Filing identity and reporting period
The supplied filing is Yandex N.V.’s audited FY2018 Form 20-F, for the year ended December 31, 2018, with comparative 2017 results and quarterly data. It is not a Nebius Group filing or a standalone 2018 Q4 filing. Financial statements are in U.S. GAAP and reported in Russian rubles; dollar figures are convenience translations.
Key financial metrics
| Metric | FY2017 | FY2018 | Change / context |
|---|---|---|---|
| Revenue | RUB 94.054bn | RUB 127.657bn | Up 35.7% |
| Operating income | RUB 13.036bn | RUB 20.861bn | Operating margin rose from 13.9% to 16.3% |
| Net income | RUB 8.656bn | RUB 45.861bn | FY2018 includes a RUB 28.244bn non-taxable gain from Yandex.Market deconsolidation |
| Net income attributable to Yandex N.V. | RUB 8.776bn | RUB 47.587bn | Includes the same substantial one-time gain |
| Operating cash flow | RUB 23.772bn | RUB 28.212bn | Up 18.7% |
| Capital expenditures | RUB 12.389bn | RUB 28.323bn | Includes RUB 9.7bn for the Moscow headquarters site |
| Cash and cash equivalents at year-end | RUB 42.662bn | RUB 68.798bn | 2018 amount translated as $990.3m |
| Convertible debt | RUB 17.834bn carrying value | None outstanding | Remaining $321.3m principal repaid at December 2018 maturity |
Reported operating cash flow less capital expenditures was approximately negative RUB 0.111bn in 2018; capex was unusually high, including the headquarters land purchase and data-center investment. Year-end current assets were RUB 92.420bn and current liabilities RUB 23.737bn. The company reported no outstanding indebtedness and no credit line. Lease commitments totaled RUB 19.387bn, including RUB 6.545bn due in 2019.
Fourth-quarter data
Q4 2018 revenue was RUB 38.842bn, versus RUB 27.860bn in Q4 2017, up approximately 39.5%. Operating income was RUB 7.471bn versus RUB 4.817bn, and net income attributable to Yandex N.V. was RUB 6.059bn versus RUB 3.526bn. Q4 2018 operating margin was 19.2%. The filing presents quarterly results but does not constitute a standalone Q4 filing.
Material changes and business developments
- Online advertising remained the largest revenue source but declined to 80.4% of FY2018 revenue from 93.0% in 2017. Online advertising revenue grew 17.5%; management said it did not expect the 2019 growth rate to exceed 2018’s.
- Taxi revenue increased 292.8% to RUB 19.213bn, reflecting the Uber combination, ride growth and geographic expansion. Taxi remained loss-making on the segment adjusted operating measure, with a RUB 4.530bn loss, improved from RUB 8.009bn in 2017.
- Yandex and Sberbank formed a 45%-each Yandex.Market joint venture in April 2018, with up to 10% reserved for employee incentives. Yandex deconsolidated the business and recognized a RUB 28.244bn gain; it thereafter accounts for its investment under the equity method.
- Other notable investments included the February 2018 Yandex.Taxi-Uber combination, the launch of Yandex.Drive, and acquisitions including Edadeal. Goodwill increased to RUB 52.662bn, principally reflecting the Uber transaction.
- Capital expenditures rose to RUB 28.323bn. The company repurchased RUB 10.085bn of ordinary shares during 2018.
Outlook, risks and unusual items
- Management expected 2019 capital expenditures to be in the mid-teens as a percentage of revenue, excluding headquarters construction. It expected product-development expense to be broadly stable as a share of revenue, marketing expense roughly stable as a share of revenue, and operating margin to decline in the near term as lower-margin businesses grow and new initiatives require investment.
- Russia’s ruble depreciated 17% against the U.S. dollar in 2018. Currency movements affect foreign-currency expenses and assets and produced a RUB 3.155bn foreign-exchange gain in FY2018, versus losses in 2017 and 2016.
- Key disclosed risks include Russia-related geopolitical and sanctions exposure, evolving internet and data-protection regulation, potential traffic-routing restrictions, intense competition, advertising cyclicality, mobile-platform distribution dependence, and the profitability and execution risks of joint ventures and newer businesses.
- Potential contingencies include RUB 2.372bn in claims for which no liability was recorded, and estimated possible non-income-tax contingencies of up to RUB 3.477bn, in addition to RUB 0.517bn accrued for non-income-tax contingencies. The filing also discloses RUB 3.588bn of estimated withholding tax on unremitted earnings for which no deferred tax liability was recognized.
- The independent auditor issued an unqualified opinion on the financial statements, and reported effective internal control over financial reporting as of December 31, 2018.
Important facts for investors to verify
- Confirm issuer and period: the filing is Yandex N.V.’s FY2018 Form 20-F, not a Nebius Group or standalone Q4 filing.
- Separate recurring operating performance from FY2018 net income, which was materially boosted by the Yandex.Market deconsolidation gain.
- Review the cash-flow effect and planned funding of elevated capex, headquarters construction, and lease commitments.
- Track advertising growth, Taxi unit economics, and the operating performance and accounting treatment of the Yandex.Market joint venture.
- Assess currency exposure, sanctions and regulatory developments, and the disclosed tax and legal contingencies.