Oct 23, 2014
Executives
Arkady Volozh - Founder, Chief Executive Office and Executive Director Alexander Shulgin - Chief Operating Officer of Yandex's Russian Business Gregory Abovsky - Chief Financial Officer
Analysts
Lloyd Walmsley - Deutsche Bank AG, Research Division Alexander Balakhnin - Goldman Sachs Group Inc., Research Division Boris Vilidnitsky - Barclays Capital, Research Division Anna Lepetukhina - Sberbank Investment Research Ulyana Lenvalskaya - UBS Investment Bank, Research Division Miriam Adisa - Morgan Stanley, Research Division David Ferguson - Renaissance Capital, Research Division Sergey Vasin - Gazprombank (Open Joint - stock Company), Research Division Mitch Mitchell - BCS Financial Group., Research Division Alexei Gogolev - JP Morgan Chase & Co, Research Division
Operator
Hello, everyone, and welcome to Yandex's Third Quarter 2014 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 Arkady Volozh, our Chief Executive Officer; Alexander Shulgin, our Chief Operating Officer; and Greg Abovsky, our Chief Financial Officer.
Our call will be recorded. The recording will be available on Yandex's IR website in a few hours.
We have put together a few supplementary slides, which are currently available on our IR website. 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 prospects constitute forward-looking statements. Our actual results may differ materially from those indicated or suggested by these forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of our annual report on Form 20-F dated April 4, 2014, 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. Also we may elect to update those 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 certain non-GAAP financial measures.
These non-GAAP financial measures are not prepared in accordance with 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 now I will turn the call over to Arkady.
Arkady Volozh
Hello, everyone, and welcome to our third quarter call. Let me start off by commenting a bit about some of the management changes that we announced in late August and which became effective on September 1.
Alexander Shulgin, who served as the company's CFO for the last 4 years, has been appointed to the newly created position of Chief Operating Officer, and is responsible for our main Russian operations now. Greg Abovsky has been promoted to Chief Financial Officer.
I will remain as the CEO of Yandex N.V. and focus on the development of new products and markets as well as overall strategic vision for the company.
On the call today, Sasha and I will go through the main operational developments of the past quarter, while Greg will walk you through the financial details. Despite challenging macroeconomic conditions, Q3 was a very good quarter for us.
Our text-based O&O revenues continue to accelerate, while cost controls led us to an improvement in our overall margins. Our overall search share was largely unchanged from July levels, averaging about 60.3% during the quarter.
Our search share on iOS inched higher to about 48%, thanks to adults [ph] selecting Yandex as the default search engine in Safari and the popularity of Yandex.Browser. As you know, measurements of market share on mobile platforms are often imprecise.
In the process of improving our tools, we are now estimating that our Android market share in Q2 was 49% rather than 54% that we have talked about previously. In Q3, our Android market share declined slightly to approximately 47%.
However, we have a number of initiatives underway to increase our market share on mobile, especially on Android. To that end, we have recently signed an agreement with Lenovo, a large and growing Android OEM, to distribute 7 essential Yandex apps, including our mobile Yandex.Browser, on their smartphones.
These apps are pre-installed on all Lenovo mobile devices shipping to Russia. In Q3 2014, mobile queries grew to represent about 23% of our overall search queries, while generating about 16% of our search revenue.
And with this, let me turn it over to Sasha, who will get you into more details about our core business.
Alexander Shulgin
Hello, everyone. As Arkady said, Q3 was an exciting quarter for us.
The company continued to roll out new products and technologies, including a number of mobile-focused and offline-to-online services. A clear example of an offline-to-online service is Yandex.Master, which was released in September.
Yandex.Master is an online marketplace that allows users to find someone to help them with housecleaning, messenger services, small home improvement projects, consumer electronic setup and repair and so on. It is already up and running in most [indiscernible], and we will evaluate whether it makes sense to roll out the service in the regions toward the end of the year.
