|Item 1. Identity of Directors, Senior Management and Advisors.|
|Item 2. Offer Statistics and Expected Timetable.|
|Item 3. Key Information.|
|Item 4. Information on The Company.|
|Item 4A. Unresolved Staff Comments.|
|Item 5. Operating and Financial Review and Prospects.|
|Item 6. Directors, Senior Management and Employees.|
|Item 7. Major Shareholders and Related Party Transactions.|
|Item 8. Financial Information.|
|Item 9. The Listing.|
|Item 10. Additional Information.|
|Item 11. Quantitative and Qualitative Disclosures About Market Risk.|
|Item 12. Description of Securities Other Than Equity Securities.|
|Item 13. Defaults, Dividend Arrearages and Delinquencies.|
|Item 14. Material Modifications To The Rights of Security Holders and Use of Proceeds.|
|Item 15. Controls and Procedures.|
|Item 16A. Audit Committee Financial Expert.|
|Item 16B. Code of Ethics.|
|Item 16C. Principal Accountant Fees and Services.|
|Item 16D. Exemptions From The Listing Standards for Audit Committees.|
|Item 16E. Purchases of Equity Securities By The Issuer and Affiliated Purchasers.|
|Item 16F. Changes in Registrant's Certifying Accountant|
|Item 16G. Corporate Governance.|
|Item 16H. Mine Safety Disclosure.|
|Item 17. Financial Statements|
|Item 18. Financial Statements.|
|Item 19. Exhibits.|
|Balance Sheet||Income Statement||Cash Flow|
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
SHELL COMPANY PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report
Commission file number:
(Exact name of Registrant as specified in its charter)
(Translation of Registrant’s name in English)
(Jurisdiction of incorporation or organization)
(Address of principal executive offices)
Telephone: +31 20-206-6970
Facsimile: +31 20-446-6372
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class
Name of each exchange on which registered
Securities registered or to be registered pursuant to Section 12(g) of the Act. None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act. Class A Ordinary Shares
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the Annual Report.(1)
Title of each class
Number of shares outstanding
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ◻
Note—checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ◻
Indicate by check mark whether the Registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark which basis of accounting the registrant has used to prepared the financial statements included in this filing:
International Financial Reporting Standards ◻
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ◻ Item 18 ◻
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
(1) In addition, we had 1,928,621 Class A shares held in treasury and nil Class C shares issued and fully paid as of December 31, 2020. Our Class C shares are issued from time to time solely for technical purposes, to facilitate the conversion of our Class B shares into Class A shares. They are held by a Conversion Foundation managed by members of our Board of Directors. For the limited period of time during which any Class C shares are outstanding, they will be voted in the same proportion as votes cast by holders of our Class A and Class B shares, so as not to influence the outcome of any vote.
TABLE OF CONTENTS
In this Annual Report on Form 20-F (this “Annual Report”), references to “Yandex,” the “company,” “we,” “us,” or similar terms are to Yandex N.V. and, as the context requires, its consolidated subsidiaries.
Our consolidated financial statements are prepared in accordance with U.S. GAAP and are expressed in Russian rubles. In this Annual Report, references to “rubles” or “RUB” are to Russian rubles, and references to “U.S. dollars” or “$” are to United States dollars.
Our fiscal year ends on December 31 of each year. References to any specific fiscal year refer to the year ended December 31 of the calendar year specified.
This Annual Report includes market data reported by Yandex.Radar (February 2021), the Association of Russian Communication Agencies (AKAR) (March 2021), the Russian Federal State Statistics Service (Rosstat) (February 2021) and the Bank of Russia (January 2021).
This Annual Report contains forward-looking statements that involve risks and uncertainties. Words such as “project,” “believe,” “anticipate,” “plan,” “expect,” “estimate,” “intend,” “should,” “would,” “could,” “will,” “may” or other words that convey judgments about future events or outcomes indicate such forward-looking statements. Forward-looking statements in this Annual Report may include statements about:
|●||the impact of macroeconomic and geopolitical developments in our markets, including the economic, social and political impact of the current COVID-19 pandemic;|
|●||the expected growth of the business markets and the number of internet and broadband users in the countries in which we operate;|
|●||competition in the internet search, ride-hailing and other markets in the countries in which we operate;|
|●||our anticipated growth and investment strategies;|
|●||our future business development, results of operations and financial condition;|
|●||expected changes in our margins and certain cost or expense items in absolute terms or as a percentage of our revenues;|
|●||our ability to attract and retain users, advertisers and partners; and|
|●||future advertising supply and demand dynamics.|
The forward-looking statements included in this Annual Report are subject to risks, uncertainties and assumptions. Our actual results of operations may differ materially from those stated in or implied by such forward-looking statements as a result of a variety of factors, including those described under Part I, Item 3.D. “Risk Factors” and elsewhere in this Annual Report.
We operate in an evolving environment. New risks emerge from time to time, and it is not possible for our management to predict all risks, nor can we assess the effect of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Item 1. Identity of Directors, Senior Management and Advisors.
Item 2. Offer Statistics and Expected Timetable.
Item 3. Key Information.
|A.||Selected Financial Data|
The selected consolidated balance sheet data as of December 31, 2020 and 2019 and consolidated statements of income data for the years ended December 31, 2020, 2019 and 2018 are derived from our audited consolidated financial statements included elsewhere in this Annual Report.
Ruble amounts have been translated into U.S. dollars at a rate of RUB 73.8757 to $1.00, the official exchange rate quoted as of December 31, 2020 by the Central Bank of the Russian Federation. Such U.S. dollar amounts are not necessarily indicative of the amounts of U.S. dollars that could actually have been purchased upon exchange of Russian rubles at the dates indicated, and have been provided solely for the convenience of the reader. See “Risk Factors–The principal markets in which we operate are generally subject to greater financial, economic, legal and political risks than more developed markets. Such risks may have a material adverse effect on our business, financial condition and results of operations.”
The following selected consolidated financial data should be read in conjunction with our “Operating and Financial Review and Prospects” and our consolidated financial statements and the related notes appearing elsewhere in this Annual Report. Our consolidated financial statements are prepared in accordance with U.S. GAAP. These historical financial results are not necessarily indicative of the results to be expected in any future period.
Year ended December 31,
(in millions, except share and per share data)
Consolidated statements of income data:
Operating costs and expenses:
Cost of revenues(1)
Sales, general and administrative(1)
Depreciation and amortization
Total operating costs and expenses
Income from operations
Effect of deconsolidation/consolidation of Yandex.Market
Income/(loss) from equity method investments
Other (loss)/income, net
Income before income tax expense
Income tax expense
Net loss attributable to noncontrolling interests
Net income attributable to Yandex N.V.
Net income per Class A and Class B share:
Weighted average number of Class A and Class B shares outstanding:
|(1)||These amounts exclude depreciation and amortization expense, which is presented separately, and include share-based compensation expense of:|
Cost of revenues
Sales, general and administrative
As of December 31,
Consolidated balance sheets data:
Cash and cash equivalents
Term deposits (current and non-current)
Total current liabilities(2)
Total non-current liabilities(2)
Redeemable noncontrolling interests
Total shareholders’ equity
|(2)||Total non-current liabilities as of December 31, 2020 consist principally of convertible notes outstanding. Refer to Note 13 to our consolidated financial statements.|
* Not restated to reflect adoption of ASC 842 Leases, which requires the recognition of right-of-use assets and lease liabilities for operating leases.
Exchange Rate Information
Our business is primarily conducted in Russia and the majority of our revenues are denominated in Russian rubles. We have presented our most recent annual results of operations in U.S. dollars for the convenience of the reader. Unless otherwise noted, all conversions from RUB to U.S. dollars and from U.S. dollars to RUB in this Annual Report were made at a rate of RUB 73.8757 to $1.00, the official exchange rate quoted by the Central Bank of the Russian Federation as of December 31, 2020.
See “Risk Factors–The principal markets in which we operate are generally subject to greater financial, economic, legal and political risks than more developed markets. Such risks may have a material adverse effect on our business, financial condition and results of operations.” for a discussion of the foreign currency exchange rate risks and uncertainties our business faces.
B. Risk Factors
Investing in our Class A shares involves a high degree of risk. The risks and uncertainties described below and elsewhere in this Annual Report, including in the section headed “Operating and Financial Review and Prospects”, could materially adversely affect our business. These are not the only risks that we face; additional risks and uncertainties of which we are unaware, or that we currently deem immaterial, may also become important factors that affect us. Any of these risks could adversely affect our business, financial condition and results of operations. In such case, the trading price of our Class A shares could decline. Please read a summary of the risk factors, followed by a detailed overview.
Summary of Risk Factors
The following is a summary of what we believe to be the material risks and uncertainties that could materially adversely affect our financial condition, results of operations, cash flows, and competitive position.
