Jul 30, 2015
Executives
Katya Zhukova - IR Alexander Shulgin - COO Greg Abovsky - CFO Arkady Volozh - CEO
Analysts
Lloyd Walmsley - Deutsche Bank Alexander Balakhnin - Goldman Sachs Cesar Tiron - Bank of America Ulyana Lenvalskaya - UBS Boris Vilidnitsky - Barclays Alexander Vengranovich - Otkritie Capital Vladimir Bespalov - VTB Capital
Operator
Good day, ladies and gentlemen and welcome to Yandex’s Second Quarter 2015 Financial Results Conference Call. I will now hand you over to Katya Zhukova to begin.
Thank you.
Katya Zhukova
Hello, everyone, and welcome to Yandex’s second quarter 2015 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 and on Newswire services. On the call today, we have Alexander Shulgin, our Chief Operating Officer; and Greg Abovsky, our Chief Financial Officer.
Arkady Volozh, our Chief Executive Officer will be available for the Q&A session. Our call will be recorded.
The recording will be available on Yandex’s IR website in a couple of hours. We’ve also put together a few supplementary slides, currently available on our IR website.
And now, I will quickly walk you through the Safe Harbor. 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 30, 2015, which is on file with the SEC and is available online. In addition, any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date.
Although we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our views change. Therefore, you should not rely on these forward-looking statements as representing our views as of any date subsequent to today.
During this call, we will be referring to 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 am turning the call over to Sasha.
Alexander Shulgin
Thank you, Katya, and hello, everyone. Thank you all for joining our Q2 earnings call.
I’m very pleased with financial and operational results that the company delivered in Q2, despite continued challenges to the overall economic environment. Our top line revenue grew 14% above the top end of our previously issued guidance.
We demonstrated revenue growth across all revenue lines. Revenue growth of Yandex.Direct was driven by the increased advertising spend in healthcare, real estate and home improvement categories.
Auto and financial services however continued to negatively affect the business during the quarter. During Q2, we served over 350,000 advertising clients, an increase of 17% from a year earlier.
Importantly, the number of advertisers grew 9% quarter-over quarter, which again demonstrates the inherent advantages of contextual advertising. To further increase efficiency of search advertising for our clients, today, we are announcing a change to our auction system as new renting roles for ad-blocks on search result basis.
In spite of generalized second price auction that we are currently using, we plan to reach the VCG auction. The main rationale for the change is a desire to provide our advertising client with a simple efficient process, which is easier to manage.
Indeed, the second price auction frequently makes advertising on higher ad positions within the chosen ad block less economic abstract to our clients because re-auction on the other hand rewards upward region [ph] by only charging premiums for incremental clicks that an advertising had done. Thus competing for extra traffic is more economically attractive for our advertisers.
But we also begin to plan a new relevant strength in formulas for our base search results driving additional traffic to sites with higher quality advertisement. This stability was already proved effective in our organic search results and now we’re bringing it to base search as well.
As a result of these changes, we expect to see growth in the number of ad clicks in our search pages and increase in advertising coverage and reduction in the advertising cost per click. Taken together, these changes will drive incremental value to advertising plans.
From a financial point of view, we expect this initiative to be revenue neutral in the short term but in the medium to long term, it will led to more robust speeding activity, improving advertiser returns and an increase in the effectiveness of search advertising in general. We plan to roll out this new auction and advertising rent in late in Q3.
The changes will be applied to our base search. Now let me give you a few highlights from the past quarter.
On the advertising front, we continued to focus on renew advertising tools and efficient ad formats for advertisers, specifically designed for mobile advertisers. Following the introduction of mobile statistics for efficiency in March of this year, in Q2, we allowed advertisers to bid for ads on mobile devices separately from desktop.
This function is currently being used by 8% of our advertisers and the results remain encouraging. More often than not, advertisers adjust their mobile TBCs [ph] upward, which result in higher [indiscernible] on smartphones compared to desktops and tablets.
We are also continuing to experiment with a number of ads that they show on mobile devices. As a result, in Q2, we continued to narrow the gap within our mobile traffic and mobile monetization.