Another of our mobile-focused offline-to-online initiatives is that our users can now buy movie tickets directly on our search page by clicking on the movie they want to see, selecting their seat and paying with Yandex.Money account or credit card. And now you can also pay for your household utility bills directly on Yandex Search.
You can even pay for your speeding tickets and other traffic violations directly in our Yandex.Navigator app. Importantly, in Q3, we signed a cooperation agreement with the Moscow Mayor's office to create new services for Muscovites.
Moscow government will be providing us with access to different municipal data feeds such as road maintenance work schedules, real-time availability of parking spaces around the city and online schedule of medical services. This will allow us to get even closer to our users and facilitate services that embody the online-to-offline transition and that make Yandex even more essential to our users.
We're very excited by all of these possibilities. A few weeks ago, we launched a major redesign of our Yandex.Taxi app.
The new app is currently available for Android, with the iOS version soon to follow. Yandex.Taxi continues to grow rapidly, almost tripling its revenue year-over-year this past quarter.
Let me now turn to another one of our online offerings. Yandex.Music is the largest legal online music service in terms of audience reach and number of streams.
This past September, we relaunched Yandex.Music with a new design and the proprietary music recommendation tool. Recommendations are based on users' listening habits and ratings, queues from their social graphs, as well as suggestions from editorially created player lists.
A month after launch, the average time on this service per listener has already grown by 50%. And as you can guess, the quality of recommendations increases over time.
As of today, this is the only music service in Russia offering recommendations, and we are planning to use the same core recommendation engine into new versions of KinoPoisk that we are launching soon. October marked the anniversary of Yandex.Browser, which turned 2 years old this year.
Today, it has 19 million monthly users on the desktop and 5 million monthly users on mobile. By generating search traffic, Yandex.Browser has become the third largest in Russia, overcoming the Microsoft Internet Explorer and Firefox now.
The monthly audience is up 46% year-over-year on desktop alone. The browser is an important platform for Yandex, and we will keep investing in it to make it even better and more user-centric.
Now turning away from consumer-facing services to developments in our core advertising technologies. At the end of September, we completed the integration of Marin Software, an important online advertising management platform widely used by many of our international advertising clients.
With our newly developed API, Marin's customers can now optimize and automate their biggest strategies within Yandex.Direct and efficiently manage their campaigns. International clients are an important area of focus for us, and in Q3, approximately 7% of our revenues were generated in currencies other than ruble and Ukrainian hryvnia.
Ukraine generated about 1.5% of total revenues in Q3. While we are on the advertising technologies topic, last month, we acquired ADFOX, an advertising technology platform that provides services for planning, managing and analyzing online advertising campaigns.
It allows its more than 750 clients to automate and manage the selection of static and dynamic display apps, mobile apps and video advertising. ADFOX counts a large number of premium publisher websites as its clients.
The ADFOX team has joined the Yandex advertising technologies group and will work with Yandex's experts to further develop the ADFOX platform for large publishers. Over time, ADFOX publisher clients will gain new capabilities, including ad targeting based on Yandex’s Crypta technology and revenue optimization through Yandex RTB and Yandex.Direct.
To quickly update you on our acquisition of Auto.ru. The deal was approved and completed in late August, as a result, around 80 people joined the Yandex team.
Currently, we're integrating our technology core solutions into the website in order to improve overall visibility, expand Auto.ru's mobile offerings and increase manipulations [ph]. We are extremely focused on growing the online audience of Auto.ru, as we look to make Auto.ru into a clear leader in auto classifieds in Russia.
And now, I will turn the call over to Greg, who will take you through our financials.
Gregory Abovsky
Thank you, Sasha, and thank you, all, for joining. In the third quarter of 2014, our consolidated revenues grew 28% year-over-year and reached RUB 13.1 billion.
Text-based advertising accounted for 93% of total revenues in Q3 and demonstrated a healthy growth of 29% year-on-year. Yandex's owned and operated websites constituted 71% of total revenues and grew 33% year-over-year.
The acceleration of approximately 540 basis points on a sequential basis was driven by a healthy growth of paid clicks, as well as positive CPC dynamics on Yandex's websites. Our text-based advertising network grew 19% year-on-year.