Risks Related to the Current Global Political, Regulatory and Economic Environment
|●||The principal markets in which we operate are generally subject to greater financial, economic, legal and political risks than more developed markets. Such risks may have a material adverse effect on our business, financial condition and results of operations.|
|●||We face risks related to health epidemics and related crises, including the COVID-19 pandemic.|
|●||The adoption and maintenance of international embargo, economic or other sanctions against Russia or certain persons in Russia may have a material adverse effect on our business, financial condition and results of operations.|
|●||Any errors, failures or disruption in the products and services provided by third-party providers of our principal internet connections and equipment, or any regulatory limitations on the internet in Russia, could materially adversely affect our brand, business, financial condition, and results of operations.|
|●||The principal markets in which we operate offer an uncertain environment for investment and business activity that could have a material adverse effect on our business, financial condition, and results of operations.|
|●||Should our operating environment become more challenging because of a change in the regulation or perception of technology companies, our business and financial condition may be materially and adversely affected.|
|●||If existing limitations on foreign ownership were to be extended to our business, or if new limitations were to be adopted, it could materially adversely affect our group.|
Risks Related to Our Governance Structure
|●||We may not be compliant with any future legislation limiting foreign ownership or control in our sector and any such non-compliance could have a material adverse effect on our business.|
|●||The rights of the Public Interest Foundation could be exercised in a manner that is different from what we expect or that is not in the interests of our Class A shareholders.|
|●||The restructuring carried out at the end of 2019 introduced new elements of our corporate governance with|
|which we previously had no experience, and the rights granted may be exercised in unexpected ways.|
Risks Related to Our Business and Industry
|●||If we do not continue to innovate and provide services that are useful and attractive to our users, we may be unable to retain them, which could adversely affect our business, financial condition and results of operations.|
|●||If we are not successful in maintaining substantial reach among users and monetizing search and other services on mobile devices, our business, financial condition and results of operations could be adversely affected.|
|●||Any reduction in spending by or loss of advertisers would materially adversely affect our business, financial condition, and results of operations.|
|●||Any decline in the internet as a significant advertising platform in the countries in which we operate could have a material adverse effect on our business, financial condition and results of operations.|
|●||We rely on partners for a material portion of our revenues and, in particular, for expanding our user base via distribution arrangements. Any failure to obtain or maintain such relationships on reasonable terms could have an adverse effect on our business, financial condition and results of operations.|
|●||Failure to maintain and enhance our brand would materially adversely affect our business, financial condition and result of operations.|
|●||Growth in our operations internationally may create increased risks that could adversely affect our business, financial condition and results of operations.|
|●||If we cannot maintain the focus on teamwork and innovation fostered by our corporate culture, our business, financial condition and results of operations would be adversely affected.|
|●||The loss of any of our key personnel, or a failure to attract, retain and motivate qualified personnel, may have a material adverse effect on our business, financial condition and results of operations.|
|●||If our security measures are breached, our products and services may be perceived as not being secure, users may curtail or stop using our products and services, and we may incur significant legal and financial exposure.|
|●||A systems failure, technical interference or human error could prevent us from providing accurate search results or ads or reliably deliver our other services, which could lead to a loss of users and advertisers and damage our reputation and materially adversely affect our business, financial condition and results of operations.|
|●||We may not be able to prevent others from unauthorized use of our intellectual property rights, which may adversely affect our competitive position, our business, financial condition and results of operations.|
|●||We may be subject to intellectual property infringement claims, which could be costly and could limit our ability to provide certain content or use certain technologies in the future.|
|●||We may be subject to claims from our current or former employees as well as contractors for copyright, trade secret and patent-related matters, which are costly to defend, and which could adversely affect our business.|
|●||We may be held liable for information or content displayed on our platforms or we may be required to block content on or restrict access to our websites, any of which could harm our reputation and business.|
|●||As the internet evolves, an increasing amount of online content may be held in closed social networks, mobile apps or proprietary document formats, which may limit the effectiveness of our search technology, which could adversely affect our brand, business, financial condition and results of operations.|
|●||We may have difficulty in continuing to scale and adapt our existing technology architecture, which could adversely affect our business, financial condition and results of operations.|
|●||If we fail to detect fraudulent activity or if our partners disagree with our fraud detection techniques, we may face litigation and may lose the confidence of our advertisers or partners which may adversely affect our business, financial condition and results of operations.|
|●||We may fail to identify additional suitable acquisition targets, acquire them on acceptable terms or successfully integrate them, which may limit our ability to implement our growth strategy.|
Additional Risks Related to Regulatory Matters
|●||We may be required to obtain additional licenses, permits or registrations or comply with other requirements, which may be costly or may limit our flexibility to run our business.|
|●||We are subject to regulation regarding the processing and retention of personal and other data, which may impose additional obligations on us, limit our flexibility, or harm our reputation with users.|
|●||We may be subject to existing or new advertising legislation that could restrict the types and relevance of the ads we serve, which would result in a loss of advertisers and therefore a reduction in our revenues.|
|●||Our need to comply with applicable Russian laws and regulations could hamper our ability to offer services that compete effectively with those of our foreign competitors and may adversely affect our business, financial condition and results of operations.|
|●||The competent authorities could determine that we hold a dominant position in one or more of our markets and could impose limitations on our operational flexibility that may adversely affect our business.|
Risks Related to Tax Matters
|●||Some of our counterparties provide limited transparency in their operations, which could subject us to greater scrutiny and potential claims from government authorities.|
|●||Changes in the tax systems in the countries in which we operate, or unpredictable or unforeseen application of existing rules, may materially adversely affect our business, financial condition and results of operations.|
|●||Taxes payable on dividends from our Russian operating subsidiaries to our parent company might not benefit from relief under the Netherlands-Russia tax treaty.|
Risks Related to Ownership of our Class A Shares
|●||The concentration of voting power with our principal shareholders limits your ability to influence corporate matters, while a loss of voting control by our principal shareholders could affect the direction of our company.|
|●||Certain of our directors and shareholders and their affiliates may have interests that are different from, or in addition to, the interests of other Yandex shareholders.|
|●||Our Board of Directors and our priority shareholder have certain approval rights, which may prevent or delay change-of-control transactions.|
|●||We are subject to additional disclosure and compliance requirements under the Moscow Stock Exchange that may conflict with those imposed by the SEC and NASDAQ, and we may experience trade fluctuations based on arbitrage activities.|
Risks for U.S. Holders
|●||We cannot assure you that we will not be classified as a passive foreign investment company for any taxable year, which may result in adverse U.S. federal income tax consequence to U.S. holders.|
|●||Any U.S. or other foreign judgments you may obtain against us may be difficult to enforce against us in Russia or the Netherlands.|
Detailed Overview of Risk Factors
Risks Related to the Current Global Political, Regulatory and Economic Environment
The principal markets in which we operate are generally subject to greater financial, economic, legal and political risks than more developed markets. Such risks may have a material adverse effect on our business, financial condition and results of operations.
Financial, economic, banking, legal and political risks in our markets, or an increase in the perceived risks associated with investing in emerging economies, could dampen foreign investment and adversely affect the economies of the countries in which we operate. For example, the current geopolitical situation, as well as volatility in oil prices (to which the Russian economy is particularly sensitive), may continue to have negative macroeconomic and other effects on the regions in which we operate, including increased volatility in currency values and a weaker overall business environment. In general, the Russian economy has experienced a high degree of volatility in the local currency, periods of high inflation rates and fluctuations in oil prices. Economic conditions continue to be uncertain and future changes may have negative effects on our business.
The value of the Russian ruble has fluctuated significantly in recent periods. Although our revenues and expenses, including our personnel expenses, are both primarily denominated in Russian rubles, we may have to increase our personnel expenses from time to time in order to better compete with other companies that denominate their personnel expenses in currencies which appreciate in relation to the Russian ruble. A major portion of our capital expenditures, primarily for servers and networking equipment, although payable in rubles, is for imported goods and therefore can be materially affected by changes in the value of the ruble. In addition, our expenses related to the development of our business internationally, and, in some cases, for acquisitions, are often denominated in other currencies, including U.S. dollars and Euros. If the Russian ruble were to experience a prolonged and significant decline in value against foreign currencies, we could face material foreign currency exchange exposure, which may materially adversely affect our business, financial condition and results of operations. See “Operating and Financial Review and
Prospects—Quantitative and Qualitative Disclosures About Market Risk”.
We face risks related to health epidemics and related crises, including the ongoing effects of the COVID-19 pandeic.
In recent years, there have been outbreaks of epidemics in various countries throughout the world. The current outbreak of a novel strain of coronavirus that causes COVID-19 has spread rapidly to many parts of the world, including Russia. The epidemic has resulted in quarantines, travel restrictions, and the temporary closure of stores and facilities. In March 2020, the World Health Organization declared COVID-19 a pandemic.
Although some of our businesses, such as FoodTech, Media Services, and E-commerce performed well throughout 2020, others, including ride-hailing and advertising experienced significant pressures, particularly in the second quarter of 2020. While our business and the broader economy have strengthened as the pandemic-related restrictions have been relaxed in the second half of 2020 and into 2021, there is limited visibility on the sustainability and the further dynamic of the recovery across Yandex businesses still depend on the economic impact of the coronavirus pandemic and potential furthe disruptions caused by the health crisis. Depending on the progression of the pandemic, the effectiveness of vaccines and political and social responses to the crisis, the COVID-19 pandemic may continue to have an adverse impact on some of our businesses.