Share of mobile in our overall search traffic in Q2 was 23% while generating 20% of our search revenue. Turning to our non-search business, in Yandex.Market, [indiscernible] Yandex.Delivery, a one-stop solution for smaller Internet merchants to provide regional delivery.
Auto.ru, our online classifieds business is successfully continuing to grow with mobile usage and strengthen its position in most of the entities. Yandex.Taxi continues to outperform, we see exciting growth in these two categories, and we’re also expanding the service into the region.
In Q2, we launched Yandex.Radio, a lean back approach to music based on our proprietary recommendation system targeting a younger audience. With Yandex.Radio, we are beginning to experiment with the new audio advertising format.
Now to search share, our overall search share in Q2 averaged 57.3%. The decline was primarily driven by decline of our share in Chrome and an increased market share of Chrome, continued growth of Yandex.Browser helps us mitigate this effect.
On the mobile front, in Q2, our search share on iOS was at 46% compared to 48% the quarter earlier. The decline is driven by changes in iOS8 APIs that we have talked about previously.
Our share on Android-based devices declined 3 percentage points sequentially, and in Q2 stood at 39%. We recognized the challenges we faced in the current environment of ecosystem and remain focused on improving the quality of our search product both on desktop and on mobile.
We will continue to invest into development, distribution, and advertising and marketing of all products including Yandex.Browser, which we think is essential to maintain our structure on the Russian market. Before turning over to Greg to discuss our financials, I want to provide a quick update on our antitrust case in Russia related to Google's practices over distribution of third-party applications on Android devices.
As you probably know, in early June, the Federal Antimonopoly Service handed the case to include article found of the Protection of Competition law. This article covers abuse of a dominant position, leading to foreclosure competition.
Initially, FAS opened the case under Article 14, which prohibit unfair competitive action. The next hearing is scheduled for September 4 this year.
With this, I will pass the microphone over to Greg.
Greg Abovsky
Thank you, Sasha and thank you all for joining our call today. In Q2, 2015, our consolidated revenues grew 14% year-over-year and reached RUB13.9 billion.
Text-based advertising accounted for 91% of total revenues and increased 13% year-on-year. Yandex's owned and operated websites contributed 67% of total revenues and grew 9% year-on-year.
The slowdown in revenue growth from Yandex's websites was primarily due to [indiscernible] that we experienced given the changes that we made in Q2 of previous year. Yandex's market demonstrated moderate signs of improvement compared to Q1 and grew slightly slower than our total [indiscernible] Our text-based industry mix remains diversified.
Q2 trends were mostly unchanged as we continue to see weakness in ad spend, auto and financial services. Including these two segments, our text-based revenue would have grown in the high [indiscernible].
Our advertising network grew 24% year-on-year as we continue to add new partners to our ad network, contribution of ad network revenues total revenue increased 180 basis points compared to Q2 of last year. It remains fairly stable compared to the previous quarter.
Display advertising revenues increased 9% contributing 6% to total revenues. As you know, revenue from this play is highly volatile and I would not jump into any conclusion in respect of the overall macro environment based on these results.
Other revenues tripled and comprised 2.6% of total revenues. The main driver of growth for this segment was Yandex TAC.
Traffic acquisition costs related to the partner advertising network was 17%, slightly slower than our text-based partner network revenue. Partner TAC as a percent of partner text-based revenue was 63.2% compared to 64.6% in Q2 of last year.
The decrease was mostly due to change in our partner mix. Distribution TAC increased 7% year-on-year and contributed 9.7% to text-based revenues, 40 basis points lower than Q1 of 2015.
Total TAC increased 14% in line with our overall revenue growth. Paid clicks grew 12% year-on-year while cost per click remains flat.
Turning to our cost structure, total operating costs and expenses excluding TAC and G&A grew 43% in Q2 versus the previous year. Excluding stock-based comp, expenses grew 39%.
Growth was primarily driven by increases in office rent and salaries paid. Personnel cost still remain our largest cost item.
In Q2 we reduced number of employees by 145 people as a result of our efficiency review exercises and a decision for reduced activities in certain areas which we do not consider critical. However, we continue viewing the current economic situation as a good opportunity to add now.
We are focused on strengthening the mobile teams as well as the team working on the Yandex browser. In Q2, our personnel costs were 24% of revenue compared to 27% in the first quarter.