This decline in growth rates compared to several previous quarters was driven by the anniversary-ing of our Mail.ru paid search agreement. Contribution of ad network revenues to total revenues slightly decreased 170 basis points year-over-year and 80 basis points sequentially to 21.2% in Q3 of 2014.
Share of display advertising was stable sequentially and contributed 6% to our overall revenues. Revenues from our owned and operated display advertising were down 3%.
Display ad network revenues grew to RUB 114 million and now represent 14% of our total display revenue. All in all, total revenues from display increased 6% year-over-year.
Other revenues doubled, but still comprised 1% of total revenues. Growth was primarily driven by revenues received from Yandex.Taxi.
Traffic acquisition cost related to partner advertising network grew 11%, while partner TAC as a percent of partner text-based revenues was 66% in Q3 2014. Compared to Q2, our partner TAC as a percent of ad network text-based revenues decreased 90 basis points.
As you might remember, partner TAC includes TAC both from the display side as well as the text-based side of our ad networks. Distribution TAC growth slightly accelerated compared to Q2 2014 and grew 54%.
However, our distribution TAC as a percent of total text-based O&O revenue increased only 17 basis points sequentially. On a year-over-year basis, distribution TAC still grew about 140 basis points.
Total TAC increased 23% year-on-year. Paid clicks grew 19% year-on-year, primarily driven by the comping effect from the Mail.ru search deal that we signed a year ago.
Cost per click demonstrated a healthy growth and increased 8% year-over-year. Now turning to our cost structure.
Our total operating costs and expenses, excluding traffic acquisition costs and G&A, grew 25% in Q3. Excluding stock-based compensation expense, our costs grew 24%.
Our personnel costs still remain our largest cost item, though we demonstrated tight personnel cost management in Q3. During the quarter, we hired 214 full-time employees, including the acquisition of Auto.ru that we completed towards the quarter end.
As a result, our personnel costs increased 26% year-over-year, slightly lower than our revenues overall. Our G&A expense for the quarter increased 20%.
Our adjusted EBITDA grew 34% year-on-year. And our adjusted EBITDA margin was 45.2%, up 390 basis points compared to Q2, and up 200 basis points on a year-over-year basis.
Improvements versus Q2 2014 were driven by the tighter management of personnel costs as well as advertising and marketing expenses, as well as by improved partner TAC. These were slightly offset by the new office space that we have taken on in Moscow as well as other rent-related expenses.
This quarter, the impact from ForEx was RUB 1.8 billion gain related to dollar-denominated assets and liabilities in our balance sheet, as the ruble weakened 17% from RUB 33.6 as of June 30 to RUB 39.4 to $1 on September 30, 2014. Our effective income tax rate was 24.5% in Q3 on a U.S.
GAAP basis, in line with the effective income tax rate of 24.6% in Q2 2014, adjusted for the one-time effect of certain reserves and allowances that we accrued in Q2. Just to remind you, our effective tax rate increased significantly compared with 2013 as a result of deferred tax accrual on half of the unremitted earnings aimed to be transferred to Yandex N.V.
from Yandex LLC. Adjusted net income grew 24%, and adjusted net income margin was 30%.
Our Q3 CapEx was RUB 2.5 billion or 19% of Q3 revenues. Currently, we expect our full year capital expenditures to be at the higher end of the previously announced range of 16% to 19% of total revenues, as a result of significant depreciation of the ruble to the dollar.
Turning to the share repurchase program. We're still active in the marketplace.
To remind you, our current buyback program covers 3 million shares. As of yesterday, we have acquired approximately 600,000 common shares.
We have also been active buying back the convertible bond that we issued in December of 2013. So far, we have bought back RUB 50 million of the bonds at about RUB 0.91 on the dollar.
We ended the quarter with $1.1 billion in cash and cash equivalents. And now turning to guidance.
Based on the current trends and despite a challenging macro environment, we narrow our full year 2014 revenue guidance and expect year-on-year growth of 27% to 30% on a like-for-like basis. Now let me turn the call over to the operator for the Q&A session.
