. And as you know, we have a successful track record in balancing investment versus growth and ride hailing and we plan to maintain that. Vladimir, this is Vladimir speaking. Let me take your second question with respect to FoodTech and ecom. So look, I mean, it's I mean, we see your point, right? The thing what you do need to consider is that there was a multiple effects, Right. That are kind of combined in the numbers that we reported. So when you think about our FoodTech, it essentially consists of 3 lines of business. So the first one is Yandex. Eats, which the usual delivery of food from restaurants, right? The second one is Lofka, our hyper local dark stores. And the third one, which is kind of the news business that we have, It's the e grocery component of Yandex Eats, whereby users can order groceries from kind of the retail chains That they're used to. Now they all have somewhat different dynamics. So first and foremost, do keep in mind that Lavekin Yandex. Eats, the restaurant component, Where beneficiaries from the COVID situation last year. So when you look at the growth rates this year, you do need to keep in just Understand that we are comparing to pretty tough comps last year and therefore we're already growing from pretty high base. The second thing here is that as we already our guidance suggests, we expect that Overall, our e commerce GMV, which includes our marketplace, Laveka and Yandex. Eats portion of eGrocery delivery is going to grow overall 3x year over year. We don't really disclose the split between businesses, We would prefer not to give such a detailed breakdown line by line. Thank you very much. We will now take our next question again from Cesar Turan from Bank of America. Please go ahead. Your line is open. Yes. Hi, again. Thanks for taking another question from me. Just wanted to ask also On Taxi regulation, there's been a couple of press articles suggesting some potential limitation to driver working hours And a couple of other regulations. Do you have anything to say on these things? Thank you. Well, let me take on driver hours and then I'll speak more generally about initiatives. But instead of we believe that Moscow and other municipalities will follow the best practice measures in line with those that have been implemented in a number of markets around the world, including U. S. And Europe. And assuming the system develops along those lines, this is definitely a contribute to increase in safety and we support this, But we also think it will continue to be satisfactory from an economic standpoint for drivers, fleet management companies and for us platforms. As for sort of a wider ride hailing social benefits discussion and initiatives. First of all, we're monitoring driver earnings on region by region basis. And it's very important to note that income received by our Drivers and couriers significantly exceeds minimum wages in Russia and often matches or exceeds the average income in a particular region. And in terms of social benefits, we have already pioneered a number of measures. We think those will set the standard for the industry as a whole. So for example, in March this year, we started to provide an option for self employed to voluntary join an insurance program, which provides payments Covering sick leave. And going forward, we plan to provide a number of insurance with other products with varying degrees of coverage, Which self employed will be able to choose depending on what their personal needs are. And remember, Russia already has universal health coverage. That's not the only example. We were at the forefront of developing the self employed employment concept Together with authorities, now on our we have nearly 100,000 self employed drivers and couriers on our platform. In Russia, the total number is approaching $3,000,000 We were the 1st ride hailing company in the country to introduce accident insurance For drivers and passengers, significant coverage, despite this not yet being a legal requirement in the industry still. And so We're in constant dialogue with authorities at all levels over these issues. And we believe our relationship with them is constructive and efficient. And let me add a little bit to this. This is Wadhim speaking. So look, I mean, as Jenny just kind of pointed out and listed in the set of examples, look, the key Obviously, all of us kind of seeing what's happening in China right now, right? And I assume like a lot of investors and you Have questions in your mind whether something similar will be happening in Russia, etcetera, etcetera. And the way we think about it and the way we approach it, The key to all of those discussions is to be proactive, right? So taxi is a perfect example where we actually were kind of initiated discussions And stay proactive and try to prevent or foresee some of those kind of conversations and come with a solution to the state, right? And overall, on the broader kind of group level, we're seeing no changes in our relationship with authorities. The relationship remains open and constructive. I mean, obviously, in Russia, as in any other country, there is a lot of discussion right now around digital platforms, digital ecosystems. And this is understandable because digital platforms are becoming at the larger and larger part of everyone's life, Whether it's going to be related to data, whether it's going to be related to social activity, etcetera, etcetera. What's happening in Russia right now, the authorities obviously would like to they're focused on building a Clear framework to resolve any conflicts, to