Stock-based comp, which is part of personnel expenses increased 116% due to our new grants and the exchange program that we executed in Q2 of this year. Our G&A expense for the quarter increased 68% due to ruble depreciation as well as increases in our datacenter staff.
Our adjusted EBITDA decreased 4% year-on-year. Adjusted EBITDA margin was 34.6%, which is down approximately 7 percentage points.
Adjusted EBITDA margin contraction was mostly due to office rent expenses, growth of personnel expenses and advertising and marketing spend [indiscernible]. This quarter, the impact from forex was a loss of RUB1.9 billion related to dollar-denominated assets and liabilities in our balance sheet.
Our effective income tax rate was 44.7% on US GAAP basis due to non-deductible stock-based compensation expense and valuation allowance for operation. Adjusted for these expenses and allowance, our effective tax rate was 22.3%, in line with the effective tax rate [indiscernible].
Adjusted net income was down 16% and adjusted net income margin was 20.1%. Our CapEx was RUB4 billion or 29% of Q2 revenue as we continue to invest in data centers and servers.
As you know, a significant part of our capital expenditures is denominated in US dollars, therefore adversely impacting the CapEx to revenue ratio. And as I mentioned in previous calls, our CapEx this year is very much weighed towards the first half of the year.
We continued to buyback convertible bonds that we issued in December 2013. In Q2, we bought back another 24 million face value of bonds and since the inception of the repurchase program through the end of Q2 we bought approximately 200 million face value of bonds.
We ended the quarter with approximately US845 million in equivalent using the exchange rate as of June 30. Currency split was approximately 35% rubles, 65% dollars and euros.
Now turning to guidance. Given that we are beginning to see certain signs of stabilization in the overall economic environment we are going to expand the full year revenue guidance and provide you with the outlook for full-year 2015.
As of today, we expect full-year revenue to grow in the range of 11% to 13% in 2015 compared to 2014. Now, I’ll turn the call over to the operator for Q&A.
Operator
Thank you. [Operator Instructions] We would take our first question from Lloyd Walmsley of Deutsche Bank.
Please go ahead, your line is open.
Lloyd Walmsley
Thanks. I guess first question, Greg, your comments on guidance and starting to see signs of stabilization, it sounds like you’re generally doing more comfortable about the environment but maybe you can just give us the sense for just the second half outlook.
It implies a little bit of deceleration. Do you think that’s mostly conservatism in light of the kind of more visibility you feel and then can you just kind of give us some color on specific categories that are giving you that sense of stability as financing order starting to stabilize?
And then second question, I guess, if you could just elaborate a bit on what’s driving the mobile bps to be adjusted upward and how it’s impacting overall budget from the advertiser to have adopted separate bidding strategies? Thanks.
Greg Abovsky
Hey, Lloyd, it’s Greg. Thanks very much for your questions.
Let me first address guidance. I think it’s very premature to say that the environment is getting better.
I think we’re trying to see certain bottoming here we think and we see certain first signs of stability and given that, we felt comfortable enough to return to full-year guidance. Clearly, we wanted to be cautious as there is still a lot of year left to go and as you know, second half is always the bigger half for us.
So, we wanted to be prudent in that respect. With respect to your question about categories, the two primary areas of weakness are as I said in my prepared remarks are autos and financial services.
Both of those categories are still down year-over-year for us, just about every other category is growing, some more so, some less so. As I said, if you exclude autos and financial services, our growth would have been the high teens.
I -- there are certain areas that are obviously growing little slower, but that’s okay and hopefully, it’s starting to look like if you look at auto sales that those perhaps have bottomed out, right. By June, they were only down 30% year-over-year, as surprising as it’s for me to say only and that compares to 43% back in March.
So, yes, I think autos are starting to bottom out. Hopefully, financial services should start to normalize as well as the Central Bank reduces its lending rates.
And I’ll turn the call over to Sasha with respect to mobile CPC bps.
Alexander Shulgin
Hi, Lloyd, this is Alexander speaking. So, the questions on mobile CPCs.
There are two trends, one is say structural trend, more and more customers now have their mobile websites and therefore they are willing to bid for clicks on mobile devices because they have websites to land these clicks on and to convert them to sales. And second that -- second is that once we have introduced this functionality of campaigns targeted specifically on mobile, now customers have more tools to optimize their mobile campaigns and therefore they’re otherwise going up and they’re willing to bid more for mobile clicks.
