Yandex (NASDAQ and MOEX: YNDX), a Dutch public limited company and one of Europe’s largest internet businesses has today announced its unaudited financial results for the fourth quarter and the full year that ended December 31, 2022.
Q4 and FY 2022 Financial and Operational Highlights
Given that uncertainty concerning future geopolitical developments and the macro environment remains high, our visibility over the short- and medium-term is limited and we are unable to provide any forward-looking expectations at this stage. We aim to remain transparent about the performance and key trends across our businesses with our quarterly Letter to Shareholders.
Corporate and Subsequent Events
- On November 25, 2022, Yandex N.V. announced that the Board of Directors had commenced a strategic process to review options to restructure the Yandex Group’s ownership and governance.
- A special committee of the Board has been charged with exploring a variety of potential scenarios and steps, including the development of the international divisions of certain services (including self-driving technologies, cloud computing, data labeling, and ed-tech) independently from Russia, as well as divestment of Yandex N.V.’s ownership and control of all other businesses in the Yandex Group (including search and advertising, mobility, e-commerce, food delivery, entertainment services and others in Russia and international markets), including transferring certain elements of governance to management. Any corporate restructuring will be subject to shareholder approval.
- In January 2023, Yandex reported that certain fragments of its program code had been discovered in the public domain. The published fragments of the code are outdated and differ from the version currently used by its services.
- In addition, some of the published fragments were never actually used in operations. The company is taking this matter extremely seriously and has initiated a thorough investigation into the cause, content, and implications of the leak.
- Based on the results of our ongoing investigation, we will take all possible measures to strengthen our policies and enforce increased effectiveness of the management and oversight systems. This will ensure such issues are not repeated.
- As of the date of this press release, trading in our Class A shares on Nasdaq remains suspended. There is still no clarity on when and whether trading on Nasdaq may be resumed.
- Trading on the Moscow Exchange continues, however, the international settlement systems remain closed for trading in rubles and securities of Russian businesses. The liquidity of our shares on the Moscow Exchange remains limited to the number of shares held in the Russian clearing system.
- Neither Yandex N.V. nor any of its group companies are targets of sanctions in the United States, the European Union, Switzerland, or the United Kingdom. The Yandex group is not owned or controlled by any persons who have been designated under such sanctions. Yandex continues to closely monitor developments in this regard.
Impact of the current geopolitical crisis
Current geopolitical tensions and their impact on the Russian and global economy have created an exceptionally challenging environment for our business, team, and shareholders.
These developments have adversely impacted (and may in the future materially adversely impact) the macroeconomic climate in Russia, resulting in the volatility of the ruble, currency controls, materially increased interest rates and inflation, and a potential contraction in consumer spending, as well as the withdrawal of foreign businesses and suppliers from the Russian market.
In addition, laws or regulations may be adopted that may adversely affect our non-Russian shareholders and the value of the shares they hold in our company. We provided detailed information on our risk exposure and possible adverse impacts on our businesses in our Annual Report on Form 20-F for the year ended December 31, 2021, which was filed on April 20, 2022.
We continue to provide services to our users and partners with no interruptions. We are taking appropriate measures to conserve cash and to consider our capital allocation and budget appropriately during this period of uncertainty.
We remain committed to continuing to invest in the development of our key businesses and services. We are monitoring sanctions and export controls, elopements as well as the macroeconomic climate and consumer sentiment in Russia.
Currently, we are assessing contingency plans to address potential developments. Our Board and management are focused on the well-being of our approximately 21,000 employees in Russia and abroad while doing everything we can to safeguard the interests of our shareholders and other stakeholders.
The following table provides a summary of our key consolidated financial results for the three and twelve-month periods ended December 31, 2021, and 2022:
Cash, cash equivalents, and term deposits as of December 31, 2022:
- RUB 83.3 billion ($1,184.1 million) on a consolidated basis.
