Apr 27, 2017
Executives
Katya Zhukova – Investor Relations Arkady Volozh – Chief Executive Officer Alexander Shulgin – Chief Operating Officer Greg Abovsky – Chief Financial Officer Mikhail Parakhin – Chief Technology Officer
Analysts
Lloyd Walmsley – Deutsche Bank Vyacheslav Degtyarev – Goldman Sachs Miriam Adisa – Morgan Stanley Cesar Tiron – Bank of America Ulyana Lenvalskaya – UBS Olga Bystrova – Credit Suisse Brady Martin – Citibank Vladimir Bespalov – VTB Capital Mitch Mitchell – BCS Sergey Libin – Raiffeisenbank
Operator
Good day, and welcome to the Yandex's First Quarter 2017 Financial Results Conference Call. Today's conference is being recorded.
At this time, I'd like to turn the conference over to Ms. Katya Zhukova.
Please go ahead.
Katya Zhukova
Hello, everyone and welcome to Yandex's first quarter 2017 earnings call. We distributed our earnings release earlier today.
You can find the copy of the press release on the company's IR website and on Newswire services. On the call today, we have Alexander Shulgin, our Chief Operating Officer; Greg Abovsky, our Chief Financial Officer; and Mikhail Parakhin, our Chief Technology Officer.
Arkady Volozh, our Chief Executive Officer will be available on the Q&A session. The call will be recorded and the recording will be available on our IR website in a few hours.
As usual, we have prepared a few slides supplementary to the story that are currently available on the IR website. Now, I will quickly cover 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 the forward-looking statements, as a result of various important factors, including those discussed in the Risk Factors section of our Annual Report on Form 20-F dated March 21, 2017 which is on file with the SEC and is available online.
In addition, any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. Although we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so even if our views change.
Therefore, you should not rely on these forward-looking statements as representing our views as of any date subsequent to today. During this call, we will be referring to some non-GAAP financial measures.
These non-GAAP financial measures are not prepared in accordance with 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 Alexander.
Alexander Shulgin
Thank you, Katya, and hello everyone. Thank you for joining our first quarter 2017 earnings call.
We started the year with solid set of results across all our segments, with revenues up 25% and ex-TAC revenues up 28% year-over-year. This growth rates was mainly driven by strong performance of online advertising, especially on Yandex's owned and operated properties.
This was driven by improvements in our advertising technologies and by the stabilizing economic environment, with a strong growth in ad budget across a number of our key ads categories; including auto, real estate, financial and B2B. First, let me highlight the historic settlement between Yandex, Google and FAS that was announced 10 days ago.
On April 17, Russian Federal Antimonopoly Service, Google and Yandex singed a settlement agreement that will significantly open up the android platform to competition. We see the settlement in three distinct parts.
First of all, it affects current and future conflicts between Google and device manufacturers with respect to pre-installations. Secondly, it offers choice on existing android devices.
And thirdly, it affects new devices that will shift into Russia. Now, let me go through these points in more detail.
As part of this settlement, Google will waive requirements in exclusivity and priority placements of its own apps on android devices and they'll eliminate restrictions of pre-installations of third-party apps, including all the home screens. The settlement also states that Google will stop required and pre-installation of Google Search as the sole search service on android.
And going forward, Google will not include into this contracts with device manufacturers products that conflict with the settlement. And we will provide equal access for third parties to include their search engines into the choice screen.
For us, this means that OEMs are no longer restricted from pre-installation Yandex apps on home screens of their devices. For existing devices that are currently in the market.
Google will develop a new version of mobile Chrome browser, which will display choice screen, prompt then a user to select their default search engine for the Chrome browser. This choice screen will be displayed upon the first launch of the updated Chrome browser, which will roll-out in the next few months.
And then on new devices, a few months later, Google will replace the Google Search widget that appears on the default home screen with a newly developed Chrome search widget. When a user taps on this new Chrome search widget for the first time or uses the Chrome browser for the first time.
The user will be represented with a choice screen, requesting them to select their default search engine, and the Yandex will be shown as the one of the search options on this choice screen. This default search pattern will apply both to the Chrome search widget and the Chrome browser.
All-in-all, we anticipate that this settlement would restore competition to the market and will give us an equal opportunity to reach user through the search engine choice screen. It also enables us to continue cooperating with device manufacturers on the pre-installations of our apps on android devices, including installation on the home screen.
This could be our Yandex Browser or Yandex Maps or our new search app. We expect the settlement agreement to positively impact our market share on android, though the impact will be skewed to the second half of the year.
While we are on the search share topic, let me provide you with our Europe test. As of Q1 2017, our overall search share in Russia totaled to 55.4% and was less compared to Q4 level.