Lloyd Walmsley
Okay, thanks guys.
Operator
Our next question comes from Alex Balakhnin of Goldman Sachs. Please go ahead, your line is open.
Alexander Balakhnin
Yes, good afternoon. Two questions from me if I may.
One is, on the display advertising revenue growth volatility, I mean, the magnitude of swing is quite substantial, suggesting that time of regulation. [ph] Could you sort of provide some background why it was positive growth in fourth quarter and decline in first and growth in second?
And my second question would be, you mentioned on the strategy to address mobile share erosion, you mentioned the fast investigation. But can you walk us through the internal action plan, I mean, what do you do inside the Yandex, maybe how do you engage with the distributors of mobile devices with the OEMs, with the broad ecosystem, how do you position your product development to address the decline of the mobile market share?
Thank you so much.
Greg Abovsky
Hi, Sasha, it’s Greg. On display volatility, yeah look, I mean, it’s just a very volatile category and it remains so.
We have a hard time forecasting it because it’s concentrated in the hands of maybe 50, maybe a 100 large clients, and it just depends on how they feel about the economy, what else they have going on in their marketing budget and it’s just – it really is impossible to forecast. Right now, display is kind of running down again, but I think that’s okay and it was volatile even inside the quarter, I think as I have sort of said it many times in meetings with investors, one month could easily be up 10% and next month could be down plus 10% and then something else happens again.
So look, I don’t think that’s a good indicator of the overall economic situation. I still think, we are kind of somewhere, hopefully near the bottom, hopefully we are stabilizing, but I don’t think the fact that display grew in Q2 should really be read into all that much.
And I’ll pass the mike to Sasha for your question around mobile.
Alexander Shulgin
Hi, Alex. So on mobile, our first priority goes on product that we create, specifically being the Yandex browser that we develop for all platforms and mobile specifically with a focus on Android phones, where we see it’s gaining share like many other competitors on Android platform.
Other investment goes behind the Yandex Search app that we are planning to rollout soon and will support it with performance market and possibly some other Internet companies in Russia. Antitrust case is also one of the priorities because it will remove limitations imposed by Google on us being able to make use distribution dealers with manufacture of cellphones.
And also we work OEMs, but as I said currently, possibility to install our app specifically search app and browser is limited because of Google’s restrictions imposed on OEMs. So to summarize, majority of our focus goes behind product and also behind marketing of our products on mobile platforms.
Alexander Balakhnin
Thank you, Sasha. I just wanted to ask a very quick follow-up to what you said.
I see the statistics of the application usage just by the statistics and it seems that the Yandex applications do not screen particulars like Top 5, Top 10 apps used by the Russian users. Do you think the product development you now have in-house will help you basically move up or towards the leadership in terms of the number of people using your mobile browser and mobile maps and so on.
Alexander Shulgin
Yes, exactly, we think so. We are now having multiple mobile development, mobile engineering team and we have put our best resources behind search quality and mobile products, browser and search app.
So that I think it will deliver growth to us in the second half of this year and in 2016.
Alexander Balakhnin
Thanks so much. That’s very clear.
Operator
[Operator Instructions] Our next question comes from Cesar Tiron of Bank of America. Please go ahead, your line is open.
Cesar Tiron
Yes, I have a question on the margins, so the margins were down probably 7.5% in H1 and I assume there is – there was an exceptional related to the severance. Do you expect margins to be down more than that in H2 versus last year?
You mentioned on the previous call some investments for Yandex Taxi and [indiscernible], that still stand? Thank you.
Greg Abovsky
Hi, Cesar, it’s Greg. Very good question.
Thank you. Yes.
As you recall, back in February, in our Q4 earnings call, we said that we expect margins to compress by about 900 basis points. As we went through the year and as we began to execute upon the cost reduction plan, we were able to sort of bring the internal budget down and our margins looked like they were going to be better than down 900 basis points.
At this point, we are investing more. We will invest more behind Taxi, behind Yandex market, behind Turkey, behind classifieds.
