Filing summary
Entity and period: The supplied filing is Yandex N.V.’s audited Form 20-F for the fiscal year ended December 31, 2015, filed March 21, 2016. It is not a Nebius Group N.V. filing and does not report a standalone 2015 Q4 period; quarterly figures are included as unaudited comparisons. Financial statements are U.S. GAAP and reported primarily in Russian rubles (RUB). U.S. dollar figures are convenience translations.
Business context and reporting period
Yandex operated search, portal, advertising, e-commerce, classifieds, taxi and experimental businesses, primarily in Russia. Advertising generated 97.4% of 2015 revenue. Russia accounted for RUB 54.7 billion, or about 91.5%, of revenue. The company reported Russian search traffic share of 57.6% in 2015, down from 60.9% in 2014.
Key financial metrics
| Metric | FY 2015 | FY 2014 | Change |
|---|---|---|---|
| Revenue | RUB 59.792bn ($820.4m) | RUB 50.767bn | +17.8% |
| Operating income | RUB 9.593bn | RUB 15.323bn | -37.4% |
| Operating margin | 16.0% | 30.2% | -14.2 percentage points |
| Net income | RUB 9.679bn ($132.8m) | RUB 17.020bn | -43.1% |
| Diluted earnings per share | RUB 29.90 ($0.41) | RUB 52.27 | Lower |
| Operating cash flow | RUB 19.576bn | RUB 15.546bn | +25.9% |
| Capital expenditures | RUB 13.045bn | RUB 9.679bn | +34.8% |
Revenue growth was driven mainly by text-based advertising: advertising revenue rose 16.1%, paid clicks increased 12%, and average cost per click increased 5%. Other revenue more than doubled to RUB 1.582bn, including taxi-related commissions and sublease revenue. Display advertising revenue fell slightly to RUB 3.461bn and declined as a share of revenue.
Costs rose faster than revenue in several areas. Product development expense increased 51.8% to RUB 13.421bn, and sales, general and administrative expense increased 49.1% to RUB 11.601bn. Depreciation and amortization rose 73.8% to RUB 7.791bn. The company recorded a RUB 576m goodwill impairment related to KinoPoisk. Share-based compensation increased to RUB 2.718bn from RUB 1.210bn.
For Q4 2015, revenue was RUB 18.094bn, operating income RUB 2.728bn, and net income RUB 2.851bn. The quarter included RUB 576m of goodwill impairment; operating margin was 15.1% versus 30.5% in Q4 2014.
Liquidity, debt and balance sheet
At year-end, cash and cash equivalents were RUB 24.238bn; current and non-current term deposits totaled RUB 33.549bn; and debt securities were RUB 2.915bn. Together these liquid investments were RUB 60.702bn ($832.9m). Total assets were RUB 111.818bn, total liabilities RUB 41.721bn, and shareholders’ equity RUB 70.097bn. Current liabilities were RUB 11.669bn.
Convertible debt carrying value was RUB 27.374bn ($375.6m), with principal due in 2018 and a 1.125% coupon. Yandex repurchased $119.4m principal amount of notes during 2015. Operating cash flow was RUB 19.576bn; investing cash outflow was RUB 11.676bn and financing cash outflow RUB 6.023bn. Management said existing cash and operating cash generation should cover anticipated needs for at least 12 months. No cash dividend was planned in the near term.
Material changes versus the prior comparable period
- Revenue growth slowed to 17.8% from 28.5% in 2014; management did not expect 2016 advertising revenue growth to exceed 2015’s rate.
- Operating margin fell to 16.0% from 30.2%, principally reflecting higher depreciation and amortization, dollar-linked Moscow rent, salary increases and higher investment spending. Net income also declined substantially.
- The ruble depreciated about 23% against the U.S. dollar during 2015. This increased the ruble cost of dollar-denominated rent and imported servers and contributed to reported foreign-exchange gains.
- Cash from operations strengthened, while capex rose to RUB 13.045bn; about 84% of 2015 capex supported servers and data-center expansion.
- Yandex reorganized reporting into Search and Portal, E-commerce, Classifieds, Taxi and Experiments. Taxi and Classifieds revenue grew rapidly from a small base, while the core Search and Portal segment remained dominant.
Outlook, risks and unusual items
- Outlook: Management expected slower revenue growth and continued cost pressure. For 2016 it expected capex to decline as a percentage of revenue, product-development expense to remain broadly stable as a percentage of revenue, and advertising and marketing expense to increase as a percentage of revenue. It expected the ad-network share of advertising revenue to remain stable.
- Moscow headquarters transaction: A February 2016 agreement proposed issuing 12.9m Class A shares and assuming approximately $490m of U.S.-dollar debt, due 2024 at LIBOR plus 6.2%, to acquire the office complex. Closing was anticipated in the second half of 2016, subject to conditions and approvals. Management anticipated a one-time lease-settlement loss, higher depreciation and interest expense, and lower interest income after using cash to repay part of the debt.
- Macroeconomic and currency exposure: Russia’s recession, inflation, oil-price sensitivity, ruble volatility and geopolitical sanctions could weaken advertising demand, increase costs and affect earnings. The company disclosed that a 15% stronger or weaker U.S. dollar versus the ruble would have changed 2015 pre-tax foreign-exchange results by about RUB 1.819bn.
- Market and operating risks: Google and Mail.ru competition, falling search share, mobile distribution and monetization, reliance on advertising and ad-network partners, seasonality, cyber and service interruptions, and privacy or content regulation were identified as risks.
- Regulatory and tax matters: Russian rules on data localization, data retention, online news, foreign ownership, advertising and antitrust were evolving. A Russian tax audit covering 2013 and 2014 was underway; the company also disclosed tax contingencies and uncertainty in interpretation of Russian tax rules.
- Unusual items: 2015 other income included RUB 1.903bn of foreign-exchange gains and RUB 310m of gains from convertible-note repurchases. These non-operating gains partly supported pre-tax income and are not equivalent to operating performance. The KinoPoisk impairment was RUB 576m.
Important facts for investors to verify
- Confirm the intended issuer and period: the provided document is Yandex N.V.’s FY 2015 20-F, not a Nebius Group N.V. 2015 Q4 filing.
- Review the drivers and sustainability of the sharp operating-margin and net-income declines, including rising development, marketing, depreciation and share-based compensation costs.
- Assess the Moscow headquarters acquisition’s final terms, closing status, share dilution, debt assumed, repayment amount and effects on rent, interest, depreciation and liquidity.
- Separate operating trends from foreign-exchange gains, note-repurchase gains and impairment charges; verify the company’s sensitivity to further ruble movements.
- Monitor Russian advertising demand, search-market share, mobile monetization, and the exposure to the Yandex ad network and distribution partners.
- Check developments in the Russian tax audit and regulatory matters, including data, media and foreign-ownership rules.
- Auditors issued an unqualified opinion on the 2015 financial statements and internal controls; verify subsequent filings and outcomes of the disclosed contingencies.