Our best estimate of our search share on android devices in Q1 is 38%, up from 37% a quarter earlier. Our best estimate of our search share on IOS devices is 41% in Q1, unchanged compared to a quarter earlier.
Mobile traffic constituted 33% of our total search traffic in Q1, while mobile revenues constituted 26% of our search revenues, up 130 basis points versus Q4 of last year. Now, let me update you on performance of our segments.
Revenues of search and portal grew 23%, benefiting from strong growth on our owned and operated properties such as them. I'm also extremely excited by the performance of Yandex Taxi, which continue to scale up in Q1.
We added a number of cities during the last call in February. Currently the service is available in 69 cities each was over 100,000 populations across Russia, Ukraine, Armenia, Georgia, Kazakhstan and Belarus.
The growth rate in the number of rides continues to accelerate. In Q1, rides grew 484% year-over-year.
As I mentioned on the last call, in late 2016, Yandex Taxi rolled out a number of technological improvements, many of which leverage our market leading Yandex Maps and Yandex Navigator products. We implemented search price in Moscow in September 2016.
We also introduced forward dispatch which significantly increased our order completion rates. More recently, we launched upfront pricing, whereby a user sees a fixed price for his ride, taken into account the destination, current and projected traffic conditions, and current supply and demand balance.
We also launched smart pickup point, a feature that saves users sell-time and reduces their fares. Here is how it works.
We analyzed all the possible routes to the selected destination, current and project traffic conditions, and the number allocation of available taxis. Simultaneously, we'll calculate if there is a better pickup point for the passenger, so that their taxi can reach them faster and continue on location faster to the destination.
As a result, the app shows how much money and time a user can save by walking to a more efficient pickup point. For instance, the passenger may cross a street and turn the corner, and save for example five minutes of their trip time, and save for example RUB100 on their fare.
The product is based on the Yandex Maps data that provides various based on routes including sidewalks, [indiscernible], foot bridges and other pedestrian areas to show the user how to reach the pickup point. All these launches allowed us to significantly improve utilization of the fleet.
To give you a sense, number of rides per driver in Moscow region increased approximately 15% compared to September 2016 levels, even if while the number of drivers on the platform increased significantly. Let me just provide you a couple of more important metrics for this business.
On GAAP basis, Yandex Taxi revenues grew 75% in Q1. However, on a gross basis, before subtracting marketing costs and minimal fare guarantees from our commission revenues, Yandex Taxi revenues grew 197% year-over-year in Q1.
We see tremendous opportunities for the ride on demand companies to increase their presence and to expand the market itself by providing users to a cheap and effective ways to get around. We believe that our technological expertise and unique product offering, desktop by our state-of-the-art maps and litigation will allow us to offer services that could potentially change dynamics of car ownership and public transport usage.
Now, turning to Yandex Market and Classifieds. Yandex market posted 24% revenue growth in Q1.
The share of the take rate based orders remains at approximately 13% in Q1, while our effective take rate slightly increased to approximately 3%. In Q1, we expect that the Yandex market team and we'll update you on the progress of these business units on our next quarterly call.
I am also excited with the progress we've seen in classified. In Q1, revenues grew 54%, driven by growth of non-advertising revenues.
We substantially increased numbers of costs generated from Auto.ru to dealerships and as a result, widens the gap with a little transport section in this method. Auto.ru currently generates two times as many costs to dealers than edited does in [indiscernible] 50% more calls.
According to an independent third party evaluation, Auto.ru currently hold 64% share in the number of calls generated from auto classified dealers in Moscow and 56% shares. We are also narrowing the gap with [indiscernible] in the regions.
All-in-all, I am very excited with the solid start 2017 across all of our operating segments. With this, let me please hand the microphone over to our CTO, Mikhail Parakhin.
Mikhail, please go ahead.
Mikhail Parakhin
: During several back calls, I was talking about the significant improvement in our broad match capabilities, both on search and in our ad network, and to cover users simplicity interest and to enhance advertisers reach with high-quality clicks. As you know, we've been gradually rolling our broad match since 2016.
Earlier this year, we expanded to do in further, and you might remember that in Q4, we rolled out Palekh, new search algorithm which is based on large scale deep neural networks. It allowed our search technology to understand user intent and the query other than just treat it as a sequence of words, and the result is significant increase in the quality of long-tail search queries which constitutes approximately 30% of all our research traffic.
In early 2017, we, we applied this large scale deep neural network approach to our ad matching algorithms including broad match, which allowed us to even better align that to user intent. This further improved the relevance of our research and the result overall relevancy of our research engine out pages.
In a way, it's a win, win, win situation. Advertisers get more conversions to the lower cost, consumer see higher quality search results pages and we collect higher revenues.