Margins will not be down 900 basis points, maybe they’re down 700 basis points, maybe a little better than that, maybe a little worse. But that’s kind of the magnitude that we’re talking about after the incremental investment and marketing spend in the second half.
Cesar Tiron
Thanks, Greg. And can you please disclose the severance, I mean any exceptional?
Greg Abovsky
It actually was not as big of an amount as we thought. There is some amount in there, but it’s not material, I would not focus on it, it’s in the 10s of bps, not 100s of bps.
Cesar Tiron
That’s for Q2?
Greg Abovsky
Yes.
Cesar Tiron
Thank you.
Operator
Thank you. We will take our next question from Ulyana Lenvalskaya of UBS.
Please go ahead. Your line is open.
Ulyana Lenvalskaya
Thank you and good afternoon, gentlemen. Most of my questions have been answered.
Could you please also -- could you please talk about the market share, right, because I see certain stabilization in July, even a bit of improvement in Yandex search market share according to LiveInternet, do you see this as a sustainable trend before the decision by far?
Alexander Shulgin
Ulyana, this is Alexander speaking. So on total -- search declined, but it was primarily driven by growth of mobile platforms where our search market share is lower than on desktop.
On desktop platform alone, which currently generates 80% of our tax based advertising revenues, our market share declined only about 70 basis points versus a year ago, primarily due to decline of Yandex share in Google Chrome browser. We are mitigating this by supporting this in to Yandex browser.
As I said, we are increasing headcount in this, both on desktop and mobile and Yandex browser is clearly a number two browser in the Russian market and the only browser gaining share in this market, both on desktop and on mobile platforms.
Ulyana Lenvalskaya
Would it be fair to say that given those investments, you don’t expect further decline in the market share?
Alexander Shulgin
Well, it’s difficult to comment about the future, but I think that the actions that we plan to execute on desktop and on Android will help us to hold and which will increase our market share. It’s again about the future is difficult to say.
Ulyana Lenvalskaya
Thank you. And the second question will be regarding the headcount and this recent law on the Right to Be Forgotten, how many people do you expect to hire if anyone in order to comply with this new regulation and how this could potentially impact Russia’s ability?
Alexander Shulgin
So maybe to give some background on this Right to Be Forgotten law, it was signed in July, 2015 and became effective in January, 2016. It’s applicable to all search engines [indiscernible] foreign so it applies both to us and to Google.
From a practical perspective, the law require us to consider requests from individuals with a request in take down of their links, provided the research creator has a name or a surname. So we’ll have to put in place some procedures that are needed to execute on this procedure.
We think that we will need to hire some people in our search team and some people in the legal department to work -- to be in compliance with the law, but I don’t think it will be substantial and will have any merchant impact.
Ulyana Lenvalskaya
Thanks.
Operator
We will take our next question from Boris Vilidnitsky of Barclays. Please go ahead.
Your line is open.
Boris Vilidnitsky
Hi. Good afternoon, everyone.
A couple of questions from me. First, could you please comment on the growth in search queries?
We saw that the growth come down to about 2% year-over-year, do you guys believe this is just a function of the macros or is it just some sort of a market saturation already? And the second question, could you please give us an update, you mentioned, classifieds is one of the areas that you guys are investing in, how is it going there, maybe traffic data and so on?
One of your competitors reported their quite strong second quarter numbers, albeit slightly lower traffic numbers? So, I’m curious to hear if you believe you are the ones who are gaining kind of the traffic in the clicks.
Thank you.
Greg Abovsky
Hey, Boris, it’s Greg. Let me answer classifieds first.
I guess, on -- if you look at classifieds broadly, I mean, we’re only exposed to a portion of it, right, with Auto.ru. As you can imagine, the entire autosomatic, right, the auto industry is in a state of decline.
So, it’s kind of -- it’s not surprising that the number of pages for perhaps Avito is growing not as rapidly for that category as it is for others. We do believe that we continue to gain share against Avito in Moscow and in St.
Petersburg. We’re also starting to gain share in certain other regions and that’s why we want to support it with the incremental marketing spend.
We feel really good about the product and how much we’ve come forth in the last 12 months. It’s almost hard to believe that we’ve only owned it for 12 months.