Operator
[Operator Instructions] We are now going to take our first question from Lloyd Walmsley from Deutsche Bank.
Lloyd Walmsley - Deutsche Bank AG, Research Division
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Operator
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Operator
We are now going to take our next question from Alex Balakhnin from Goldman Sachs.
Alexander Balakhnin - Goldman Sachs Group Inc., Research Division
It's Alex Balakhnin from Goldman. I have 2 questions, if I may.
First is, could you share your thoughts on the economics of traffic acquisitions of your advertisers? I'm just trying to reconcile the growth of CPC and -- I mean, the overall stagnation of the economy.
What do you think the traffic conversion economics looks like for your customers? And my second question is on your SG&A decline as a percentage of revenues, to what extent this is related to Turkey?
And if so, what's the company's stance on the investment into the market share graph and -- I mean, overall commitment to this market?
Alexander Shulgin
Alex, this is Alexander Shulgin speaking. Thank you for the questions.
So on CPC dynamics, first of all, as we always said, our customers have primarily small and medium enterprises. And for them, search is the sales-generation channel and it is absolutely normal for them to start and to continue to spend on text-based advertising as long as their consumers are buying services and items that they're selling.
So we think it's a normal situation when we see continuous spend from our customers. Narrowing down only to CPC trends, as you know, with addition of Mail.ru search to our advertising platform, we start positioning a substantial higher number of paid clicks for our customers, and that was depressing slightly our CPCs.
Now we fully anniversary-ed the period -- the day when Mail.ru contract was signed and mail search was added to our platform. And we think now that CPC trends are, so to say, are more normalized.
And an increase of CPC, more or less in line with overall inflation of Russian economy, is what we think is reasonable for our advertising platform, and that is what we see starting from Q3 this year. And the second question, Greg will answer.
Gregory Abovsky
Sure. Hi, Alex.
On SG&A decline, I would say that it was spread both between our core Russian operations as well as some savings in Turkey, while we are working to improve our search quality there. And Arkady can address Turkey in more detail.
Arkady Volozh
Well, on the Turkey progress, we still maintain more than 4% market share; but at comScore, it's 4.5%. As you remember, we reached 5% in the spring, and then we switched off some of our most extensive distribution channels, but still maintained our market share.
We reached 4 -- sorry, 2 million monthly unique users of Yandex.Navi. This is the most downloadable job application in Turkey now.
We continuously working -- actually, the whole focus now is on the product search, product quality and we're achieving some results there. We are planning to start sales there later this year or in the beginning of 2015.
And we've got some management change there, as you may heard, the new Chief Operating Officer in Turkey is now Milana Joviditch [ph], who before that was heading Google DoubleClick in Russia, Turkey, EMENA region and Africa. She now runs our product in Turkey.
Alexander Balakhnin - Goldman Sachs Group Inc., Research Division
I -- like if I may, may I just follow up on my first question on the CPC dynamics and the traffic conversion economics. I mean, for your advertisers, now the click is 8% more expensive than it was a year ago and they buy more paid clicks, right, as goes from your statistics, 19% more.
In the same time, we see the auto statistics, the consumer loan statistics and so on. So your statement is for your customers, basically, the trends which we see in macro overall are not applicable and they're different from the average statistics tells us?
Is this what you say?
Gregory Abovsky
I think, Alex, the way you should think about it is that CPCs are an aggregation of a lot of different services that are all sort of combined into one static number. It's a combination, obviously, across all of our platforms and services, everything from Yandex.Market to Yandex Search to Yandex contextual to our advertising network to the Mail.ru search properties.
The end result of all of that aggregation is the number that you see. And I think there's not much more I can say about that, other than I believe that advertisers are still turning to search and to contextual advertising generally because it's an effective marketing channel for them.
It's a sales channel for them. And as long as the economics for them hold up, they keep investing and further search spend.
That's just kind of how it goes.
Operator
We are now going to take our next question from Lloyd Walmsley from Deutsche Bank.