Segment financial results
Search & Portal
Our Search and Portal segment includes Search, Geo, Yandex 360, Weather, News (up to September 12, 2022, when the deconsolidation transaction was completed), Alice voice assistant, and several other services offered in Russia, Belarus, and Kazakhstan.
Key operational trends:
- Share of the Russian search market, including mobile, averaged 62.6% in Q4 2022. This is up 2 pp from 60.2% in Q4 2021 and an improvement from 62.0% in Q3 2022, according to Yandex Radar.
- Search share on Android in Russia was 62.0% in Q4 2022, up 2.8 pp from 59.2% in Q4 2021. This is almost flat compared to 61.9% in Q3 2022, according to Yandex Radar
- Search share on iOS in Russia was 48.0% in Q4 2022, up 4.0 pp from 44.0% in Q4 2021. This was relatively stable compared to 48.3% in Q3 2022, according to Yandex Radar
- Mobile search traffic was 67.7% of our total search traffic in Q4 2022.
- Mobile revenues represented 59.6% of our search revenues in Q4 2022.
Revenues increased by 47% and Ex-TAC revenues grew by 45% year-on-year in Q4 2022 on the back of strong trends in the Yandex Advertising Network (led primarily by partner apps as well as websites) and solid growth in our Search ad revenues.
This dynamic was driven by ongoing investments in the development of our ad technologies and products (with a particular focus on the e-commerce sector, SMB clients, and iOS share), which translated into market share gains amid changes in the competitive landscape. SMB remained the key contributor to our revenue growth.
Adjusted EBITDA margin came to 51.7% in Q4 2022 compared with 50.6% in Q4 2021. The increase resulted mainly from the positive operating leverage effect driven by solid trends in advertising revenue, cost optimization (primarily marketing) as well as benefits from the segregation of corporate overheads to our Other Business Units and Initiatives segment.
All these factors helped to offset an adverse impact from the growth of personnel costs on the back of the changes in our compensation scheme, and the resulting inclusion in adjusted EBITDA of stock-based compensation expenses related to RSU equity awards of our employees settled in cash.
E-commerce, Mobility, and Delivery
The E-commerce, Mobility and Delivery segment includes our transactional online-to-offline (O2O) businesses, which consist of (i) the mobility businesses, including ride-hailing in Russia and other countries across CIS and EMEA, Yandex Drive, our car-sharing business for both B2C and B2B and scooters; (ii) the E-commerce businesses in Russia and CIS, including Yandex Market, our multi-category e-commerce marketplace, Yandex Lavka Russia, our hyperlocal convenience store delivery service, and the grocery delivery services of Yandex Eats and Delivery Club (since September 8, 2022, when the acquisition was completed); and (iii) our other O2O businesses, including Yandex Delivery, our last-mile logistics solution for individuals, enterprises and SMB (small and medium business); Yandex Eats and Delivery Club Food Delivery, our ready-to-eat delivery services from restaurants; Lavka Israel, our hyperlocal convenience store delivery service; and Yandex Fuel, our contactless payment service at gas stations and several smaller experiments.
Key operational trends:
- Total E-Commerce GMV increased by 90% year-on-year in Q4 2022
The share of GMV sold by third-party sellers on our Yandex Market marketplace was 81% in Q4 2022 compared to 82% in Q4 2021. Marketplace’s assortment was 41.7 million SKUs as of the end of Q4 2022, up from 20.6 million SKUs as of the end of Q4 2021. It further expanded to 47 million SKUs as of the end of January 2023.
The number of active buyers on the Yandex Market marketplace increased by 43% year-on-year and reached 14.0 million as of the end of Q4 2022. The number of active sellers on the Yandex Market marketplace increased by 83% year-on-year and reached 43,700 as of the end of Q4 2022.
- Compared to Q4 2021, the number of rides in Mobility increased by 17%.
- GMV of Mobility services grew 25% compared to Q4 2021.