help innovation and accelerate the development of the digital economy. And at the same time, the state bodies are quite explicit in their statements that the National Economic Development requires The support for local service ecosystems because we do need to compete with global tech platforms. And If Russia wants to maintain their uniqueness over tax sector going forward, the state And they're willing to support the platforms here. Thank you. That was very helpful. We will now move to our next question coming from Kirill Panarin from Renaissance. Yes. Hello, everyone, and thanks for taking my questions. Two questions, please. Firstly, on search profitability. So you've raised your search revenue guidance already twice this year, and I just wonder why that didn't translate into a stronger margin outlook Versus your initial expectations, are there new investment areas which you didn't plan in the beginning of the year? That's the first question. And then secondly, on Yandex. Plus, The number of subscribers was flat quarter on quarter. Is that explained by seasonality? Or maybe you see an increased churn? Any color there, please? And also, could you share some data around the mix between single and multi subscriptions? What's the share of multi subscriptions and what's the average number of active users per multi subscription? That's it. Thank you. So to start On ad revenue growth, there is still uncertainty around COVID and the cases started to pick up in June, as you know. So we have not seen so much of an impact yet, but still possible if situation escalates and the pace of vaccination will be So our second half is seasonally stronger than first half, which is reflected in our guidance. We also see our CPC revenue decline further, also part of revenue growth. In Search and Portal margins, we expect margin in second half of the year to be higher than the first half Due to seasonally stronger revenue and continued improvement of online and industries, cost optimization and efficiency improvements. And Sveta, if I may continue just to wrap up the first question. So look, I mean, Your question is right, right? I mean, if you're growing faster, you would obviously, every additional ruble of our revenue comes with a kind of Was it greater incremental margin, right? One of the things that we try to do as well is to continue to reinvest for future growth At the same time, keeping our search and portal margins pretty stable at the current levels. And one of the things that we kind of mentioned during our script is some of the initiatives that we have, whether it's new ad tech and focusing on the CPA based Conversion instruments, whether it's going to be campaign wizards for kind of our smaller clients that's kind of that's Asking for a simple instruments, etcetera, etcetera. And we're seeing results of those kind of investments into additional growth. So for example, the share of CPA based conversion instruments is already exceeding 25%, right? And this is something that The advertisers are paying for a specific action that they want to optimize as opposed to for a simple click. That is a much Easier to understand and more transparent tool for advertisers. And therefore, what we're also seeing, we're seeing that our Share in their wallets, right, is increasing because they're understanding very well what they're paying for using our ads Services. Similarly like Campaign Wizards, right, is super simple, well, significantly simpler A tool to manage the process of creating ad campaigns. And what it really helps, it helps with retention. So our clients are staying longer compared to those that use kind of the professional interface. Finally, also we talked we kept talking about the kind of simplified products for small and medium sized businesses, right? And this is something that we cover through our subscription product. And right now over 20% of all our new clients Already the clients that are coming to the subscription services. Another investment that we make in our ads kind of Segment is focusing we are focused on improving our monetization by increasing market share on iOS devices. And together with kind of those System, the search and some pre installation loss. We also do targeted investment into increasing our share on Apple and iOS devices. And that's kind of all in all, this is answer To your question, we are growing faster than expected. We're maintaining our margin and reinvesting the additional cash we generate into search kind of initiatives. Now going to your second question with respect to Plus. Yes, you're right. The growth in this quarter, in the Q2 in Yandex. Plus subscribers did slow down. It is a seasonal effect. Overall, like in the Q2, typically people tend to spend more time outdoors compared to the periods when it is called outside. And if you were to look at what happened last year, You would see exactly kind of similar slowdown, which would pick up in the second kind of towards the latter part of the year. Great. Thank you. Any color on the multi subscriptions, please? Question then, what exactly is multi subscription? Just let's agree on the definition here Because this is not something that you Yes, I mean, I think yes, I think you have some kind of family subscriptions, which allow several people To use one subscription for all the benefits of Yandex. Plus? Look, I mean, we do have those numbers Somewhere. I don't have it on top of my head. How about we come back with it afterwards? I mean, from kind of personal experience, I have a subscription and all members of my family use And I have a