Lloyd Walmsley - Deutsche Bank AG, Research Division
So looking at the second quarter in a row of acceleration in the O&O search revenue, if you kind of go back to last quarter, you said on your call that some of the ad TAC initiatives weren't a big contributor last quarter, but you expected them to be this quarter or moving forward. So looking at this quarter, can you guys give us a sense for how much of that acceleration was coming from larger customers, taking advantage of that and then just give us a sense for where we are in kind of the rollout of some of those new features around server clusterization, APIs?
And are we in the third inning, or are we kind of seeing the run rate contribution already, kind of frame it up for us?
Gregory Abovsky
Sure. Thank you, Lloyd, for the question.
You saw some of that this quarter, although I would say not as much as we hoped. We're still a little bit behind in terms of the implementation of the new API 2.0.
That should still happen this year, though it did not happen in Q3. Of the acceleration that you saw, obviously, reflects obviously excellent economics of search, back to Alex Balakhnin's earlier question.
It reflects sort of the robustness of the model itself. It does reflect some of the improvements that were put into place on the overall ad stack side such as the integration with Marin Software, for a example, as well as some of the other changes that we've made to search.
So it's obvious that the market environment is challenging and that the overall macroeconomic situation is not great. But we continue to operate in the market.
Trading conditions are still sort of okay, not much change from the previous quarter. So that's kind of what it amounts to in terms of changes in O&O growth.
Lloyd Walmsley - Deutsche Bank AG, Research Division
Okay. And then I guess as a follow-up, are there any conversations you're having with clients in a real-time basis around budgets and how they're shaping up for next year in a slightly worse economic environment?
Do you feel like search will just continue to kind of power through this period of slower economic growth, as people kind of turn off the search budgets last? Or do you have any good sense for kind of real-time budgeting trends among your clients?
Alexander Shulgin
Lloyd, this is Sasha speaking. Let me try to answer your question.
So the trend that we see now are reasonably good. And talking about next year, spending commitments or indications from the customers, I think it's a bit too early to say because their budgeting cycles are still running and they are not ready yet to tell us what the expectations are on spending.
Actually, the same as ours. We're still in the process of business planning for next year and following years.
And this is a very similar situation to all other companies.
Operator
[Operator Instructions] We are now going to take our next question from Boris Vilidnitsky from Barclays.
Boris Vilidnitsky - Barclays Capital, Research Division
A couple of questions from me. First of all, on the number of advertisers, we've seen slight growth quarter-over-quarter.
I don't know if you could comment on that. Is that because of macro or are advertisers a little more hesitant to start spending now?
And then the second question, the slight decrease on the share of Android, are you seeing Google being more aggressive? Or have you guys changed any of your algorithms there?
Alexander Shulgin
Boris, this is Alex speaking again. So on number of advertisers, yes, the absolute amount of customers did not increase compared to previous quarter.
I mean, there was no substantial change. Obviously, economic environment becomes more challenging for the customers.
But what we see in our industry, in our advertising technology and in the system that with those 300,000 customers that we have, they're increasing their overall average spending per customer. I don't think that the growth in number of customers is over.
We will continue to grow a number of customers, but in this environment, it will be more difficult for new businesses to open at that rate.
Boris Vilidnitsky - Barclays Capital, Research Division
I see. And on Android?
Alexander Shulgin
Yes, yes. On Android share, as we always said, a measure in search market share on mobile devices is more difficult because LiveInternet does not show the completely full picture.
So we're using our own analytical tools and they are not ideal as well. This quarter, we improved the quality of our measurement, and that resulted in technical change of our search market share on Android of about 6 points, out of which, about 2 points are RU.
We see Chrome is gaining share on Android versus embedded browser on Android devices. And this growth of Chrome is partially compensated by the growth of our own search application and also Yandex.Browser on Android devices, especially on tablets.
Boris Vilidnitsky - Barclays Capital, Research Division
I see, I see. And does that explain the overall slight decrease in search share from about kind of 61 -- not to split hairs, but close to the 61, 62 level to about 60 in this quarter?