The extent to which the COVID-19 crisis impacts our results in any given period will depend on future developments, which are still uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and its variants, and the actions to contain the virus or treat its impact, among others. These developments may also lead to changes in estimates and assumptions that affect the reported amounts of our assets and liabilities, and actual results could differ from those estimates. A prolonged or intensified disruption to normal economic activity or to our businesses could have a material adverse impact to our financial condition and results of operations.
The adoption and maintenance of international embargo, economic or other sanctions against Russia or certain persons in Russia may have a material adverse effect on our business, financial condition and results of operations.
The United States, the European Union and certain other countries have imposed economic sanctions on certain Russian government officials, private individuals and Russian companies, as well as “sectoral” sanctions affecting specified types of transactions with named participants in certain industries, including named Russian financial institutions, and sanctions that prohibit most commercial activities of U.S. and EU persons in Crimea. In 2019 and 2020, these sanctions were prolonged and extended. There is significant uncertainty regarding the extent or timing of any potential further economic or trade sanctions or the potential easing of such measures, or the impact of the new presidential administration in the United States. Political and economic sanctions may affect the ability or willingness of our international customers to operate in Russia, which could negatively impact our revenue and profitability. Sanctions could also impede our ability to effectively manage our legal entities and operations in and outside of Russia. Although neither our parent company nor any of our operating subsidiaries are targets of U.S. or EU sanctions, our business has been adversely affected from time to time by the impact of sanctions on the broader economy and business climate in Russia.
Since May 2017, Yandex LLC and Yandex.Ukraine LLC, both subsidiaries of Yandex N.V., have been subject to Ukrainian sanctions, which have blocked Ukrainian users from accessing our services and websites. These sanctions, which were extended in 2020 for a further one year, ban all trade operations and require blocking of all assets, including bank accounts.
In January 2018, pursuant to the Countering America’s Adversaries through Sanctions Act of 2017, the U.S. administration presented the U.S. Congress with a report on senior Russian political figures, “oligarchs” and “parastatal” entities. Our founder, executive director and substantial shareholder, Arkady Volozh, is one of nearly 100 persons included in one part of the so called “Kremlin List”, on the basis of his reported net worth. Although we are not aware of any intention on the part of the U.S. government to impose sanctions on Mr. Volozh, if Mr. Volozh were to become a target of sanctions, it could have a material adverse effect on our business. The applicable sanctions rules, or the authoritative interpretation of current rules by the relevant authorities, could change at any time. The potential actions that could be taken by regulators that could affect our business include the following:
We rely on the continued availability, development and maintenance of the internet infrastructure in the countries in which we operate. Any errors, failures or disruption in the products and services provided by third-party providers of our principal internet connections and the equipment critical to our internet properties and services, or any regulatory limitations on the internet in Russia, could materially adversely affect our brand, business, financial condition, and results of operations.
Our success depends on the continued availability, development and maintenance of the internet infrastructure globally and particularly in the countries in which we operate. This includes maintenance of a reliable network backbone with the necessary speed, data capacity and security for providing reliable internet services. Any disruption in the network access provided by third parties or any failure by them to handle current or higher future volumes of use may significantly harm our business. We have experienced and expect to continue to experience interruptions and delays in service from time to time. Furthermore, we depend on hardware and software suppliers for prompt delivery, installation and service of servers and other equipment to deliver our services. Public health concerns or epidemics, such as the recent coronavirus outbreak, may affect the production or delivery capabilities of our suppliers and resulting quarantines or closures could further disrupt our supply chain. The internet infrastructure may also be unable to support the demands placed on it by growing numbers of users and time spent online or increased bandwidth requirements. Government regulation may also limit our access to adequate and reliable internet infrastructure. Any outages or delays resulting from inadequate internet infrastructure or due to problems with our third-party providers or new regulatory requirements could reduce the level of internet usage as well as our ability to provide our services to users, advertisers and network partners, which could materially adversely affect our business, financial condition and results of operations.
The law, which partly came into force in November 2019, introduced tighter regulation of traffic routing in the Russian internet. While it is not entirely clear yet how this regulation will be applied in practice, its implementation, among other things, may lead to a requirement that Russian internet traffic should be routed through Russian communication centers. This could reduce data transfer speed significantly and even result in interruptions and delays of the online services in the Russian internet.
In December 2020, Russia adopted a number of laws applicable to internet governance, including tighter regulation of social networks, restrictions on the placement of publicly available personal data on the internet, prohibitions for information resources to practice censorship in the form of restrictions for distribution of socially significant information by the users of such information resources, and other matters. Significant amendments have been made to the provisions of the Criminal Code of the Russian Federation on users' liability for libel (defamation) on the internet and to the provisions of the Code of Administrative Offenses of the Russian Federation imposing liability for
violating the procedure for the deletion of prohibited information from the internet. The law also establishes administrative fines up to 20% of a company's annual turnover for non-deletion of information by an information resource, if such deletion is required by law. At present, the practice of applying these laws, as well as their impact on our business, is not completely clear. However, they may have a substantial impact on operation of our services.
The principal markets in which we operate offer an uncertain environment for investment and business activity that could have a material adverse effect on the value of our Class A shares, our business, financial condition, and results of operations.
The legal framework in which we operate continues to evolve. The current geopolitical environment could increase the risk of new legislative initiatives that could be seen as protecting a country’s national security and/or limiting foreign influence over the sectors in which we operate. In addition, there can be contradictions between different laws and regulations, and the enforcement of laws can be selective or unpredictable. At the same time, there is sometimes a perceived lack of judicial and prosecutorial independence from political, social and commercial forces. These factors could have a material adverse effect on our Class A shares and our business, financial condition, and results of operations. The fact that we are a high-profile company may heighten these risks.
There has been increased scrutiny in recent periods of technology businesses across the globe. Should our operating environment become more challenging because of a change in the regulation or perception of technology companies, our business, financial condition, and results of operations may be materially and adversely affected.
Around the world, technology companies are operating in an increasingly uncertain and challenging environment, in part due to increased scrutiny from policymakers, regulators and the general public. Such scrutiny has included concerns about business practices, market presence and strategic direction. A number of our competitors, including Google and Facebook, have received scrutiny in different jurisdictions over business practices, including the application of targeted advertising and data processing. Our partner in our Taxi joint venture, Uber, has received scrutiny over labor practices and licensing in many of the jurisdictions in which it operates. Our businesses have also been subject to increasing scrutiny in the markets in which we operate.
As an example, the Russian Federal Antimonopoly Service (FAS) has recently started to apply more invasive remedies to technology companies stipulating in its demands and orders exact changes that market participants should implement into their business processes in order to terminate the alleged violation (in contrast to more general requirements to eliminate the violation of the competition law). For instance, in February 2021 FAS notified Yandex that it finds indications of the abuse of dominance in the way that Yandex demonstrates enriched results in its search engine and required that Yandex undertakes a number of measures to stop the presumed discrimination (including potentially the removal of enriched results that are not fully available for third parties). See also “— The competent authorities could determine that we hold a dominant position in one or more of our markets and could impose limitations on our operational flexibility that may adversely affect our business, financial condition and results of operations”.
Restrictive trade practices in many jurisdictions, including the United States, have also made doing business more difficult for technology companies. For example, governments in a number of jurisdictions have been considering the possibility of excluding Huawei from participating as a supplier in 5G networks based on perceptions of the Chinese government's influence over Huawei. Should our business practices, market presence or strategic direction receive adverse scrutiny or experience increased regulation in any material market in which we operate, we may experience a material adverse effect on our business, financial condition and result of operations.
If existing limitations on foreign ownership were to be extended to our business, or if new limitations were to be adopted, it could materially adversely affect our group and the value of our Class A shares.
Applicable law restricts foreign (non-Russian) ownership or control of companies involved in certain strategically important activities in Russia as well as companies that are classified as "mass media" businesses. Currently, technology, the internet and online advertising are not industries specifically covered by this legislation, but proposals have from time to time been considered by the Russian government and the State Duma, which, if adopted, would impose foreign ownership or control restrictions on certain large technology or internet companies.
In 2018 draft legislation that would restrict foreign ownership of news aggregators was introduced. The draft legislation is broadly worded and, if adopted, might be applied to Yandex.News and other services. At this time, we
cannot anticipate if the draft legislation will be adopted or, if it is adopted, whether such restrictions will be applied to us. See also “Item 4. Government Regulation”.
Further, a draft law was proposed in mid-2019, for example, that was aimed at restricting foreign ownership of “significant” internet companies, which, if adopted, could have been applied to Yandex. A number of parties, including representatives of the Russian government, identified concerns with the draft law, and the proposal was withdrawn in November 2019.
Another draft law was submitted to the State Duma in December 2020 that is aimed at prohibiting foreign ownership in excess of 20% of a Russian audiovisual service, including online video streaming services. If such a law were to be adopted and would be applicable to Yandex, then we may be required to restructure certain of our services, such as KinoPoisk, which could fall under the definition.