During the recent months, we significantly improved Yandex audiences, our reach of client and lookalike targets is going to, which now has growth platform integration. Now advertisers can integrate their display and search ad campaigns to target potential customers who have already seen the advertisers display banners or video ads.
As a result, advertisers go an effective tool to present their brand across all the advertising channels and improve customer flow through the sales funnel. Turning to video, after the launch of priority placement for video ads on the Yandex video website in Q3 2016, we continue to experimenting with various other solutions for video advertising market.
In Q1, we began running video advertising on a number of our streaming video product, such as broadcast TV [indiscernible] just in the month after the test mode launch revenues generated by this initiative reached one third of our video advertising revenues. Now switching from advertising to search products, just recently, we launched our new search app where we started integrating all of the Yandex's must have services in one place.
This includes search, weather, news, maps, public transport, business directory and song. After the launch of this integrated app, we saw 40% growth in daily audience, while searching activity within this app increased 25%.
Just recently, we integrated two more services into our mobile search app. Our Zen Conference recommendation services and a new service called the Yandex Collections.
Yandex Collections is a media collection and sharing service that serves as a sort of a catalog of ideas. Our actions aggregate content from the internet as well as user generated content and allow users to share things they like with their friends.
Well, it is still in test mode, we are already seeing progress in usage improvement in the retention rates and increased traffic. We believe that this new product will enhance the social component of our search.
With this, I turn the microphone over to Greg.
Greg Abovsky
Thank you, Mikhail and thank you all for joining our call today. In Q1 we delivered another solid set of results.
Our consolidated revenues grew 25% year-on-year and reached RUB20.7 billion. Online advertising revenues accounted for 94% of total revenues in Q1 and increased 23% year-on-year.
Yandex Properties revenue grew 26% year-on-year in Q1 driven by a number of ad tech implementations that Mikhail discussed a few minutes earlier, as well as by rapid revenue growth of Yandex's owned properties, primarily Zen. Revenues from our ad network grew 17% and comprised 25% of total revenues in the quarter.
Share of ad network as a percentage of total revenue is approximately flat compared to Q4 2016. In terms of ad budgets across different advertising categories, we saw strong growth in auto, real estate, B2B and finance.
Growth rates in travel segment, apparel and consumer electronics continued to be soft. Other revenues grew 77%, primarily driven by the growth of Yandex Taxi, which constitutes the bulk of the other revenue line in consolidated revenues.
Traffic acquisition cost related to the partner advertising network grew 16%, and our partner TAC comprised 56.1% of our ad network revenues in Q1. Traffic acquisition cost related to distribution partners increased 16% year-on-year and constituted 7.2% of advertising revenues from Yandex Properties.
This is 60 basis points lower than Q1 of last year and roughly flat compared with Q4 of 2016 adjusted for one-off payment in existing distribution partner. Total TAC grew 16% year-on-year and constituted 19.1% of total revenues, 150 basis points lower than Q1 of last year and 20 basis points lower compared to Q4.
Paid clicks grew 12%, while cost per click increased 10%. Turning to our cost structure, total OpEx excluding TAC and G&A grew 32% year-on-year.
Excluding stock-based comp, expenses grew 35%. Growth was primarily driven by the growth in advertising and marketing expenses primarily related to the Yandex Taxi and new hires.
In Q1, our head count was up 19% compared to with March 31 of last year, and up 3% from the December 31 of last year. In Q1, our personnel costs constitute 23% of revenues.
Stock-based comp increased 8% in Q1 and constituted 4.6% of revenues down from 5.4% a year ago. Decline of stock-based comp as a percentage of revenue was primarily driven by the appreciation of the Russian ruble.
G&A expense for the quarter increased 3%. As in Q4 of last year, the growth was driven by our investments in servers and data centers in 2016 and early 2017 but was partially offset by lower G&A from our finished data center due to strengthening of the ruble.
Our consolidated adjusted EBITDA increased 19% year-on-year and our consolidated adjusted EBITDA margin was 33.3% down 170 basis points from a year ago. Decline in EBITDA margin reflects our investment in new businesses and hiring engineering talent.
Yandex Taxi was the main area of investment in terms of our business units, excluding both revenues and losses of Yandex Taxi from our consolidated results, our adjusted EBITDA margin would have been 760 basis points higher. This quarter, the impact from ForEx was a loss of RUB2.2 billion related to the dollar denominated assets and liabilities on our balance sheet, following the appreciation of the ruble from RUB60.7 at December 31 to RUB56.4 on March 31.
Net income was down 23% primarily due to ForEx and increase in SG&A and net income margin was 4%. Adjusted net income was up 18% in Q1 and adjusted net income margin was 18.2% Our CapEx was RUB3.9 billion or 19% of Q1 revenues, primarily due to server and network deliveries related to the [indiscernible] data center that got shifted from Q4 of last year to Q1 of this year.