suspicion that many people do the same for their households. Yes, that makes sense. Okay, thanks. Thanks a lot for your answers. We will now move to our next question from Miriam Adisa from Morgan Stanley. Please go ahead. Great. Thanks for taking my questions. The first one is just a follow-up on e commerce again. Just on fulfillment services this time, What are you currently providing for merchants? And how does your pricing on that compare to peers? And how should we think about the ramp up of that? I guess if we look at some of your peers, they're at sort of 50% of 3P GMV. What are your own targets in terms of the share of GMV done through your own fulfillment, let's say, by the end of next year. Thanks. So Miriam, hi, this is Vadim. Let me take this one. So look, a couple of things. With respect Back to the kind of the fees, right? This is something that was covered by the question asked earlier, right? How much are we charging? We are still more attractive in purely like in dollar terms, if you will, Compared to our major competitors, the way that our growth is supported now, And this is actually quite interesting, right, because we've been talking about The significant increase in our SKUs, right, as a choice. One of the reasons we were managed to achieve that was Because of the conversion from CPC to CPA model, right? So that allowed us to significantly increase our SKUs. The reason we were able to do it so fast is because we introduced a new model, which is called dropship by seller. And this is something that we don't store and therefore we don't really charge the fulfillment fees. But this is fully kind of fulfilled and delivered by the merchant itself. So some of those pieces, We've seen kind of quite a significant growth there. Approximately 20% of our GMV is currently done via drop ship by seller. The trends In that particular category, we do expect that it will continue to grow, but we will be shifting some of those We will be adjusting and optimizing our mix to maximize and maintain the customer satisfaction and user experience, At the same time, focusing on the unit economics and capital allocation, because keep in mind that dropship by seller, this is profitable Channel for us already today because we just get a commission on the sale without having to fulfill or deliver it. Got it. Thank you. Then my second question is just on grocery. So you seem to have ramped up the number of dark stores again in the quarter. So how should we think about the further expansion from here, particularly expansion outside of Moscow and St. Petersburg? And then also if you could just share your latest thoughts on the different models in grocery, so that the 1P versus 3P model, do you have any changes in your Yes. Hello, this is Evgeny again. So, Lavka is currently our hyper local Delivery from dark stores model is currently focused on dark store expansion, growing number of orders per dark store. I think in our sort of, let's call it, mature regions like Moscow, we see unit economic improvement. I mean, we actually expect Moscow To turn profitable in less than a year from now or a year from now. And we think in that business sort of the profitability level In line with offline grocery retailers longer term. As far as the grocery vertical, Again, take rates in this business are lower than in restaurant delivery, But higher average checks, but we already talked about it. Density of orders and user demand have not achieved mature levels in this business. CPO is very high, especially we also started offering Q2 Not only delivery, but pickers and stores. And that also negatively affects CPO, given the low order density and low currently low utilization rates. But we're making a lot of efficiency improvements targeted at decreasing CPO. And these improvements Allowing us to decrease CPO each sequential month. So for example, in June, the CPO was 10% below April levels. And again, unit economics is a top unit economic improvement is a top priority for us in the grocery vertical. We think it will continue to improve along with our efficiency initiatives as the business grows And as the order density increases and our view on long term profitability of the growth vertical should be in line with Leading global peers, which recently have just turned profitable on EBITDA level. And Ruzane, let me just add One point. Miriam, I think you also asked about the increase in LAFQA stores, right? So most This very significant portion of that increase actually coming from the increase from the opening of new dark stores in the capitals Because our existing stores already reached their capacity. So the way to think about it, right, you have a kind of a certain radius, right, and your Lofka operates there. Once it hits the kind of the maximum theoretical throughput, you do need to open another store to serve still the same kind of radius, right? It has 2 components there because it does improve the delivery time because the radius become smaller for that particular Lavka, right? And you're able to kind of shift some of the orders that the first Lavka was having difficulties serving, right, To the newly opened location. So most of the dark stores that we are open are opened in the capitals. In the regions, We do we have opened in some of the cities. Because of the economic conditions, it's got to be somewhat a different product and we are focused On figuring out the right mix for the regions right now. That's clear. Thank you. We will now move to our last question that will come from Ildar Devleksen from Wood and Company. Please go