We have also recently obtained an encryption license for our Yandex.Cloud service in order to expand this business. Therefore, the restrictions imposed by the strategic enterprises law have become applicable to Yandex as a whole. In particular, a third-party non-Russian investor would be required to obtain prior approval from the competent Russian authority in some cases if it seeks to acquire more than 25% of the voting power in Yandex or seeks to enter into an agreement that would establish direct or indirect control over Yandex. Such investors would also be required to notify the competent Russian authority if it acquires more than 5% of the voting power in Yandex. In addition, foreign states and international organizations, or entities controlled by them, are prohibited from entering into agreements to establish direct or indirect control over Yandex.
Notwithstanding the restructuring of our corporate governance approved in December 2019, we cannot assure you that new legislation restricting foreign ownership or control will not be proposed and adopted. Any new restrictions on non-Russian ownership or control could require us to take significant steps to modify our operating, corporate governance or ownership structure, which could have a material adverse effect on our operations, or the value of our Class A shares. See also “Item 4. Information on the Company – Governance Structure”.
Risks Related to Our Governance Structure
Although we implemented a restructuring of our corporate governance at the end of 2019, we may not be compliant with any legislation limiting foreign ownership or control in our sector that might ultimately be adopted. Any such non-compliance could have a material adverse effect on our business, financial condition, results of operations and cash flows, as well as on the trading price of our Class A Shares.
Even following our corporate governance restructuring adopted in late 2019, we cannot assure you that our business will not become subject to new legislation that might ultimately be adopted with the goal of limiting foreign ownership or control of businesses in our sector. If our business becomes subject to, and is found not to be compliant with, any such legislation, we cannot assure you that enforcement actions against Yandex or our business by the Russian authorities will not be imposed. The imposition of such enforcement actions could have a material adverse effect on our business, financial condition, results of operations and cash flows, as well as on the trading price of our Class A Shares. In addition, in the event that any such new restrictions are adopted, or if there is a perception that such restrictions might be forthcoming, our Board may determine that additional changes in our corporate governance structure are warranted in order to respond to such concerns and to protect the interests of our stakeholders. See also “Item 4. Information on the Company – Governance Structure”.
The Public Interest Foundation that was formed in connection with our corporate governance restructuring has important rights in our corporate governance structure. These rights could be exercised in a manner that is different from what we expect or that is not in the interests of our Class A shareholders.
The Public Interest Foundation has limited and targeted rights, through the powers associated with its holding of the Priority Share in Yandex N.V. and a so-called “Special Voting Interest” in Yandex LLC. The board of the Public Interest Foundation, as well as the designated directors on the Yandex N.V. board and any interim General Director of Yandex LLC appointed by the Foundation in the circumstances set out in the charter of Yandex LLC, may take actions, however, that are not in the interests of our stakeholders, including our Class A shareholders, or decline to approve actions that would be in the interests of our Class A shareholders. These actions could include exercising the veto right over the nomination of four members of our Board in such a way as to prevent the nomination of persons whom the
other members of our Nominating Committee and Board believe would best serve the interests of our company and our shareholders. Moreover, these directors, together with the two designated directors, could act in a manner that results in Board deadlocks on material matters, such as budget approvals, that restrict our flexibility or ability to operate. Further, if the Public Interest Foundation exercised its right to use the Special Voting Interest in Yandex LLC in a manner that is inconsistent with our expectations, or if it did so repeatedly, it could disrupt our operations and materially adversely affect the public perception of our business. Any such actions could have a material adverse effect on our business, financial condition and results of operations and cash flows, as well as on the trading price of our Class A Shares. The impact and perception of such actions could also make it difficult or impossible for us to access the public capital markets going forward.
In addition, the Russian legislative framework under which the Public Interest Foundation was incorporated is relatively new and there has been very limited experience with such legal form in practice. We may therefore face novel issues in connection with the untested mechanics of the Foundation legislation and supporting regulations.
See also “Item 4. Information on the Company – Governance Structure”.
The restructuring carried out at the end of 2019 introduced new elements of our corporate governance with which we previously had no experience, and the rights granted may be exercised in unexpected ways.
Although our restructuring was designed to provide targeted and specific governance rights, some of these rights are not precisely defined. For instance, what may constitute a “Special Situation” is not defined, although it is our understanding, based on our discussions with the relevant authorities, that such “Special Situations”, if they ever arose, would relate to an action, failure to act or practice by Yandex that was deemed to be materially adverse to the national security interest of Russian Federation. However, it is possible that the Foundation, by approval of at least seven of its directors, may interpret the scope of national security broadly and determine that there is a Special Situation in circumstances that we cannot foresee or reasonably consider to be related to the national security. It is possible that the powers granted to the Public Interest Foundation, the designated directors, the Public Interest Committee and any interim General Director may be exercised in unexpected ways, which may be adverse to the interests of Class A Shareholders and result in a decline in the trading price of our Class A Shares. See also “Item 4. Information on the Company – Governance Structure”.
Risks Related to Our Business and Industry
We face significant competition from major global and local companies, including Google, Mail.ru and Sberbank, which could negatively affect our business, financial condition and results of operations. If our competitors start to more rapidly develop their technologies, we may need to increase R&D investments to defend our market share.
We face strong competition in various aspects of our business from global and Russian companies that provide internet services and content, including search, ride-hailing and e-commerce services. Currently, we consider our principal competitors across our key verticals to be Google, Mail.ru, Facebook and Sberbank.
Of the large global internet companies, we consider Google to be our principal competitor in a number of areas, including the market for desktop and mobile internet search, the market for performance-based advertising, online advertising network revenues, advertising intermediary services and distribution arrangements. According to Yandex.Radar, Google’s share of the Russian search market, based on search traffic generated, was 38.6% for the full year 2020 and 40.1% in 2019, compared with our market share of 59.2% in 2020, 57.0% in 2019 and 56.3% in 2018. Google conducts extensive online and offline advertising campaigns in Russia. In recent years, Google has actively marketed its products and services, including its mobile and voice search, YouTube (currently the leading social platform in Russia by audience and time spend), and advertising products for businesses, leading to increased competition.
With Android, its popular mobile platform, Google exerts significant influence over the increasingly important market for mobile and location-based search and advertising. Pursuant to a settlement between FAS and Google reached in April 2017, Google is prohibited from arrangements prohibiting pre-installation of rival applications and is required to provide a choice to users in selecting their default search engine in Russia. Following this settlement, our search share on the Android platform increased in 2018, 2019 and 2020. Nevertheless, we expect that Google will continue to use its brand recognition and global financial and engineering resources to compete aggressively with us, and can provide no
assurance that Google is fully complying or will fully comply with the settlement.
We also view a number of social networking sites (VK, Facebook, Instagram, TikTok, YouTube and others) as increasingly significant competitors. In light of their large audiences and the significant amount of information they can access and analyze regarding their users’ needs, interests and habits, we believe that they may be able to create increased competition for us. The popularity of such sites may also reflect a growing shift in the way in which people find information, get answers and buy products, which may create additional competition to attract users.
On the domestic side, our principal competitor is Mail.ru Group. We compete with Mail.ru Group for online advertising budgets, allocated between social networks and search. Mail.ru Group also offers a wide range of internet services, including the most popular Russian web mail, and other services that are comparable to ours. Mail.ru’s search market share was 1.6% and 1.1% in 2019 and 2020, respectively. In addition, in August 2020 Mail.ru announced the expansion of the scope of its O2O joint venture with Sberbank, pursuant to which Sberbank and Mail.ru provided an additional RUB 12 billion of capital to grow the joint venture, including the recently acquired 2GIS mapping service and the Samokat express e-grocery delivery unit. The joint venture is focused on the expansion of food delivery (where our FoodTech business competes with Mail.ru Group’s Delivery Club service), ride-hailing (where our Yandex.Taxi business competes with Citymobil) and other services.
Our Taxi business, which is a joint venture with Uber which we completed in February 2018, also faces competition from Citymobil and a variety of other ride-hailing (Didi, regional offline players etc.), food delivery operators and dispatch services (Delivery Club, Samokat,Vprok, Okolo, SberMarket etc.) and car-sharing services (Delimobil, BelkaCar, etc.). We may also face new competitors given attractive long-term potential of the ride-hailing and food delivery.
Yandex.Market faces competition from online retailers and marketplaces, including Wildberries, Ozon, AliExpress Russia (operated through a JV between Mail.ru, MegaFon, RDIF, and Alibaba) and others. We understand that Sberbank has announced plans to expand its digital ecosystem, with a high focus on developing e-commerce platform on the basis of their Sbermarket (grocery delivery service) and recently announced partnership to develop marketplace goods.ru together with M.Video.
In addition, our other business units, including Media Services, Classifieds, and Cloud, face significant competition in their respective business areas.
On the Media Services front, our KinoPoisk service faces competition from ivi, Okko (operated by Rambler Group, which is now owned by Sberbank), Netflix and other online cinemas, while Yandex Music competes with VK Music and Boom (both operated by Mail.ru), Apple Music, and Spotify (entered the Russian market in 2020).