We continue to expect our CapEx to sales ratio will be in the mid tends in 2017. Turning to the performance of our business units.
Search and portal revenues were up 23% driven by number of ad tech implementations and the growth of Zen. Adjusted EBITDA search and portal grew 35% in Q2 and adjusted EBITDA margin reached 42.7%.
Revenues of Yandex Market were up 24%, roughly in line with Q4 growth. Our adjusted EBITDA margin of Yandex Market was 43% in Q1.
Turning to Yandex Taxi. Revenues of Yandex Taxi were up 75% year-on-year in Q1.
The slowdown of reported revenue growth rates in Q1 of this year compared with prior quarters was driven by the introduction of lower tariffs and the implementation of minimum fare guarantees on the wider scale. To remind you, we use contra revenue approach to book Yandex Taxi revenues and this approach negatively impacts reported revenue growth.
On a gross basis, before subtracting marketing costs and minimum fair guarantees from our commission revenues, Yandex Taxi commissions' revenues grew 197% in Q1 compared to a year ago. As a result of our increased investments in this business, adjusted EBITDA of Yandex Taxi in Q1 was negative RUB1.2 billion.
Revenues of classified business grew 54% year-on-year in Q4, primarily supported by the growth of non-advertising revenues of Auto.ru. Driven by the growth of the business in Moscow, Saint Pete and the start of [indiscernible] in the regions.
Adjusted EBITDA classifieds was RUB4 million in Q1. We're also making investments in our experimental businesses, represented by media services Yandex Turkey, YDF and Discovery, which includes Yandex launcher and Yandex International products.
In Q1, revenue of experiments grew 76% primarily driven by the growth of media services, while the magnitude of investments in this segment continued to decrease. Getting back to corporate matters now.
In Q1, we repurchased 8 million in face value of our convertible bonds for approximately $7.7 million. Since the inception of the program we bought back approximately 369 million face value of the bonds.
As of today, we have approximately 321 million of bonds that remain outstanding. We ended the quarter with approximately RUB61 billion in cash and equivalents, which is approximately $1.1 billion of the exchange rate as of March 31.
As you remember, in the last call, I told you that we're exploring hedging options for our U.S. dollar denominated lease commitments related to our loss Moscow headquarters.
In March 2017, we designated, $103 million of the deposits with a third-party bank as a hedging instrument for the period ending December 31, 2018. Essentially the program covers our rent commitments from Q2 of this year to the end of 2018.
This hedging program will effectively immunize our P&L for the impact of currency fluctuations on our headquarter lease agreement. Now, turning to guidance.
Based in the solid start of the year, we increased our revenue guidance and now expect our rural based revenue to grow in the range of 17% to 20% in the full year of 2017 compared to 2016. At this point, we exclude from our guidance any incremental revenues that we may get as a result of share gains on Android as a result of the recently signed settlement agreement.
And with this, let me turn the call over to the operator for the Q&A session.
Operator
[Operator Instructions] We will take our first question today from Lloyd Walmsley from Deutsche Bank. Please go ahead.
Lloyd Walmsley
Thanks. If I can one for Mikhail and one for Greg, I guess related questions.
Mikhail is the impact of broad match fully deployed at this point? Are you still rolling out elements such they can continue to be a tailwind to the O&O search growth and related for Greg, you all delivered an acceleration of 6 percentage points on core Yandex website revenue on 9 point more difficult comp and the comps actually get easier for the remainder of the year, so we understand your general approach to guidance is conservative, but is there any reason that we may not be aware of that you can sustain growth rates like this for the rest of the year in O&O search?
Mikhail Parakhin
Hi Mikhail here. So, I'll just take the first question.
So, of course the work is never finished and we constantly tweaked the algorithms and we constantly rollout new improvements. Technologically, we believe we shipped the bulk of the stuff that we were going to ship and sort of propagated through the system.
We still see the adoption rate is going up meaning like people actually have to actually choose that setting and there is still sort of adoption going on but technologically again we think the bulk of the stuff in there already. Greg?
Greg Abovsky
Thanks Mikhail. Lloyd, on guidance, I think unfortunately we won't have anything really new to say on that.
You know as you know we are aim to be conservative, we are early in the year. You know we still have three quarters ahead of us.
The business continues to operate well. There is no I think real changes to the business.
I think as I commented in the prepared remarks, we see really good performance from sort of the key bellwether categories such as autos and financials and real estate. So, from that standpoint I think we feel pretty good.
Yeah, I mean I think guidance and performance speaks for themselves.
Operator
We will now go to our next question from Vyacheslav Degtyarev from Goldman Sachs.
Vyacheslav Degtyarev
Thanks for the presentation and congratulations on the results. Couple of questions on my side.