Arkady Volozh
This is Arkady. This decline is partly due to purely technical factors.
For example, with our new design on the Yandex.Islands, we experienced less clicks, although not less users. There was also continued activity in distribution of competitive browsers, and they opened[ph] of closed platforms, which we expected and predicted.
We do not rule out a slight decrease of our market share, maybe for another 1% or something. But we feel comfortable to maintain our clear leadership in search market overall.
And just to remind you that in first half of this year, our text-based advertising market was almost 75%.
Operator
We will now take our next question from Anna Lepetukhina from Sberbank.
Anna Lepetukhina - Sberbank Investment Research
I have 2 questions, if I may. My first question is on some reports that you're increasingly sale -- selling to foreign advertisers your inventory.
Can you please elaborate on this and say -- I mean, what exactly are you doing and if it is true, and where the share of foreign advertisers currently stands? And my second question is on the growth in search queries and paid clicks.
I mean, if we look going forward, would you expect that initiatives that you plan to launch will boost growth in both search queries and paid clicks or basically what we see right now is the growth that is sustainable?
Alexander Shulgin
Anna, this is Alex speaking again. So first of all on foreign advertisers, currently, the share of revenue coming from foreign advertisers to the both foreign -- I mean, those who do not have operations in Russia.
So the revenue contribution is 7%. It is slowly increasing because we're expanding our sales efforts in -- primarily in Europe and possibly, we'll be looking to other countries.
We'll also have some sales in United States. We definitely see demand from the Russian users for foreign goods and for some foreign services like autos, for example, or travel to outside of -- tourism outside of Russia.
And we're definitely looking forward to better serve advertisers who want to advertise to Russian users. Now switching to the second question about dynamics of search query growth and paid clicks.
Overall, it is -- number of users in the Russian Internet who are online is more or less saturated. There is still room for growth in the regions.
And the net growth going forward will be coming primarily through increase in usage of the Internet and search, especially, and we see lots of opportunities for that growth. On paid clicks, that's a slightly separate system from search.
Of course, there is some correlation between growth of search paid clicks and queries, but it's not 1:1. The things that we do to improve ROI for our customers, to improve better -- to improve target and to improve conversions for our users, we have a substantially higher impact than the growth of search queries.
On top of this, we are also trying and effectively trying to improve effectiveness of our partner network. So overall, I think there is still lots of opportunities for us to continue to grow on paid clicks and thus drive revenues for our customers.
Gregory Abovsky
And just to add maybe one quick comment with respect to the growth in search queries that we saw in the quarter. I think the headline sort of masks the underlying growth in Russia, which decelerated by a very small amount from the previous quarter, only about 2% or so.
And a lot of the decline was actually driven by the other regions in which we operate. So the core operations of the company are still experiencing very solid query growth.
Operator
We are now going to take our next question from Ulyana Lenvalskaya from UBS.
Ulyana Lenvalskaya - UBS Investment Bank, Research Division
I have a couple of clarification questions. First, maybe a follow-up on Sasha Balakhnin's question on SG&A.
SG&A in total as a percentage of revenue reached actually historical low for Yandex. Do you see this level as sustainable for at least maybe next quarter?
Or what are the drivers behind this improvement in SG&A?
Gregory Abovsky
Ulyana, I just want to comment a little bit on SG&A. Look, generally speaking, we tend to advertise when we have something new or something different.
For example, we do plan to invest in marketing of our classifieds product when we think it's ready, the Auto.ru acquisition that we recently did. So far, for example, Auto.ru is showing excellent dynamics since we bought it.
Already, we're able to dramatically increase the usage on mobile. As Alex said, we really increased monetization.
We've increased our market share in Moscow. And we're now, I think, 3x the size of Avito here, more or less.
And so when we have something to market against, we will invest heavily in marketing. And we will be focused on gaining leadership positions there.
When there is less things to advertise, obviously, we will try to control our SG&A spend more fully. So I think that's kind of the way to think about it.