If you look at sort of the evolution of the product, how much we’ve made it friendlier to the consumer, how much easier to list cars, to sell cars, to search for cars, it’s really sort of night and day. And I’d said sort of difference between us and Avito is that we are ultimately focused on the consumer experience, right.
We are trying to make the process of buying a car and selling your car as simple and transparent as you can make it. So, we feel good about the classifieds.
We’ll continue to invest there. On your other question of search share, look, clearly, you do have search market share declines, which way on your total number of search queries.
I would say that it’s generally an area of concern, although I would not pay all that much attention to that particular data point as I think there is probably more noise in there than one should extrapolate from.
Boris Vilidnitsky
Understood, thank you. And if you don’t mind, one more question from my end.
The number of new advertisers grew very substantially, very nice growth. Could you comment on those kind of new guys that are coming to advertise with Yandex never advertised before online and how sustainable do you think that is if the macro actually improves or do you think they’ll go back to the print or TVs?
Thank you.
Alexander Shulgin
Hi, Boris, this is Alex speaking. Our learnings from the bus crisis in Russia that the new customers that typically in the crisis periods increase the number of customers accelerates and these customers stay with us because they understand [indiscernible].
So, I suppose that these customers will stay us and it will accelerate our revenue growth when the economy gets better.
Boris Vilidnitsky
Thank you so much. That’s it from me.
Operator
Thank you. Our next question comes from Alexander Vengranovich of Otkritie Capital.
Please go ahead. Your line is open.
Alexander Vengranovich
Hi, guys. Two questions please.
So, first is the follow-up on this new advertisers who joined your network. [indiscernible] average revenue -- average advertising revenue per advertiser is accelerating and it’s around minus 4% this quarter versus minus 2% last quarter.
So, does it mean that basically new clients who you are acquiring are bringing you much like lower budgets than existing clients and this is the main reason why the average revenue per advertiser is going down? Thank you.
Arkady Volozh
Hi, Alex. Thank you for the question.
So, yes, the new customers which come into contextual advertising, they’re typically have lower budgets when they start using Yandex [indiscernible] but then over time, they learn how to use the system, how to generate traffic to their websites, how to convert them into sales and thereby [indiscernible] this is absolutely typical normal behavior, so, we are absolutely happy with these customers coming to our system.
Alexander Vengranovich
So, basically -- previously the ARPU was growing because existing clients increasing the budgets but now we see that existing clients are like not increasing the budget, stable, and for the new, you see that the budgets are lowering?
Arkady Volozh
Existing clients do increase their budgets and that’s the main driver behind our revenue growth, but in this particular quarter, the growth rates of customers was surpassed into growth rates of the projects of the existing customers. I guess, our time when Russian economy gets better, these strengths will be different.
Alexander Vengranovich
Okay. And another question is on the Yandex Delivery, which you announced recently.
Can you please clarify what sort of – whether you really expect any material impact on the service this year and probably next year? And also can you please clarify the impact in your working capital, because as far as I understand, this service will assume that you will take the responsibility for the payments that would require some pressure on your working capital, so whether it’s material or not?
Thank you.
Greg Abovsky
Hey, Alex let me answer your questions on working capital. Yandex Delivery is still in its nascent stage and it’s – I would sort of look at it as an experiment really to see how far we take this kind of service, so I would not expect it to have a material impact in our working capital.
And then I just wanted to throw out a data point for you with respect to top clients. If you look at the top 20 clients in Q2 of this year versus last year, the revenue from those clients increased materially higher than our overall revenue growth rate.
So it’s our existing client that’s spending more with us, but there is also lot of new clients, which spend very little as they are ramping up their businesses.
Alexander Vengranovich
Okay, awesome, thank you.
Greg Abovsky
Thank you.
Operator
Our next question comes from Vladimir Bespalov of VTB Capital. Please go ahead, your line is open.
Vladimir Bespalov
Hello, most of my questions have been answered already, but I would like to ask you a question on your new auction mechanism. As I briefly look through the things, it looks like the advantages of the VCG auction are not proven yet, maybe you can provide some color, why do you expect this to be beneficial for Yandex.
And in particular, I noticed in some publications that it can result in lower revenues, say in the short-term, is this also the reason why your guidance for the second half of this year is quite cautious? Thank you.