First one is on Taxi. So following the recent price decrease or the fixed price introductions in April, would you expect the amount of loss in Taxi business to widen in the second quarter of the year?
So what would be your thoughts on that? And the second question is, can you please elaborate a bit more on the margin business segment in the first quarter.
So, what were the major drivers for the margin improvement and do you see the upside risk for your full year expectations on the roughly flat margin guidance that you provided with the full year results goals?
Greg Abovsky
Hey Vyacheslav its Greg. Let me take the first question and probably the second one as well.
On Taxi, clearly the environment is extremely competitive both in Moscow and in many other cities. We have been aiming to lower our price both in terms of greater discounting as well as introduction of upfront pricing which we kind of rolled out couple of weeks ago.
I think the net impact of that is, that it does slow down the pace of gap based revenue growth within Taxi. However, as we roll that up from pricing, I think we saw really good performance and really good response in the consumer segment with respect to that, and I feel like we're pretty pumped up to invest strongly behind this segment kind of going forward.
So, yes, upfront pricing helps us, yes. Consumer is responding, yes.
Cohorts are improving, and on top of that the market does remain fairly competitive and we are looking to invest for growth. With respect to margin on the previous calls, I've only spoken about margins for the search portal segment as you know.
I'm not going to update that guidance, but what I will say is, it's to the extent that we see margin upside, we will look to invest a portion of that in hiring talent in the three key areas. Those are in machine learning, in mobile and also in voice technologies.
And on top of that, we're also potentially going to use some of that excess margin from the operating leverage in the search portal business to sort of prime the pump in terms of increasing our market share on mobile on the back of this landmark antitrust settlement.
Operator
We will now go to our next question today from Miriam Adisa from Morgan Stanley. Please go ahead.
Miriam Adisa
Hi everyone, just two questions from me. Firstly on the quarter driven growth and given the fact you've accelerated since you bought and could you just let us know how you are trending versus the market and if you've seen that continuing in 2Q?
And then also Yandex's – Yandex Zen contribution to the quarter revenues, and I know in the last quarter, you gave us a number, you said a RUB1.5 billion run rate. Just wondering if you could update us on that number and then also on the browser market share, because I imagine that would be linked to Yandex Zen penetration as well?
Could you give us an update on the search market share as well? And then my second question is on Yandex Taxi.
Just given the fact you've mentioned, you have significant improvements in tech and in the utilization rate, just wondering how this has impacted your monetization in more cities, in Moscow…
Greg Abovsky
Let me see if I can try to answer all of them, because there were quite a number of questions in there. In terms of browser share, over on desktop our browser share is about 23% today versus about 21% a quarter ago.
On mobile it's about 12% versus about 11% a quarter ago. Certainly, getting higher browser share does help us grow Yandex Zen revenue.
In terms of run rate it's closer to 1.8 billion versus where were at the end of Q4, so up about 20% from a run rate basis or so. Your other questions were on Taxi, if I remember correctly.
Look the impact of technology there is tremendous and we think we are uniquely positioned there, because I think we're actually probably the only player in the world which combines the ownership of the map and navigation along with…
Arkady Volozh
Machine learning.
Greg Abovsky
And machine learning, thank you Arkady. Along with the on demand ride sharing business.
So, we're able to do because of that is, are things like upfront pricing, it's things like forward dispatch. Its' things like smart pick up points which I think actually quite unique.
I had a chance to test them out this week and they really do save you quite a bit of time and quite a bit of money. And so, I think that they will certainly help get utilization rates even higher for that segment.
Is there something else that I missed that you asked, I apologize.
Miriam Adisa
The trend in Q2 so far in the advertising?
Greg Abovsky
Sure. As I mentioned on the question for Lloyd, I would say there is no real changes in the core trends between this quarter and previous quarters, and I think the overall core search performance is quite good.
Operator
And we'll go now to our next question today from Cesar Tiron from Bank of America.
Cesar Tiron
Yes. Two questions, congratulations on the very strong results.
First, can you please discuss the price changes that occurred in impacts in the past few weeks and if you believe that the industry is moving more to a price base type of competition, or if you think that those promotions will be limited in time? And then second, how long do you think it would take you to announce your first agreement with OEMs to distribute Yandex Search on Android, thank you?
Greg Abovsky
Hey Caesar on Taxi, look it's a – I think price is not the only aspect of competition, although it's a very significant one. The other ones are clearly ETAs.
The other aspect of that is also kind of quality of the products, if what shows up to take you up as a rickety old ladder, I'm not sure you're going to be very excited about getting into it. So, those things do matter.
How long will you know intense competition last? I'm not sure.
But, you know obviously we're prepared to invest pretty aggressively in this segment. We feel like we continue to have very high market share and we would like to increase it if possible over time.
And I'll hand it over to Alexander to answer your question about pre-installs?