The growth in GMV of Mobility reached 25% year-on-year in Q4 2022, driven by an increase in the number of rides on the back of the growth of our rider base and order frequency.
The growth in GMV of E-commerce accelerated to 90% year-on-year in Q4 2022 (including 86% year-on-year growth in Yandex Market GMV) from 73% in Q3 2022 supported by the addition of a unique assortment of stock (consisting primarily of the remaining inventory of IKEA’s Russia division), as well as efficient pricing strategies and marketing campaigns before the high season period.
GMV of other O2O services grew 59% year-on-year in Q4 2022, with Yandex Delivery and Yandex Food Delivery services including Delivery Club, being the largest contributors, with a growth of 98% year-on-year.
E-commerce, Mobility, and Delivery segment revenues grew by 63% year on year in Q4 2022, mainly driven by E-commerce services (where Yandex Market was the largest contributor to growth, followed by Yandex Lavka) and Mobility. Mobility revenues increased by 29%, driven by solid growth in rides and GMV in ride-hailing.
E-commerce revenues increased by 101%.
The faster-than-GMV revenue growth is mainly explained by the normalization of the 1P/3P GMV mix in the Yandex Market (the share of 1P GMV slightly rose to 9% in Q4 2022 compared with 18% in Q4 2021) and the improvement of 3P take rates.
1P revenues grew 70% year-on-year in Q4 2022 supported by the growth of Yandex Lavka (Yandex Lavka year-on-year growth was mainly driven by a further increase in items per order, positively affecting the average check) and Yandex Market 1P sales (as a result of a growth of GMV and the business as a whole, as well as the purchase of IKEA stock).
Commission and other E-Commerce revenues grew by 1% due to 3P GMV growth and an improved effective take rate in the Yandex Market. Other O2O services revenues delivered solid 86% year-on-year growth primarily driven by the growth of Yandex Delivery and Yandex Food Delivery, as well as the acquisition of Delivery Club.
Eliminations related to the E-commerce, Mobility, and Delivery segment represent the elimination of intercompany revenues between different businesses within the segment.
The year-on-year dynamic was mainly attributed to the expansion of intercompany synergies with a higher volume of E-commerce and Food Delivery orders fulfilled by our Yandex Delivery business compared to a year ago.
Adjusted EBITDA loss of E-commerce, Mobility, and Delivery was RUB 10,557 million in Q4 2022 compared to an adjusted EBITDA loss of RUB 7,262 million in Q4 2021, while Adjusted EBITDA margin improved as % of revenue.
The increase in losses in absolute terms was primarily driven by the growth of the scale of E-commerce businesses and the addition of the Delivery Club business.
Plus and Entertainment Services:
The Plus and Entertainment Services segment includes our subscription service Yandex Plus, Yandex Music, Kinopoisk, Yandex Afisha, and our production center Yandex Studio.
Key operational trends:
The number of Yandex Plus subscribers reached 19.3 million as of the end of Q4 2022, up 66% from the end of Q4 202.
Plus and Entertainment Services revenues grew 84% in Q4 2022 compared with Q4 2021. The increase was primarily driven by the growth of subscription revenue on the back of the expanding base of paid subscribers and changes in the tariff mix.
In addition, there were solid trends in other revenue streams, including advertising and Afisha. Adjusted EBITDA improved significantly, to a loss of only RUB 0.6 billion from a loss of RUB 1.9 billion in Q4 2021. This improvement was driven by a positive operating leverage effect on the back of subscription revenue growth.
The Classifieds segment includes Auto.ru, Yandex Realty, Yandex Rent, and Yandex Travel.
Classified revenues increased by 54% in Q4 2022 compared with Q4 202 Revenuenue growth was supported by the solid performance of Yandex Travel and Yandex Realty. This was a result of increased demand for our services and a changing competitive landscape in the domestic market since Q2 2022.
However, solid growth was offset by the adverse impact on service revenue in our auto classifieds business. This was due to the ongoing contraction of the supply of newly produced cars on the market.