Alexander Shulgin
Hi, Vladimir, thank you for the question. This is Alexander speaking.
So on VCG auction, I wouldn’t completely agree with you that that’s unproven, it’s used by big companies like Facebook and Google as well. Our modeling of VCG based on our past trends, because it’s possible to model, show that CPCs in general for the customers will probably be lower, but we expect this to be compensated with incremental pay traffic because now we will charge customers for the incremental -- lower prices for the incremental clicks on higher acquisitions in our advertising [indiscernible] and this will give our customers more opportunities to generate more traffic to their websites and we expect that the activity of the customers and competition for traffic will increase.
Therefore growth of per clicks will compensate lower CPCs. In general, we think it’s very good for our customers that our voice will improve and more new customers will have opportunity to gain traffic from Yandex Direct advertising system.
In the long run, we expect incremental customer activity to accelerate revenue growth for Yandex.
Operator
Thank you. Our next question comes from [indiscernible] of Goldman Sachs.
Please go ahead, your line is open.
Alexander Balakhnin
Hi guys, that’s Alex Balakhnin again. Just a quick follow-up from me.
You mentioned the increase of traffic acquisition cost as a percentage of the partner revenues sequentially. I was just wondering what drove that, did you have any change in the partner’s mix with the higher traffic acquisition cost revenue share or what was behind that?
Thank you so much.
Greg Abovsky
Hi, Sasha, it’s Greg. There was a little bit of a change in mix, basically our partner network is growing rapidly the non-search part of that business and some of that is slightly more expensive than overall.
I think that’s pretty much voluntarily going on.
Alexander Balakhnin
Could you just probably provide an example of the departments that are more expensive than search, if you can [indiscernible].
Greg Abovsky
None of them are more expensive than search.
Alexander Balakhnin
Okay, thank you.
Operator
We would take a second question from Cesar Tiron of Bank of America. Please go ahead, your line is open.
Cesar Tiron
Yes, hi. My question relates to the context advertising growth on the Yandex networks.
It seems that it slowed down versus of course the overall context growth is solid, but it seems that the growth on the Yandex network is just 9% and it was I think 13% or 14% in Q1. Can you please say, if you’re seeing that the slowdown is basically the reflection of the market share loss on the search queries and therefore if you think that overall the context market grew more than 9% or 10% in Q2?
Thank you.
Greg Abovsky
So if I understand you correctly, Cesar, you are asking about the slowdown in the growth rate of Yandex websites from Q1 to Q2?
Cesar Tiron
Yes, exactly.
Greg Abovsky
Got it. Look, this is sort of exactly in line with our budgeting.
It just reflects slightly tougher comps due to some changes that we made a year ago on our surf, so Q2 of 2014.
Cesar Tiron
And do you think you have lost market share of context in Q2?
Greg Abovsky
Our overall search market share came down, so I think it’s reasonable to assume that our overall contextual advertising revenue search share came down a little bit as well.
Cesar Tiron
Thank you.
Greg Abovsky
But obviously it’s very hard to actually know that since we see our revenues, but we don’t see what Google’s Russian revenues are like.
Cesar Tiron
Thank you.
Operator
We will take our next question from Ulyana Lenvalskaya of UBS. Please go ahead.
Your line is open.
Ulyana Lenvalskaya
Thanks very much for this opportunity. Greg, could you please talk a bit about Yandex taxi performance?
The revenue growth was not impressive. So, what were the drivers and what should we expect for the second half?
Greg Abovsky
Sure. Look, taxi is an exciting business for us.
I think it’s an exciting business pretty much everywhere you look in the world as people are looking at on-demand transportation as a really attractive segment. Sort of take a step back I guess and look at what the Moscow market looked like a few years ago, any time you wanted to get a cab, you had to essentially go out in the street and hail down a gypsy cab and they drove around in sort of old Soviet dilapidated cars, they drove around recklessly, they gouged their passengers in fares.
And so even though like legal taxi cabs companies existed, it would take you like 30, 40 minutes before you pick up the phone, call them up and then have cab show up for you. And so we came on the scene and we completely changed the system.
So from the get go, we only used licensed taxi cab companies. We leveraged smartphones, we leveraged the Yandex Map, Yandex Traffic to create a product that gives you a ride anywhere in Moscow at this point.