Our Classifieds business faces competition from a range of online and offline classified services, including Avito (in real estate, automobile sales, and general classifieds), CIAN (in real estate), and Drom (in automobile sales). Our public cloud platform competes with a number of international and local services, such as Microsoft Azure, Google Cloud, Amazon Web Services, Rostelecom, Sberbank, Mail.ru.
We cannot guarantee you that we will be able to continue to compete effectively with current and future companies that may have greater ability to attract and retain users, greater brand recognition, more personnel and greater financial and other resources. If our competitors are successful in providing similar or better search results or other services compared with those we offer, we could experience a significant decline in user traffic or other business. Any such decline could negatively affect our business, financial condition and results of operations.
We may experience slowdown of our online advertising revenue growth and downward pressure on our operating margin.
The rate of growth of our online advertising revenues may slow down over time as a result of a number of factors, including continuing macroeconomic challenges in Russia, increasing competition, changes in the nature of queries, the evolution of the overall online advertising market, the declining rate of growth in the number of internet users in Russia as overall internet penetration increases and the COVID-19 pandemic. A slower growth rate of our online advertising revenue growth may negatively impact the rate of growth of our revenues on a consolidated basis. The macroeconomic factors, competition, COVID-19 pandemic and other factors may also impact the dynamic of our
revenue growth in non-advertising businesses.
The key factors which may cause the volatility of our operating margin including:
|●||changes in the proportion of our advertising revenues that we derive from the Yandex Advertising Network compared with our own websites. In periods in which our Yandex Advertising Network revenues grow more rapidly than those from our own sites, our operating margin generally declines because the operating margin we realize on revenues generated from partner websites is significantly lower than the operating margin generated from our own websites, as a result of traffic acquisition costs (TAC) that we pay to our partner websites. Over the past several years our partner TAC was above 50% of our online advertising network revenues. The margin we earn on revenue generated from the Yandex Advertising Network could also decrease in the future if we are required to share with our partners a greater percentage of the advertising fees generated through their websites;|
|●||investments we make in our businesses, in particular e-commerce, our experimental businesses within Other Bets and Experiments (primarily Self-Driving Group and Cloud), investment in our food delivery business and logistics within Taxi segment, and investments in content in Media Services, as well as our initiatives related to the Internet of Things;|
|●||increased depreciation and amortization expense related to capital expenditures for many aspects of our business, particularly the expansion of our data centers to support growth in both our current and new markets;|
|●||relatively higher spending on advertising and marketing to further enhance our brand and promote our services in Russia, to build and expand brand awareness in other countries where we operate and to respond to competitive pressures, if these efforts do not drive revenue growth in the manner we anticipate;|
|●||expenses in connection with the launch of new products and related advertising and marketing efforts, which may not result in the anticipated increase in revenues or market share;|
|●||the possibility of higher fees or revenue sharing arrangements with our distribution partners that distribute our products or services or otherwise direct search queries to us. We expect to continue to expand the number of our distribution relationships in order to increase our user base and to make it easier for our existing users to access our services;|
|●||costs incurred in our international expansion efforts until we succeed in building the user base necessary to begin generating sufficient revenues in these markets to earn accretive operating margins there; and|
|●||increased costs associated with the creation, support and maintenance of mobile products and services to maintain and expand our offering and competitive market position, which may not result in the anticipated increases in revenues or market share.|
As the Russian internet market matures, our future expansion will increasingly depend on our ability to generate revenues from new businesses, from new business models or in other markets. If we do not continue to innovate and provide services that are useful and attractive to our users, we may be unable to retain them and may become less attractive to our advertisers, which could adversely affect our business, financial condition and results of operations.
As internet usage has spread in Russia, the rate of growth in the number of internet users has been declining. Our success in our core business depends on providing search and other services that make using the internet a more useful and enjoyable experience for our users. As search technology continues to develop, our competitors may be able to offer search capabilities that are, or that are seen to be, substantially similar to, or better than ours. As our core market matures, we will need to provide new services, further exploit non-core business models, such as our Taxi, Classifieds, Media Services and Market business units, or expand into new geographic markets, in order to continue to grow our revenues at previously achieved levels. The cost we incur in these efforts, both in terms of product development expenses and advertising and marketing costs, could be significant.
If we are unable to continue to develop and provide our users with high-quality, up-to-date services, and to appropriately time the services with market opportunities, or if we are unable to maintain the quality of such services, our user base may not grow, or may decline. Further, if we are unable to attract and retain a substantial share of internet traffic generated by mobile and other digital devices, or if we are slow to develop services and technologies that are compatible with such devices, our user base may not grow or may decline.
If our users move to our competitors, we will also become less attractive to advertisers and therefore to Yandex Advertising Network partners. This could adversely affect our business, financial condition and results of operations.
The competition to capture market share on mobile devices is intense, and if we are not successful in maintaining substantial reach among users and monetizing search and other services on mobile devices, our business, financial condition and results of operations could be adversely affected.
Users are increasingly accessing the internet through mobile and other devices rather than desktop and laptop personal computers, including through smartphones, wearable devices, and handheld computers such as tablets, as well as through video game consoles, smart TVs and television set-top devices. Such devices have different characteristics than desktop and laptop personal computers (including screen size, operating system, user interface and use patterns). Tailoring our products and services to such devices requires particular expertise and the expenditure of significant resources. The versions of our products and services developed for these devices, including the advertising solutions we offer, may be or become less attractive to users, advertisers, manufacturers or distributors of devices than those offered by our competitors or than our desktop offerings. The percentage of our total search traffic that was generated from mobile devices increased from approximately 58% in the fourth quarter of 2019 to approximately 60.5% in the fourth quarter of 2020, while the percentage of our search revenues generated from mobile devices increased from approximately 49% to approximately 53.3% between those periods.
Each manufacturer or distributor of mobile or other devices may establish unique technical standards for its devices, and as a result our products and services may not work or be viewable on these devices. Some manufacturers may also elect not to include our products on their devices, or may be prohibited from doing so pursuant to their agreements with other parties with respect to Android. Although Google is prohibited from arrangements restricting pre-installation of rival applications and is required to provide a choice to users in selecting their default search engine in Russia, it is difficult to anticipate the long-term effects of such changes on our market shares in its Chrome browser and Chrome widget. In addition, consumers are increasingly accessing content directly via applications, or “apps”, tailored to particular mobile devices or in closed social media platforms, which could affect our share of the search market over time. As new devices and platforms are continually being released, it is difficult to predict the challenges we may encounter in adapting our products and services and developing competitive new products and services. See also “As the internet evolves, an increasing amount of online content may be held in closed social networks, mobile apps or proprietary document formats, which may limit the effectiveness of our search technology, which could adversely affect our brand, business, financial condition and results of operations.”
We expect to continue to devote significant resources to the creation, support and maintenance of mobile products and services for all major operating systems including Android and iOS. If we are unable to attract and retain a substantial number of device manufacturers, distributors and users to our products and services, or if we are slow to develop products and technologies that are compatible with such devices and platforms, we will fail to capture the opportunities available due to consumers’ and advertisers’ transition to a dynamic, multi-screen environment. Furthermore, given the importance to the successful operation of our business of distribution and application pre-installation arrangements with the most popular device manufacturers, failure to reach such arrangements may adversely affect our business, financial condition and results of operations.
We generate a substantial part of our revenues from advertising, which is cyclical and seasonal in nature, and any reduction in spending by or loss of advertisers would materially adversely affect our business, financial condition, and results of operations.
In the past several years, we continued to diversify our business, and as a result the share of our revenues generated from advertising has declined from 80% in 2018 to 58% in 2020. Nevertheless, advertising still remains the largest business for Yandex and the biggest contributor to our group revenue and operating profit. Expenditures by advertisers tend to be cyclical, reflecting the overall economic conditions and budgeting and buying patterns, and can therefore fluctuate significantly. According to AKAR, the rate of growth in online advertising expenditures was 4% in
2020, compared to 20% in 2019 and 22% in 2018. Any decreases in online advertising spending due to economic conditions, or other reasons, could materially adversely impact our business, financial condition and results of operations.
Advertising spending and user traffic also tend to be seasonal, with internet usage, advertising expenditures and traffic historically slowing down during the months, when there are extended Russian public holidays and vacations, and increasing significantly in the fourth quarter of each year. For these reasons, comparing our results of operations on a period-to-period basis may not be meaningful, and past results should not be relied upon as an indication of future performance. Furthermore, as our business becomes more diversified, seasonal changes may have different effects on various lines of business.
Any decline in the internet as a significant advertising platform in the countries in which we operate could have a material adverse effect on our business, financial condition and results of operations.
We have significantly diversified our revenue streams in the recent years; however, the sale of online advertising in Russia still accounts for a sizeable portion of our overall revenue. Although the use of the internet as a marketing channel in Russia is already mature, the internet continues competing with traditional advertising media, such as television, print, radio and outdoor advertising. Although advertisers have become more familiar with online advertising in recent years, some of our current and potential customers still have limited experience with online advertising and have not historically devoted a significant portion of their marketing budgets to online marketing and promotion. As a result, they may be less inclined to consider the internet effective in promoting their products and services compared with traditional media.