Alexander Shulgin
Hi Caesar this is alexander speaking. So, first of all we already have a number of distribution deals with key manufacturers in OEM space companies like Samsung, Huawei, LG and other guys.
Now this FAS, Google and Yandex settlement, the key difference here is that it open up an potential for us to place our products including Yandex Search and Yandex Search apps, Yandex Browser on the default home screen of those devices. That's a big change because of course the placement of the first screen makes the difference, like on few devices where Yandex is pre-installed and say better position our market share from those devices is close to 50% and sometimes more.
So [indiscernible] for us. So, we're discussing better placement terms with OEM service.
Now, but as you know it was all business differentiation, it's difficult to make projections. So, but we internally we aim to see devices in retail with our better placement by the end of this year.
Operator
[Operator Instructions]. We will now take our next question from Ulyana Lenvalskaya from UBS.
Ulyana Lenvalskaya
Hi everyone and congratulations on strong numbers. Given that even with cash burn at Taxi, your net cash position is growing on a quarterly basis.
Would you consider some cash distribution to channel there at higher probability at this stage?
Greg Abovsky
I think I will just say what I said before, that is a decision that's made at the board level, but clearly we do feel increasingly confident about the overall economic backdrop which is obviously reflected in things like our increased appetite for investment in Taxi, in our hiring decisions and so on. But overall, I do believe that we are at a better position.
We have a strong balance sheet and we just hedged out two years' worth of our office lease expense. And so, yeah, I think the board would feel more confident about making the cash distribution decision now than it has before.
Ulyana Lenvalskaya
Thank you, Greg. And the second question would be on Turkey.
We didn't speak for a while. Are you compacting the market or what's got into position?
Greg Abovsky
Look, our position on Turkey is that you know we've kind of ramped down the level of spend there pretty significantly. We're still present in the market.
We're still serving the Turkish consumers, but clearly it is not as big of a spend category as it was for us previously.
Operator
Thank you. We'll now go to our next question from Olga Bystrova form Credit Suisse.
Olga Bystrova.
First of all, I wanted to ask you about the litigation happened Maps, potentially, additional price that had been reported in the press. Can you maybe talk a little bit about what are your plans there, details on how you think it would impact your revenues going forward for the search and portal segment if possible?
And the second question is on sort of follow-up on margins, you sort of answered that question, but I just want to ask, maybe a different way, you know have a bit more visibility on our list. We have numbers for the Taxi loses, we also have some profitability in other segments including Classifieds profitability et cetera and we also have fast agreement which despite strong margins in the first quarter may have implications of with additional costs going forward?
I mean how do you see your previous flat core business margin expectation impacted by I guess by fast settlement and given your current visibility on tax losses, how do you see margins developing going forward. Thank you very much.
Greg Abovsky
Hi Olga, let me answer the second part of the question first. Look, I feel like there is not much more I can provide beyond what I said already which is yes, there is inherent operating leverage in the core search business.
Yes, we showed that operating leverage in Q1, we potentially would show it again in 2017, but do you have areas that we feel are right for investment as I mentioned on the back of the antitrust deal. We think there is opportunity to accelerate our mobile share gains.
And secondly is on the personnel front, because at the end of the day, we're not a manufacturing company. All of our revenues and users, all of that, it comes from products that we build inside and so we always want to invest for talent when we think the opportunity is right and we think, this is a great opportunity to add talent into those three key areas that I mentioned.
On your question about Navigation, so, you probably read that we are looking to create two separate versions of our navigation product. We are obviously, we'll always have a consumer navigation product Yandex Navigator and that will always be free potentially supported by advertising or what not.
On the other hand we also want to enhance the quality of the product that we provide for professional users. These could be trucking companies or logistics providers or they could be couriers or they could be other taxi companies other than Yandex Taxi.
And the goal is to invest into this product and to start monetizing it by selling subscription revenues or transactional base revenues where we charge you know third parties a small fee for each navigator route that they draw. Obviously, this is a desire.
This looks a desire by the company to enhance the quality of the product that we provide to two segments of the audience, both the professional segment and to the consumer segment, and then also to impose upon them a monetization model which is most appropriate to each.
Olga Bystrova.
Okay. That's very good.
Thank you very much. Just maybe clarification on – and I'm sorry I'm picking on the flexibility issue.
Let say if you do have operating leverage in search and portal business and we need a part of that – part of that to invest in mobile. I guess, what I want to ask is, would your goal be to keep margins flat, or would you actually be willing to let them increase decrease deepening on the investment – depending on the investment opportunity.
Just want to understand what is your sort of – where your threshold lies?
Greg Abovsky
Yeah. Here you said it right.
Our goal is to invest where we think is most appropriate. We don't have a corporate goal of keeping margins flat or keeping -- or getting margins up or getting margins down.