We are seeing Petersburg within three, four, five minutes. And it all comes at the press of a button, completely seamlessly with your credit card is stored and it’s completely transparent.
You get out of the car, you never have to pay. You get a receipt email to you couple of minutes later.
And if you think about what we are focused on, we are focused on delivering the best customer experience. We are constantly performing checks in our taxis, we make sure that there is no dense, that they have working seat belts.
The drivers have valid licenses, that the overall vehicle appearance is good. And so we view customer safety and convenience is top priority.
And if you think about like where can this can go, I think there is still huge upside for on-demand transportation in Russia. It has massively positive impact on the economy.
It creates jobs, it increases disposable income for consumers because they now have to spend less on transportation than before. It decreases city congestion, decreases parking loads and it generates incremental tax revenues for the government, because all of a sudden, all of that sort of black market revenue is all of a sudden is back on the books.
It’s taxed and it’s collected. So we think that there is huge runway.
We see our business accelerating in many regions in which we are in and it’s growing steadily in Moscow at sort of 150%, 200% year-over-year. So I think our expectations are for this service are very high.
Ulyana Lenvalskaya
This is very clear, thank you. And my second question will be about Turkey, could you please update us on the market share and the strategic positioning of the Company regarding the Turkish project?
Arkady Volozh
Hi Ulyana, it’s Arkady, maybe it’s my turn to join the call. We proved actually there are three stages as I said in coming -- to the market, one, you need to deliver product which is good enough and you need distribution than installation.
Installation is more or less in our model as you can guess. What we have achieved in Turkey after nine months of big effort was the product quality, I think maybe the first maybe one of the few times when you can see new products in search coming to a new market and we can demonstrate the product quality which is same or better than a competitor.
Just recently, actually this week, a new independent report was issued by Ipsos which shows that 64% of users choose Yandex over Google on a blind side-by-side test, which is amazing, and this shows the Company’s ability to deliver the technology and the product to new market. Now, we are in the second stage where we need to distribute this program.
Our experience with Firefox as we previously said show that the product is distributable, meaning that if a partner changes a default to our product, Firefox changes from Google to Yandex, the users stick with us, more than two-thirds of them stayed with Yandex, they didn’t switch back. So it is a distributable product, now we’re building our distribution channels and this is what we are focused on.
In terms of budget, we don’t, we scaled back just like the whole company did in this economic environment, so it is still a reasonable experiment with the -- we don’t spend too much on this. Thanks.
Ulyana Lenvalskaya
But can you hint probably on the sort of the investments, same percentage of revenue approximate [indiscernible]?
Arkady Volozh
It’s similar to what we talked about in the past, it’s about -- yeah, given the FX, it’s probably closer than 3 at this point.
Ulyana Lenvalskaya
Okay, thank you.
Operator
We will take our next question from Boris Vilidnitsky of Barclays. Please go ahead, your line is open.
Boris Vilidnitsky
Hi, good afternoon, one more question from me is the topic that I think we hadn’t discussed in a couple of quarters is the big data projects that you guys mentioned in the past and kind of how things are going there, is it someone of the backburner or you’re still pushing it ahead? Thank you so much.
Greg Abovsky
On Yandex.Data Factory, it’s another experiment as you can guess, we have a small [indiscernible] called the Yandex.Data Factory, which we launched just last year, this year is the first commercial year of this new start-up. They started to grow, they have a solid pipeline, they started getting first revenues, they were some news recently about this, these are just part of the picture and they have much more in their pipeline and we think this is yet another model of re-utilizing of the efforts we have, extending -- Turkey as a model is one way to expand, Yandex.Data Factory is another way to expand, where we take what we already have and we improve by our natural business anyway and try to apply it elsewhere and looks like it will have some business merit as well is from what we see how they go now.
Boris Vilidnitsky
Great, thank so much.
Operator
As we have no further questions, I’d like to hand the call back to the speakers for any additional or closing remarks.
Katya Zhukova
Thank you again for joining us today, please do not hesitate to reach out in case you have any additional question. Good bye.
Operator
Thank you that will conclude today’s conference call. Thank you for your participation ladies and gentlemen, you may now disconnect.