I don't think there's a change of religion here. It's just a question of when we have something to -- that we want to support with our advertising spend or not.
Ulyana Lenvalskaya - UBS Investment Bank, Research Division
And maybe related question, given how strong the EBITDA margin was, do you see any upside risk for the EBITDA margin guidance for this year? The last time you said, it was down to the 300 basis points year-on-year for full year.
Gregory Abovsky
No real change. Obviously, as you can imagine, the situation is still very fluid, and so the guidance that we've left out there obviously implies a decent level of uncertainty in the marketplace.
So far, we haven't seen any adverse changes. But obviously, the situation is a challenging one in terms of overall rate of growth.
I'd say that our overall guidance, more or less, fits. It will very much depend on the level of revenue that we're able to drive, and the cost structure will be what it will be.
Operator
We will now take our next question from Miriam Adisa from Morgan Stanley.
Miriam Adisa - Morgan Stanley, Research Division
I have a few questions. Firstly, just on the partner network.
Did mail search operations grow above or below the group average? And I'd also like to know what about the change in market share between the growth on search and between mobile and tablets?
Gregory Abovsky
Sure. I didn't catch the first part of the question.
With respect to mobile, so as we said, the share of queries that mobile represents is about 23% now, and the share of revenues that it drives is about 16%, and that's up from 20% and 14%, respectively, in the previous quarter. So we're able to monetize mobile quite well still.
We were actually able to drive pretty solid improvements in monetization on phones, while tablets declined slightly. So overall, we view that as a positive development since there's many, many more smartphones than there are tablets out there.
And what was the first part of your question?
Miriam Adisa - Morgan Stanley, Research Division
The first question was about the partner network. I wanted to know if mail search operations grew above or below the group average.
Gregory Abovsky
Well, I would just say that our partner network growth was probably slightly higher than what we were able to drive from some of the large search properties that we service.
Operator
We will now take our next question from David Ferguson.
David Ferguson - Renaissance Capital, Research Division
So 2 questions, please. Firstly, could you update us on how many merchants you've now signed up to the CPA model on marketplace ahead of the sort of the key Christmas period?
And more generally, are you happy with the progress you've made with that product and platform over the last 12 months? That's the first question.
And the second question would be for Yandex.Taxi, what is -- what do you see as your market share versus that of your closest competitor?
Gregory Abovsky
David, I'll take the second part of the question. It's obviously we have no idea.
The other competitors in the market that are present do not disclose their figures. Our market research estimates that we're probably 3x the size of our next closest competitor.
And Sasha will take the first part of the question.
Alexander Shulgin
David, this is Sasha. So CPA adoption -- our CPA model adoption, Yandex.Market, unfortunately, is not as good as we expected it to.
So we now have to think more about making it much easier for our merchants to connect to the CPA platform, maybe connecting with the ERP or whatever system merchants are using to operate their warehouses or maybe introducing some online solution to make this connection very, very easy. So we have low hundreds merchants connected to CPA model, some of them are sizable notion and some of them are smaller guys.
But Yandex.Market remains primarily a CPC comparison shopping platform.
Operator
We will now take our next question from Sergey Vasin.
Sergey Vasin - Gazprombank (Open Joint - stock Company), Research Division
My question is probably related to the share repurchase program. Can you just update us what's going on there?
I mean, how many shares do you still left -- which you can purchase back again?
Gregory Abovsky
Sergey, this is Greg. So we've repurchased 600,000 shares, as I said in the prepared remarks, under our share repurchase program.
Our total share repurchase program that's been renewed is 3 million shares, and that comes on top of the 15 million shares that we already executed under our previous program. So inception to date, when we started this program in March of 2013, we've bought back 15.6 million shares, and there are 2.4 million shares remaining under the program.
And we'll continue to be active and try to buy back stock at attractive levels to drive shareholder returns. As you know, we've also started to buy back some of the converts at levels that we think are attractive, and we've bought back about RUB 50 million of the bonds at RUB 0.91.
Operator
We will now take our next question from Mitch Mitchell from BCS.