Obviously, it's a – it's kind of a outlook that we have that over time we'd love margins to go up obviously. But each independent investment decision is made in its own – try to stand on its own two legs if you will.
Operator
Thank you. We'll now take a question from Brady Martin from Citibank.
Please go ahead.
Brady Martin
Two questions, first is just whether you can comment on Conversant article and you are seeking investment outside of this which is the Taxi business. The second question is more clarification on the timing of this fast opportunity.
And if I understand correctly, it was outlined at the beginning of the call is this choice button on the next version of Chrome which just more seems like more of a like a one-off opportunity I guess whenever that version comes out, a chance to convince customers to switch to Yandex. And then there is more of a longer term like for new devices, that's not really one-off.
I mean you have some ability to invest there, but going forward. So, on the one-off opportunity, is this something that's really like just impacts Q2 or is this something that you think will go Q2, Q3, I mean just in terms of the timing, not the magnitude?
Thanks
Greg Abovsky
Hey Brady I will take the first part of the question and Alex will take the second part of the question. With respect to the Conversant article and basically the article speculated that Yandex may have hired JP Morgan to help us raise outside capital for Yandex Taxi.
Obviously, I'm not going to comment on the article and it's not our position to comment on rumors in the press. But I will just echo what I said in the Q3 earnings call, which is that, you know as we think about the opportunity in front of Yandex Taxi and we think about both the capital that we have on the balance sheet as well as the opportunity to bring and outside capital.
We think that, it does make sense, and it's in the best interest of our shareholders to potentially attract outside capital to accelerate the growth and the level of investment in that business. And let me hand it over to Sasha.
Alexander Shulgin
Hi. This is Alexander speaking.
So, first of all, just to remind what the settlement agreement is, it's a three party agreement with FAS, Google and Yandex. What I could say, the terms are confidential, so I cannot elaborate a lot on this, but I could say that it's long-term agreement which makes us confident about our outlook in the future, and also where it is extremely attractive agreement for us form strategic and investor standpoint.
What will happen going forward is that in the next few months, Google will display choose screen dialogues which we believe is right for the user and this choose screen dialogue will be displayed in chrome browser on existing devices. When the user taps on one of the, they can select Google or Yandex, it defaults your change and its set for the Chrome browser.
Then on the new devices, in Chrome browser, there will be the same choose screen dialogue and also the Google Search app widget will be replaced with Chrome widget which when as you tap on that will open chrome and will display the same search engine dialogue which is set at one time both for Chrome browser and for the search widget. So, all in all, on new devices, which we'll be in trade in few months from now, the Google Search widget will be adjustable so that a default search engine could be changed to Google, Yandex or other search engine if there will be one in this choose dialogue.
Brady Martin
Its clear most of questions, the impact I assume this is a great opportunity to try to reach out to the existing installed base of Android and convince people to switch, to set Yandex as the default, so you would have some investment money in the marketing or something ahead of that. My question is really, you know if you not really upgrade to, estimate the size, but I'm asking about the timing.
I mean is this something we primarily would see as some kind of one off impact in Q2, or is this something that we would see in later quarters of the year?
Alexander Shulgin
It will take several months to get this solution implemented. So, I think the impact will be more visible closer to the end of the year.
But due to confidentiality reasons, I will not be able to give you specific time.
Operator
Thank you. We will now go to our next question from Vladimir Bespalov from VTB Capital.
Vladimir Bespalov
Hello, congratulations on very good results and thank you for taking my questions. My first question would be on the trend in your cost per click, because this looks like feature is tied to slowing inflation.
So, what do you see going forward? How much of pricing power do you see you have and in your guidance, how much you'll be obtaining like the continuing increase in the cost per click and how much volume do you see?
And the second question would be probably a couple of strategic potential areas of development. One is related to the remote healthcare services and the legislation risk have been changed and the other one is your preparation with video content producers like TV channels, film studios and the reports that we saw in some media on this front.
So, could you comment whether you see opportunities in this areas and how the things can develop? Thank you.
Mikhail Parakhin
Hi, it's Mikhail. I guess I will take two of those three and Sasha will take third one about the medicine.
So, about the CPC, I know tried to stress previously that CPC is really not the thing you should looking at, because there is always and there are multiple components there. There is overall growth of traffic which tends to suppress CPC, but still brings more revenue.
There is actually a component of redistributing CPCs and changing environment with the advertisements, but on average tends to increase CPC. There is also our technological progress where we try to make it so that it's more efficient and cheaper, the conversions are cheaper, right, which actually might increase or decrease CPC.