Any decline in the appeal of the internet generally in Russia or the other countries in which we operate, whether as a result of increasing governmental regulation of the internet, the growth in popularity of other forms of media, a decline in the attractiveness of the internet as an advertising medium or any other factor, could have a material adverse effect on our business, financial condition and results of operations.
Several of our businesses operate through joint ventures with third parties, which involves risks that we do not face with respect to our core business.
Our Yandex.Taxi business operate as joint ventures with Uber, and Uber has a significant minority stake in our Self-Driving Group. We have from time to time entered into joint ventures with other partners in respect of other businesses. Our partners have or may have certain shareholder and contractual rights in respect of the management of these joint ventures, and therefore we may not have sole control over the management or operations of our joint ventures. The level of control exercisable by us depends on the size of our interest and the terms of the contractual agreements, in particular, the allocation of control among, and continued cooperation between, the participants.
We may face financial, reputational and other exposure (including regulatory actions) in the event that any of our partners fail to meet their obligations under the arrangements, encounter financial difficulty, or fail to comply with local or international regulation and standards. A temporary or permanent disruption to these arrangements, such as through significant deterioration in the reputation, financial position or other circumstances of the third party or material failure in controls, could adversely affect our results of operations.
The formation and operation of joint ventures and other partnerships involve significant challenges and risks, including:
|●||difficulties in integrating operations and managing the large and diverse number of personnel, products, services, technology, internal controls and financial reporting of constituent components of our joint ventures and other partnerships, and any unanticipated expenses relating to business integration;|
|●||disruption of our ongoing business, distraction of our management and employees and increase of our expenses;|
|●||departure of skilled professionals as well as the loss of established client relationships of the businesses we invest in or acquire;|
|●||unforeseen or hidden liabilities or additional operating losses, costs and expenses that may adversely affect us following the transactions;|
|●||potential impairment charges or write-offs due to changes in the fair value of our business units as a result of market volatility or other reasons that we may not control which could have a material adverse effect on our financial results;|
|●||regulatory hurdles including in relation to the antimonopoly and competition laws;|
|●||the risk that any future proposed transaction fails to close, including as a result of political and regulatory challenges and protectionist policies; and|
|●||challenges in maintaining or further growing our business units, or achieving the expected benefits of synergies and growth opportunities in connection with these transactions.|
Additionally, if we or one of our joint venture or other partners fail to maintain and enhance the Yandex brand, or if we incur excessive expenses in our efforts to do so, our business, financial condition and results of operations could be materially adversely affected.
We rely on partners for a material portion of our revenues and, in particular, for expanding our user base via distribution arrangements. Any failure to obtain or maintain such relationships on reasonable terms could have an adverse effect on our business, financial condition and results of operations.
Revenues from advertising on our Advertising Network partner websites represented 16.8% of our online advertising revenues in 2020 compared with 20.8% in 2019. We consider our ad partner network to be important for the continued growth of our business. Our agreements with our network partners are generally terminable at any time without cause. Our competitors could offer more favorable terms to our current or potential network partners, including guaranteed minimum revenues or other more advantageous revenue-sharing arrangements, in an effort to take market share away from us. If our network partners decide to use a competitor’s advertising services, our revenues would decline.
The number of paid clicks and amount of revenues that we derive from our partners in the Yandex Advertising Network depends on, among other factors, the quality of their websites and their attractiveness to users and advertisers. Although we screen new applicants, favor websites with high-quality content and stable audiences, and strive to monitor the quality of the network partner websites on an ongoing basis, these websites are operated by independent third parties that we do not control. If our network partners’ websites deteriorate in quality or otherwise fail to provide interesting and relevant content and services to their users, this may result in reduced attractiveness to their users and our advertisers, which may adversely impact our business, financial condition and results of operations.
To expand our user base and increase traffic to our sites and mobile applications, we enter into arrangements with leading software companies and device manufacturers for the distribution of our services and technology. In particular, we have agreements, on a co-marketing basis, with certain internet browsers. As new methods for accessing the internet become available, including through new digital platforms and devices, we may need to enter into new or amended distribution agreements. See also “—The competition to capture market share on mobile devices is intense, and if we are not successful in maintaining substantial reach among users and monetizing search and other services on mobile devices, our business, financial condition and results of operations could be adversely affected.”
Our most significant distribution partners in 2020 were Samsung, Xiaomi, and Opera, which preinstall our applications on their devices in Russia and/or on their mobile and desktop browsers. Original equipment manufacturers (Samsung and Xiaomi) have become increasingly important partners due to mobile traffic growth over the last few years. Each of our other distribution partners constitutes less than 11% of our total distribution traffic acquisition costs. If we are unable to continue our arrangements with current key distribution partners, or maintain existing or enter into comparable arrangements with new distribution partners, particularly for the distribution of our search and other services on mobile devices, this would likely have a negative effect on our search market share over time. In the future, existing and potential distribution partners may not offer or renew distribution arrangements on reasonable terms for us, or at all, which could limit our ability to maintain and expand our user base, and could have a material adverse effect on our
business, financial condition and results of operations.
Our business units and joint ventures face comparable risks. For example, if we are unable to attract or maintain a critical mass of Taxi partners, consumers, couriers, restaurants, grocery stores, whether as a result of competition or other factors, our ride-hailing and food delivery services could become less appealing to users, and our financial results could be adversely impacted.
Our business (in particular, Search and Portal and Media Services) depends on our ability to license, acquire or create compelling content at reasonable costs. Failure to offer compelling content would harm our ability to expand our base of users, advertisers and network partners.
We license much of our content from third parties, such as video content, music, news items, weather reports and TV program schedules. If we are unable to maintain and build relationships with third-party content providers, this would likely result in a loss of user traffic. In addition, we may be required to make substantial payments to third parties from whom we license or acquire such content. An increase in the prices charged to us by third-party content providers would adversely affect our business, financial condition and results of operations. In addition, many of our content licenses with third parties are non-exclusive. Accordingly, other websites and streaming platforms, as well as other media such as television, may be able to offer similar or identical content. If other companies make available competitive content, the number of users of our services may not grow as anticipated, or may decline. This increases the importance of our ability to aggregate compelling content in order to differentiate Yandex from other businesses.
Our business benefits from a strong brand. Failure to maintain and enhance our brand would materially adversely affect our business, financial condition and result of operations.
We believe that the brand identity that we have developed through the strength of our technology, our user focus, our independence from political considerations and, in particular, our ability to deliver relevant answers and recommendations, has significantly contributed to the success of our business. We also believe that maintaining and enhancing the Yandex brand, including through continued significant marketing efforts, is critical to expanding our base of users, advertisers, advertising network partners, and other business partners. We have also from time to time established joint ventures or other partnerships with respect to some of our business units. Although we have sought to implement appropriate controls and protections, depending on specific terms of joint venture or partnership arrangements we may have more limited ability to ensure that these businesses are operated in a manner that is consistent with the broader Yandex brand.
Maintaining and enhancing our brand, especially in relation to mobile services, will depend largely on our ability to continue to be a technology leader and a provider of high-quality, reliable services, which we may not continue to do successfully.
If we fail to manage effectively the growth and increasing complexity of our operations, our business, financial condition and results of operations could be adversely affected.
We have experienced, and continue to experience, growth in and diversification of our operations, which has placed, and will continue to place, significant demands on our management and our operational and financial infrastructure.
We operate certain of our services through separate business units in order to facilitate the growth of those services. Management of these separate business units, some of which now operate or have operated as joint ventures with third-party partners, requires additional administrative effort, which may put strain on our management and other resources. If we do not effectively manage our growth and the operation of our business units, the quality of our services could suffer, which could adversely affect our brand, business, financial condition and results of operations.
As our user and advertiser bases expand, we will need to continue to increase our investment in technology, infrastructure, facilities and other areas of operations, in particular product development, sales and marketing. As a result of such growth, we will also need to continue to improve our operational and financial systems and managerial controls and procedures. We will have to maintain close coordination among our technical, accounting, finance, marketing and sales personnel. If the improvements are not implemented successfully, our ability to manage our growth will be impaired and we may have to make significant additional expenditures, which could harm our business, financial
condition and results of operations.
Growth in our operations internationally may create increased risks that could adversely affect our business, financial condition and results of operations.