Adjusted EBITDA amounted to RUB 0.2 billion in Q4 2022 compared with RUB 0.4 billion in Q4 2021 as a result of the growth of advertising and marketing expenses, investments in our new businesses such as Yandex Rent as well as personnel costs to support the development of the service.
Other Business Units and Initiatives
The Other Business Units and Initiatives category includes our self-driving vehicles business (Yandex SDG), Yandex Cloud, Yandex Education, Devices, FinTech, Toloka, RouteQ, and several other experiments as well as unallocated corporate expenses.
Other Business Units and Initiatives revenues rose 103% year-on-year in Q4 2022, driven mainly by Devices, Yandex Cloud, and Yandex Education.
Devices revenue increased 189% year-on-year to RUB 11.7 billion in Q4 2022: the business managed to overcome temporary supply issues experienced in Q3 2022 and benefited from solid demand for our smart devices as well as deeper cross-service cooperation with Yandex Market and Yandex Plus.
Yandex Cloud revenue grew 136% year-on-year, supported by product portfolio expansion as well as improvement in our market share on the back of increasing demand for our services.
The adjusted EBITDA loss amounted to RUB 7.6 billion (including RUB 1.8 billion of investments in Yandex SDG), an increase in absolute terms compared to RUB 5.6 billion in Q4 2021 despite a doubling of the segment’s revenue.
The improvement in relative losses as a percentage of revenue was primarily driven by solid performance in Devices (which has remained profitable for the third quarter in a row), improved operational efficiency in Cloud and Practicum as well as a positive effect of Zen deconsolidation and optimization of investments in certain experiments (e.g. the closure of Lavka Overseas).
These improvements helped to offset continuing investments in Yandex SDG, development of our FinTech vertical, and segregation of unallocated corporate expenses from reportable segments’ adjusted EBITDA and their inclusion in the Other Business Units and Initiatives category (since Q3 2022).
Eliminations related to our revenues represent the elimination of transactions between the report segments. These include advertising revenues, intercompany revenues related to brand royalties, data centers, device sales between companies, and others.
Eliminations related to our revenues increased by 232% in Q4 2022 compared with Q4 2021. The increase was mainly attributed to the increased intercompany revenue between our businesses (related to cross-service advertising and marketing activities, intercompany device sales, the usage of data centers and other IT infrastructure, and other centralized services by all business units), which grows as the whole group grows and integration between services expands.
Consolidated Operating Costs and Expenses
Our operating costs and expenses consist of the cost of revenues, product development expenses, sales, general and administrative expenses (SG&A), and depreciation and amortization expenses (D&A).
Apart from D&A, each of the above expense categories includes personnel-related costs and expenses, relevant office space rental, and related share-based compensation expenses. Increases across all cost categories reflect investments in overall growth.
In Q4 2022, our headcount increased by 916 full-time employees. The total number of full-time employees was 20,850 as of December 31, 2022, up by 5% compared with September 30, 2022, and up 16% from December 31, 2021, which was primarily driven by the accelerated pace of hiring in Search and Portal (mainly in product development and sales) and Mobility, as well as by the fast growth of Cloud, Delivery, Plus and Entertainment Services and other businesses.
Total operating expenses increased 40% in Q4 2022 compared with Q4 2021. The increase was mainly due to the сost of revenues related to E-commerce, Mobility, and Delivery businesses, Plus Entertainment services and Devices, and growth of headcount and related personnel expenses across most of our business units due to the overall increase of the businesses.
TAC grew 67% in Q4 2022 compared with Q4 2021 and represented 7.3% of total revenues, up 78 basis points compared with Q4 2021. The year-on-year growth of TAC as a share of revenue was primarily driven by TAC related to our distribution partners.