So, as I was explaining before, like we try not look at CPC here as a – it's really – an indication of where we're going, because you really have to look deeper and right now what we are seeing is that traffic is growing especially on our owned properties. We see that like we were making conversions cheaper and the ad network for the advertisers I think we are – because previously there was little bit disparity between search and ad network.
Search was cheaper essentially, so now we think we equalize it to that, and the thing is, I think played out and so, it's kind of – its kind of hard to say and to large degree not really interesting question to think about whether CPC is going up or down. I think you have to look in general in the economics of the whole system.
On our collaboration with the TV companies, as you probably know, we rolled on our main page on mobile and desktop, this new service where you can watch some of the TV channels right there. We keep signing up more channels.
Our ad network, I think most of them are monetized by our ad network and position that is growing fairly rapidly. So, we see a fairly positive trend there.
We do consider in multiple ways we can enhance our collaboration or you know increase the speed of growth for our ad network. Right now, I don't think we have anything that we are ready to disclose yet.
Sasha?
Alexander Shulgin
Hi. And one our medicine project, this is one of our experiment.
Our project which was launched in beta phase recently, so the ultimate goal of this initiative is to provide functionality to connect people individuals with physicians and thus create better service and more accessible sort of medical service for people. So, I don't think this experiment will be visible in our financials any time soon, but I think long-term it's a very important and potentially attractive product for Yandex to have.
We very much welcome any changes in regulation that allows that easy implementation of IT technologies in Medicine area. So, yes, there are some changes that potentially would make telemedicine in Russia fully legal and which is a very good opportunity both for Yandex and for all other players in this area from IT side.
Operator
Thank you. We know have a question from Mitch Mitchell from BCS.
Please go ahead.
Mitch Mitchell
Hi. Thank you for taking the call and congratulations on the results.
If I could, I'd like to ask for two data points and then one question. The data points if possible, can you tell us in the prepared remarks, you gave us year-on-year number for growth of Yandex Taxi rides.
Can you tell us what is was quarter-on-quarter sort of first quarter versus fourth quarter for last year? And that's the first data point, and the second data point, which I don't think you've ever given before, but just curious, can you tell us what percentage of you ad revenues come from video segment?
Then the question is, fairly large one, I know, we've just got a ruling here and in Russia on the case against Google, I mean that's a Russia specific ruling, but I wonder if that problem and that issue if there are any larger implications for other countries, is the partnership with Google there an opportunity there to expand that into other countries. I read a press report that you tried to initiate a similar kind of anti-competitive investigation in Turkey.
I'm not sure if that's true, if you can maybe comment on that for us? That's great.
Thank you.
Greg Abovsky
Hi Mitch. On your first question I wasn't sure exactly what you asked.
You asked what is the growth in the number of rides, Q1 2017 versus Q4 2016? Is that what you were asking?
Mitch Mitchell
Yes. Exactly.
Greg Abovsky
I don't have that handy, but it was up sequentially despite the seasonality. As you know there is massive seasonality in Q4, but it was still up – I would guess nicely double digits up sequentially.
Mitch Mitchell
Okay. Thanks.
Operator
Thank you. We know have a question from Sergey Libin form Raiffeisenbank.
Sergey Libin
Could you probably answer the previous question like on a percentage of advertisement from video, that's haven't been answered.
Greg Abovsky
Yes. Sorry, we got cut off there.
On Video it is less than 1% today, so it's some very small segment for us, still but rapidly growing. And on the other opportunities on partnerships with Google, obviously we're exploring other opportunities that where we see a potential to cooperate and work together.
Go ahead Sergey, what was your question.
Sergey Libin
My question was about the agreement with several car producers for discounts or your partner Taxi companies. So, are you paying anything for that, or is it just kind of discount that is provided for high volume?
Greg Abovsky
They are small. This is just discounts based on volumes.
Sergey Libin
Okay. Thanks and secondly the – would you assume that the possibility to make agreements to install Yandex applications on the first screen would significantly increase the distribution tag or is it more of revenue sharing and shouldn't increase the upfront payments on distribution?
Greg Abovsky
Yes, Sergey, it depends on the actual agreement we end up signing with OEMs. We – even for second screens we have a combination of both Russia deals which would hit our distribution tag line as well as cost per install deals which would hit our marketing line.
It just depends on the terms you are able to strike and sort of the allocation of risk between the two parties, you know the people want certainty or do they want potential for upside.
Operator
Thank you. As we have no further question, I'd like to turn the conference back over to you for any additional or closing remarks.
Katya Zhukova
Hi, it's Katya Zhukova speaking. Thank you all for joining our call today.
Please feel free to reach out to me or our – at our email address in case you have any additional questions. We'll be happy to host you on our next earnings announcement in late July 2017.
Thanks again and bye.
Operator
Thank you. That will conclude today's conference call.
Thank you for your participation. Ladies and gentlemen, you may now disconnect.