We have limited experience with operations outside Russia, and in 2020 derived only approximately 6.5% of our revenues from international markets. Part of our future growth strategy is to expand our operations geographically on an opportunistic basis. Our ability to manage our business and conduct our operations across a broader range of geographies will require considerable management attention and resources and is subject to a number of risks relating to international markets, including the following:
|●||challenges caused by distance, language and cultural differences;|
|●||managing our relationships with local partners should we choose to adopt a joint venture approach in our international expansion efforts;|
|●||credit risk and higher levels of payment fraud in certain countries;|
|●||pressure on our operating margins as we invest to support our expansion;|
|●||currency exchange rate fluctuations and our ability to manage our currency exposure;|
|●||foreign exchange controls that might prevent us from repatriating cash earned in certain countries;|
|●||legal risks, including potential of claims for infringement of intellectual property and uncertainty regarding liability for online services and content, and data processing regulations;|
|●||adoption of new legislation and regulations, which may adversely impact our operations or may be applied in an unpredictable manner;|
|●||potentially adverse tax consequences;|
|●||significant changes in political environment;|
|●||unexpected changes in preferences and perceptions of our users and customers; and|
|●||higher costs and greater management time associated with doing business internationally.|
In addition, compliance with complex and potentially conflicting foreign and Russian laws and regulations that apply to our international operations may increase our cost of doing business and may interfere with our ability to offer, or prevent us from offering, our services in one or more countries. These numerous laws and regulations include import and export requirements, content requirements, trade restrictions, tax laws, economic sanctions, internal and disclosure control rules, data protection, data retention, privacy and filtering requirements, labor relations laws, U.S. laws, such as the Foreign Corrupt Practices Act, and local laws prohibiting corrupt payments to governmental officials. Violations of these laws and regulations may result in fines; criminal sanctions against us, our officers, or our employees; prohibitions on the conduct of our business; and damage to our reputation. Although we have implemented policies and procedures designed to ensure compliance with these laws, we cannot assure you that our employees, contractors or agents will not violate our policies. Any such violations may result in prohibitions on our ability to offer our services in one or more countries, and may also materially adversely affect our reputation, our brand, our international expansion efforts, our ability to attract and retain employees, and our business, financial condition and results of operations.
Our corporate culture has contributed to our success, and if we cannot maintain the focus on teamwork and innovation fostered by this environment, our business, financial condition and results of operations would be adversely affected.
We believe that a critical contributor to our success has been our corporate culture, which values and fosters teamwork and innovation. As our business matures and diversifies, and we are required to implement more complex organizational management structures, including those introduced in connection with our recently implemented corporate governance changes, we may find it increasingly difficult to maintain the beneficial aspects of our corporate culture. We operate a number of our services through separate business units, in order in part to maintain the “start-up spirit” and provide greater strategic and operational focus for these units. We also operate or have previously operated several of our business units as joint ventures with other parties and may establish new joint ventures in future. In such situations our efforts in maintaining our corporate culture may not be successful, which would adversely affect our business, financial condition and results of operations. In particular, the spin-off of certain business units or further establishment of joint ventures and partnerships may cause the loss of some of our clients or users, or disruption in the provision of the services that are being carved out, and may require additional attention from our management.
The loss of any of our key personnel, or a failure to attract, retain and motivate qualified personnel, may have a material adverse effect on our business, financial condition and results of operations.
Our success depends in large part upon the continued service of key members of our management team and technical personnel, as well as our continued ability to attract, retain and motivate other highly qualified engineering, programming, technical, sales, customer support, financial and managerial personnel.
Although we attempt to structure employee compensation packages in a manner consistent with the evolving standards of the markets in which we operate and to provide incentives to remain with Yandex, including equity awards under our employee incentive plans, we cannot guarantee that we will be able to retain our key employees. Although we grant additional equity awards to management personnel and other key employees from time to time, employees may be more likely to leave us after their initial awards fully vest. Decline of the market value of our shares could also make such equity awards less effective in retaining our key employees. If any member of our senior management team or other key personnel should leave our group, our ability to successfully operate our business and execute our business strategy could be impaired. We may also have to incur significant costs in identifying, hiring, training and retaining replacements for departing employees.
The competition for software engineers and qualified personnel who are familiar with the internet industry in Russia is intense. We may encounter difficulty in hiring and/or retaining highly talented software engineers to develop and maintain our services. There is also significant competition for personnel who are knowledgeable about the accounting and legal requirements related to a NASDAQ listing, and we may encounter difficulty in hiring and/or retaining appropriate financial staff needed to enable us to continue to comply with the internal control requirements under the Sarbanes-Oxley Act and related regulations. Any inability to successfully retain key employees and manage our personnel needs may have a material adverse effect on our business, financial condition and results of operations.
If our security measures are breached, malicious applications interfere with or exploit security flaws in our services, or our services are subject to attacks that degrade or deny the ability of users to access our products and services, our products and services may be perceived as not being secure, users and customers may curtail or stop using our products and services, and we may incur significant legal and financial exposure.
Third parties have in the past attempted, and may in the future attempt, to use malicious applications to interfere with our services and may disrupt our ability to connect with our users. Such interference often occurs without disclosure to or consent from users, resulting in a negative experience that users may associate with Yandex. Such an attack could also lead to the destruction or theft of information, potentially including confidential or proprietary information relating to Yandex’s intellectual property, content and users. For example, if a third party were to hack into our network, they could obtain access to our search code or to user data. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or implement adequate preventative measures. If an actual or perceived breach of our security occurs, the market perception of the effectiveness of our security measures could be harmed and we could lose users and customers.
Although we maintain substantial security measures, such measures may also be breached due to employee error, malfeasance, system errors or vulnerabilities, fraudulent actions of outside parties, or otherwise. For example, in February 2021 we announced that a data breach had been discovered during routine screening by our security team, in which an employee had provided unauthorized access to users’ accounts for personal gain. Such security breaches may
expose us to a risk of loss of company information or user data, litigation, remediation costs, increased costs for security measures, loss of revenue, damage to our reputation, and potential liability.
In addition, we offer applications and services that our users download to their devices or that they rely on to store information and transmit information to others over the internet. These services are subject to attack by viruses, worms and other malicious software programs, which could jeopardize the security of information stored in a user’s device or in our computer systems and networks. These applications may be difficult to remove or disable, may reinstall themselves and may circumvent other applications’ efforts to block or remove them. If our efforts to combat these malicious applications are unsuccessful, or if our services have actual or perceived vulnerabilities, our reputation may be harmed, our user traffic could decline, and our communications with certain users could be impaired, which could adversely affect our business, financial condition and results of operations.
Our business depends on the accuracy and reliability of our search results and dependability of our ride-hailing, food delivery, e-commerce, streaming and other services. A systems failure, technical interference or human error could prevent us from providing accurate search results or ads or reliably deliver our other services, which could lead to a loss of users and advertisers and damage our reputation and materially adversely affect our business, financial condition and results of operations.
Our business depends on our ability to provide accurate and reliable search results and other user services, which may be disrupted. For example, because our search technology ranks a webpage’s relevance based in part on the importance of the websites that link to it, people have attempted to link groups of websites together to manipulate search results. If our efforts to combat these and other types of “index spamming” are unsuccessful, our reputation for delivering relevant results could be harmed. This could result in a decline in user traffic, which may adversely affect our business, financial condition and results of operations.
We seek to ensure the speed and reliability of our services regardless of the user’s location by operating our own Content Delivery Network (CDN) in points of presence in major cities throughout Russia and other countries in which we operate. This network allows us to support reliable 24/7 operations, including server-based computations, research and development work, and user and advertiser services. We use proprietary computer architecture to link these clusters of servers, as well as proprietary computational software that operates across these distributed servers, including software that enables us to deploy and monitor software across our systems. This allows us to use relatively inexpensive off-the-shelf servers as the foundation of our robust and effective systems for redundant, distributed data storage, retrieval and distributed calculations. Geographic distribution of our servers increases the access speed for our services and increases the stability and dependability of our service offerings. This structure provides redundant fail-safe capacity such that the failure of a single facility would not cause our websites to stop functioning.
Nevertheless, although we maintain robust network security measures, our systems are potentially vulnerable to damage or interruption from terrorist attacks, denial-of-service attacks, computer viruses or other cyber-attacks or attempts to harm our system, power losses, telecommunications failures, floods, fires, extreme weather conditions, earthquakes and similar events. Our data centers are also potentially subject to break-ins, sabotage and intentional acts of vandalism, and to potential disruptions. The occurrence of a natural disaster or other unanticipated problems at our data centers could result in lengthy interruptions in our service, or a pandemic or an outbreak of disease or similar public health concern, such as the recent coronavirus outbreak, or fear of such an event, could result in reduced customer traffic and consumer spending or labor shortages and delays in manufacturing and shipment of products. In each case, such events which could reduce our revenues and profits, and our brand could be damaged if people believe our services are unreliable.
From time to time, we have experienced power outages that have interrupted access to our services and impacted the functioning of our internal systems. Although we maintain back-up generators, these may not operate properly through a major sustained power outage or their fuel supply could be inadequate. Any unscheduled interruption in our services places a burden on our entire organization and would result in an immediate loss of revenue. If we experience frequent or persistent system failures on our websites, our reputation and brand could be permanently harmed. The steps we have taken to increase the reliability and redundancy of our systems are expensive, reduce our operating margin and may be insufficient to reduce the frequency or duration of unscheduled downtime.
Although we test software updates before implementation and there were no significant downtime periods in recent years, errors made by our employees in maintaining or expanding our systems may damage our brand and may
have a materially adverse effect on our business, financial condition and results of operations.
We may not be able to prevent others from unauthorized use of our intellectual property rights, which may adversely affect our competitive position, our business, financial condition and results of operations.