Total SBC expenses decreased by 4% in Q4 2022 compared with Q4 2021. The decrease was primarily related to the replacement of new grants in 2022 with an increase in salary and bonuses. In addition, there was a material depreciation of the U.S. dollar against the Russian ruble in Q4 2022 compared to Q4 2021.
This effect is partly offset by the settlement of Business Unit Equity Awards in cash, which led to additional costs recognized in Q4 2022.
In light of the current geopolitical and macroeconomic crisis and the ongoing suspension of trading in our Class A shares on Nasdaq, during the whole of 2023 participants will continue to receive cash compensation on the vesting dates of the relevant RSU equity awards, in an amount equal to the target value of each tranche of such awards.
In Q4 2022, RUB 2.0 billion of the total RUB 4.8 billion in SBC expenses related to RSU equity awards settled in cash were recorded as part of personnel expenses, which reduced consolidated adjusted EBITDA.
Income/loss from operations
Income from operations amounted to RUB 6.1 billion in Q4 2022 as opposed to a loss from operations of RUB 2.6 billion in Q4 2021. The growth was mainly driven by the continuing improvement in our Search and Portal and Devices segment profitability.
Other income/loss, net for Q4 2022 was income of RUB 9,873 million, up from a loss of RUB 2,048 million in Q4 2021. Other net income includes foreign exchange gains of RUB 9,382 million and RUB 149 million in Q4 2022 and Q4 2021 respectively.
The increase in foreign exchange gains reflects the depreciation of the Russian ruble against the US dollar by 18% and 2% during Q4 2022 and Q4 2021, respectively. Income tax expense for Q4 2022 was RUB 9,666 million, up from RUB 2,028 million in Q4 2021. Our effective tax rate in Q4 2022 was 57.8% as opposed to a negative tax rate of 243.5% in Q4 2021.
If we remove the effects of deferred tax asset valuation allowance, SBC expense, the effect of change in tax rates, tax provisions recognized, and gains/(losses) on equity method investments, our effective tax rate for Q4 2022 was 22.0%, compared to 17.3% for Q4 2021 as adjusted for similar effects and contribution to the Russian Fund for the Development of Information Technologies.
The change in tax rates without the above-mentioned effects was primarily caused by permanent differences between US GAAP and tax accounting, along with the reduction in tax rates of some subsidiaries. Net income was RUB 7.1 billion in Q4 2022, compared with a net loss of RUB 2.9 billion in Q4 2021.
The changes in net income were mainly attributable to the growth of operational income and foreign exchange gains in Q4 2022. This was partly offset by the gain on the revaluation of our equity method investment of RUB 3.5 billion in Q4 2021.
Cash used in operating activities was RUB 1.6 billion. Cash paid for property and equipment, intangible assets and assets to be leased was RUB 21.7 billion in Q4 2022. The total number of shares issued and outstanding as of December 31, 2022, was 361,482,282.
This included 325,783,607 Class A shares, 35,698,674 Class B shares, and one Priority share and excluded 558,663 Class A shares held in Treasury and all Class C shares outstanding solely as a result of the conversion of Class B shares into Class A shares.
As a result, Class C shares will be canceled. There were also employee share options outstanding to purchase up to an additional 2.9 million shares, at a weighted average exercise price of $44.32 per share, 2.2 million of which were fully vested; equity-settled share appreciation rights (SARs) for 0.1 million shares, at a weighted average measurement price of $32.85, all of which were fully vested; restricted share units (RSUs) covering 11.9 million shares, of which RSUs to acquire 6.2 million shares were fully vested; and performance share units (PSUs) for 0.2 million shares.
In addition, we have outstanding equity-linked awards in respect of our various Business Units, including options and synthetic options, for 4.5 million shares, 2.2 million of which were fully vested and may be settled in equity of our Business Units, cash, or Yandex Class A shares.
Goodwill and non-current assets
About our financial position as of December 31, 2022, we have concluded that the current geopolitical crisis and macro environment have not had any material impact on goodwill and non-current assets.