Mitch Mitchell - BCS Financial Group., Research Division
Actually, you got my question already. I was looking for more of an update on Yandex.Market and how you are progressing there.
Can you give us any more broader color on how you see that playing out over the next year? That would be great.
Alexander Shulgin
So on Yandex.Market, Yandex.Market is primarily popular for short and forward[ph] electronics and home equipment. And this category of consumer goods is not doing real -- as well as other categories of things consumers buy.
So the growth rate in Yandex.Market this year are slightly lower than on contextual advertising on owned and operated premises. Our plan for Yandex.Market is to expand categories that Yandex.Market offers for sale, promotions and also to make it easier for our users in the regions to shop online on Yandex.Market.
So that's a focus for the following years. And as I said, CPA model adoption is not as fast as we hoped for, and we're looking now for things we can do to improve adoption.
Operator
We will now take our next question from Alexander Balakhnin from Goldman Sachs.
Alexander Balakhnin - Goldman Sachs Group Inc., Research Division
I have a quick follow-up question. I just wanted to better understand the potential impact of FX weakness on your cost base.
I mean, obviously, most of your costs are based in rubles, but -- are nominated in rubles, but there may be some linkage to the USD like with, I don't know, real estate expenses or indirectly, your headcount expenses as the market for the programmers has increased into global? Can you share your thoughts on how you think about the potential pass-through effect of ruble weakness versus USD?
Gregory Abovsky
Alex, thank you for the question. This is Greg.
You're right, so the biggest area of FX slippage that we have in the P&L is related to our office rent for our Moscow headquarters. We have -- luckily, we have extremely nice offices, which are quite expensive and are linked to the U.S.
dollar. And so as the ruble has depreciated the rent that we recognize for our headquarters has increased in ruble terms.
Other than that, other areas of slippage, if you will, would be business travel, which, as you can imagine, is also very closely linked to U.S. dollar.
On personnel expense, that effect is probably much less felt, I would say. And then turning to the cash flow statement, obviously, all of our purchases of servers and the construction of data center in Finland are essentially U.S.
dollar or euro denominated. And so as I've mentioned in my prepared remarks, our CapEx guidance is probably at the higher end of our range now of 16% to 19% of sales as a result of that increase in cost.
Essentially, a server costs x dollars and it's still going to cost x dollars, but the ruble cost of that server has obviously gone up. So that's -- those are the main areas where FX tends to affect us, office rent, business travel and CapEx.
Operator
We're now going to take our next question from Alexei Gogolev from JPMorgan.
Alexei Gogolev - JP Morgan Chase & Co, Research Division
I have a question with regards to the SERPs ranking algorithm, as I understand, you have introduced this year. Could you discuss the impact it had on the business or possibly on revenues in the third quarter?
Gregory Abovsky
I'm sorry, could you just clarify what you are referring to, Alexei?
Alexei Gogolev - JP Morgan Chase & Co, Research Division
I'm referring to the search engine optimization that, as I understand, was launched this year. As I understand, it should be...
Gregory Abovsky
Yes. Yes, yes, you're talking about cleaning up the links from sort of black hat SEO.
It's starting to have some impact as well. I would say that impact is somewhat limited.
I don't think there's much of it built into our improvements in our core operations, especially the acceleration of O&O search. It's there, but it's limited.
As you know, it takes some time for it to be fully implemented.
Alexei Gogolev - JP Morgan Chase & Co, Research Division
And could you remind me when was it introduced?
Gregory Abovsky
We began introducing it in the Moscow region for certain industry categories in January of this year, as we started to...
Alexei Gogolev - JP Morgan Chase & Co, Research Division
And it would be automotive, it could be real estate?
Gregory Abovsky
It's whatever search results are or whatever queries are most commercial in nature. And those, therefore, tend to be most spammed by black hat SEOs.
And what we try to do is we try to clean those up to make the results to our consumers much more relevant rather than artificially inflated through SEO optimization.
Operator
There are no further questions on the queue.
Unknown Executive
Thank you very much, and we'll speak with you soon.