ahead. All right. Thank you very much. Yes. My question was on one was on international expansion on kind of Entering new markets, so this Grubhub deal is very, very encouraging. So I'm wondering within your products and services And quite a few of them are highly competitive on the global scale. Which ones are you also thinking about? And also which Potentially areas or regions are you thinking about? And maybe on the reverse side, are there any regions where you may want to Limit your exposure to improve economics of the overall vertical. I'm talking particularly about ride hailing because I think you are In about 15 countries, that would be my first question. And if I may, I missed part of the call, so I apologize if it was already addressed. The station around undersupply of the drivers, it seems like it's one of the reasons behind weaker or sequentially reduction in profitability of the ride hailing. And I'm wondering how much of it is structural versus temporary. So lack of migrants and closed borders, which probably is less the case now versus just overall rush to get all this delivery business by all kind of players, which increases demand for Couriers and drivers overall. So I'm just wondering if you see the situation improving with supply of drivers in the midterm? Thank you. Ildar, hi. Yogeni, again. Let me start and I'll start with ride hailing. We've actually if we Come look at our sort of portfolio across the taxi business in particular, we've actually seen a number of very encouraging developments So in some of our markets, so we're very strong obviously in the form of Soviet Union, but we've seen for example Finland become it's Not a huge business, but its economics have improved significantly over the past year. So we will look selectively and very carefully, but at certain markets where we think we have a competitive edge or competitive advantage in entering. Same thing, our DRIVE business, for example, has developed certain auxiliary skills, which are actually becoming Very valuable and very interested in the global market as a whole. For example, we have leading fleet management software as well as hardware developed, And we think we have actually very globally competitive product that we have some initial inbound interest in. So we'll approach international expansion very carefully. We're focused on our core markets, but certain interesting ideas or certain markets where we think it could be interesting, we will develop. And Ilda, let me add to this. This is Vadim speaking. So look, I mean, I think probably kind of If you were to think about international opportunities for us in more general terms, kind of the bigger picture, I mean, you did bring up the Grubhub kind of Partnership that we signed earlier last month. The way we think about our opportunities or the windows of opportunities for us, We do think that in places whereby there is kind of call it a new business models, so for example, Lofkas, right, This is something that is currently being developed in Western Europe, in the U. S. Actually, it's somewhat later than it started being developed by us here in Russia. And we do think that we could have an edge Understood. It was our ability to kind of route the couriers, do the warehouse, the small warehouse management system, etcetera, etcetera. Or whether so this is one category, the new kind of business models that are actually emerging right now. The second one where we We could have an edge is kind of cutting edge technologies, no pun intended, where everybody's There was no established market yet. So for example, Rover or SDG would be a good example. 3rd category is kind of a very high-tech R and D heavy businesses such as cloud because What we understand our product offering is very competitive and not only in Russia, but also in international kind of scene. So At the same time, going to the places which are already quite crowded. So for example, ride hailing in kind of well developed markets like U. S. Or U. K, etcetera, etcetera. It's obviously going to be bloodbath. And we don't necessarily have a competitive edge. So we're going to be very smart When we look at the kind of international expansion opportunities and see where we have kind of inbuilt advantage and try to exploit it to the fullest. All right. Thank you. And maybe on the drug. No, quickly, I think I wanted to add to your question about sort of the structural profitability of ride hailing. So growing at some of the earlier comments for me and The rest of our team, I think we are, if not the most efficient and one of the most efficient structurally, right hailing operators globally. When we examine ourselves against our public peers, I think this is And again, our plan is to continue to grow, but also to improve EBITDA profitability each year for the next several years versus previous levels. And this year, we plan to improve profitability EBITDA profitability versus 2020. And again, we will You reinvest a portion in our future growth, but that forecast of improving profitability Accounts for that reinvestment, again, barring any seismic events such as COVID, the quarantines or Very significant competitive landscape changes where we will aggressively defend our market leadership. Okay. Thank you very much. This concludes today's question and answer session. So I'd like to hand back to our speakers now for any additional or closing remarks. Yes. Let's see. Again, thank you very much for all your questions. If there are any more questions, please reach out to the IR team. We'll be able to help you. Thank you, and have a