We rely on a combination of patents, trademarks, trade secrets and copyrights, as well as nondisclosure agreements, to protect our intellectual property rights. Our patent department is responsible for developing and implementing our group-wide patent protection strategy in selected jurisdictions, and to date we have filed more than 950 patent applications, of which more than 600 have resulted in issued patents. The protection and enforcement of intellectual property rights in Russia and other markets in which we operate, however, may not be as effective as that in the United States or Western Europe. Also, the efforts we have taken to protect our proprietary rights may not be sufficient or effective. Any significant infringement of our intellectual property rights could harm our business, our brand and/or our ability to compete, all of which could adversely affect our competitive position, our business, financial condition and results of operations.
We may be subject to intellectual property infringement claims, which are costly to defend, could result in significant damage awards, and could limit our ability to provide certain content or use certain technologies in the future.
A number of internet, technology, media and patent-holding companies own or are actively developing patents covering search, indexing, electronic commerce and other internet-related technologies, as well as a variety of online business models and methods. We believe that these parties will continue to take steps to protect these technologies, including, but not limited to, seeking patent protection in certain jurisdictions. As a result, disputes regarding the ownership of technologies and rights associated with online activities are likely to arise in the future. In addition, use of open-source software is often subject to compliance with certain license terms, which we may inadvertently breach.
With respect to any intellectual property rights claim, we may have to pay damages or compensation and/or stop using technology found to be in violation of a third party’s rights. We may have to seek a license for the technology, which may not be available on commercially reasonable terms or at all, and may significantly increase our operating expenses. We may be required to develop an alternative non-infringing technology, which may require significant effort, expense and time to develop. If we cannot license or develop technology for any potentially infringing aspects of our business, we may be forced to limit our service offerings and may be unable to compete effectively. We may also incur substantial expenses in defending against third-party infringement claims regardless of the merit of such claims.
We may be subject to claims from our current or former employees as well as contractors for copyright, trade secret and patent-related matters, which are costly to defend, and which could adversely affect our business, financial condition and results of operation.
Unlike the video and other content that we license from third parties, the software, databases, algorithms, images, patentable intellectual property, trade secrets and know-how that we use for the operation of our services were generally developed, invented or created by our former or current employees or contractors during the course of their employment with us within the scope of their job functions or under the relevant contractor’s agreement, as the case may be. As a matter of Russian law, we are deemed to have acquired copyright and related rights as well as rights to file patent applications with respect to such products and have the intellectual property rights required for their further use and disposal subject to compliance with certain requirements set out in the Civil Code of Russia. We believe that we have appropriately followed such requirements, but they are defined in a broad and ambiguous manner and their precise application has never been definitively determined by the Russian courts. Therefore, former or current employees or contractors could either challenge the transfer of intellectual property rights over the products developed by them or with their contribution or claim the right to additional compensation for their works for hire and/or patentable results, in addition to their employment compensation. We may not prevail in any such action and any successful claim, although unlikely to be material, could adversely affect our business and results of operation.
We may be held liable for information or content displayed on, retrieved by or linked to our websites and mobile applications, or distributed by our users; or we may be required to block certain content or access to our websites could be restricted; any of which could harm our reputation, business, financial condition and results of operations.
The law and enforcement practice relating to the liability of providers of online services for the activities of their users is currently not settled in Russia and certain other countries in which we operate. Claims may be brought
against us for defamation, libel, negligence, copyright, patent or trademark infringement, tort (including personal injury), fraud, other unlawful activity or other theories and claims based on the nature and content of information to which we link or that may be posted online via blogs and message boards, generated by our users or delivered or shared through our services, including if appropriate licenses and/or rights holder’s consents have not been obtained. For example, we have previously been involved in litigation regarding alleged copyright infringement in the United States. We are also regularly required to remove content uploaded by users on grounds of alleged copyright infringement, and from time to time we receive requests from individuals who do not want their names or websites to appear in our search results. In addition, under the applicable laws companies and their officers may be held liable for the failure to delete or to stop distributing such information as is required by a court enforcement officer’s act. The liability may include penalties for companies and imprisonment for officers.
Third parties may also seek to assert claims against us alleging unfair competition, data misappropriation, violations of privacy rights or failure to maintain the confidentiality of user data. Our defense of any such actions could be costly and involve significant time and attention of our management and other resources. If any of these complaints results in liability to us, the judgment or settlement could potentially be costly, encourage similar lawsuits, and harm our reputation and possibly our business.
The governments of the countries in which we operate are increasingly developing legislation aimed at regulation of the internet, in many places expanding liability and creating new obligations for companies that operate in the internet. For example, under the law “On Information, Information Technologies and on the Protection of Information”, we are required to delete from our search engine search results linking to websites that have been blocked in Russia for repeated copyright infringements.
Additional recent legislation in Russia has introduced a system of information and website blocking measures both to prevent and stop copyright and related rights infringements and to prevent dissemination of illegal information, such as child pornography, content encouraging suicides and drug use, information on minors hurt by illegal actions and extremist information. The regulations generally require a request from a governmental authority to take down the allegedly infringing or illegal information prior to blocking of a particular website. However, in some cases, such as dissemination of extremist information, access to such information can be blocked without notification or prior judicial scrutiny. Moreover, under recent legislative amendments a website may be blocked if the information published there contains disrespectful and indecent statements about the society, state, Constitution or governmental authorities. Additionally, the subjects who are accused of disseminating such statements can face administrative fines.
If we fail to identify the above-mentioned types of information and delete them from our websites in timely manner, our websites might be blocked and our business may be materially adversely affected.
New legislation and regulations may impose additional requirements on us and our operations and lead to material legal liability, which can be difficult to foresee or limit. For instance, in December 2020 the European Commission proposed the draft of the Digital Services Act which is aimed at creating a common set of rules on obligations and accountability of online intermediaries providing services in the EU. The document is now under consideration of the European Parliament and Member States and, if adopted, could impose new obligations on our services provided (or to be provided in the future) to users in the EU.
In addition, in 2018 we became party to an anti-piracy memorandum signed between major Russian IT companies and copyright holders. This memorandum stipulates an out-of-court procedure that obligates search engines and internet resources to remove URLs to infringing audio-visual content at the request of the rights holders. The memorandum was initially valid until September 1, 2019 but was prolonged until August 1, 2021 and is currently in force. It is planned that a corresponding draft law will be elaborated on the basis of this memorandum. Apart from that, under a recent resolution of the Supreme Court of the Russian Federation, liability may be imposed for the provision of access to materials that violate IP rights. We believe that according to the wording of the decision, this norm should be applicable only to owners of websites where such materials are published. However, there is no assurance that courts would not interpret this provision more broadly and would not apply this norm to Yandex.
The categories of illegal information to which access can be restricted may be interpreted broadly or be expanded. In certain cases, even removal of illegal information does not eliminate the risk of website blocking or reinstate access to the blocked website.
For example, Russian legislation allows for permanent blocking of websites for repeated violation of copyright and related rights. A number of large websites have been blocked pursuant to this legislation so far, including, for example, a major hosting provider. We may be subject to unpredictable blocking measures, injunctions or court decisions that may require us to block or remove content and may adversely affect our services and operations. In addition, to ensure compliance with such laws, we may be required to commit greater resources, or to limit functionality of our services, which may adversely affect the appeal of our services to our customers. Although we believe that we are in full compliance with applicable laws, the application of new norms by government authorities might be sometimes inconsistent or unpredictable. In addition, draft legislation under consideration by the Russian State Duma describes the process of limiting access to a “program application” that contain materials violating copyright and related rights. The wording of the proposal is rather broad, and it is difficult to predict how this norm, if adopted, would be applied in practice (in particular, how a “program application” would be defined) and how this might affect all our applications. Potential legislation regarding measurement of the internet audience and social advertising could adversely affect our business.
We understand that discussions are ongoing among the relevant government authorities in Russia regarding the potential introduction of a mandatory system for the measurement of the audience of internet services and content by a specially designated uniform measurements organization, which would provide the state authorities with measurement reports on the internet audience (similar to the mandatory measurement of the TV audience). Such requirements may impose obligations on popular internet resources in Russia (including those provided by Yandex) to either integrate required data collection and reporting instruments or to ensure independent collection of the data and information required for the measurement of the internet audience, and to transfer such data to the designated measurements organization. Although the parameters of the proposed measurement system are not known, it is possible that the operation of such system could adversely affect our ability to ensure the security of our information and our user data. Such system could also provide competitive advantages to the measurements organization, which may itself have commercial interests. Furthermore, such a system may provide competitive advatages to our foreign-based competitors, such as Google and Facebook, which may not be subject to penaties for noncompliance with these requirements.
In addition, we understand that the relevant authorities, (including within the State Duma of the Russian Federation) are considering proposals to impose a mandatory obligation on all internet advertising platforms and distributors of advertising to place “social advertising” (i.e., ads related to the promotion of charities, socially useful activities and governmental functions) in their inventory free of charge, in an amount up to 5% of their commercial advertising inventory (calculated on the basis of the preceding year). The draft legislative proposal would also establish a designated operator of social advertising on the internet, which would be authorized to use the 5% free-of-charge quota to place social ads. The exact mechanics and parameters of this proposal are not currently known. If adopted, however, such a proposal could reduce our commercial advertising inventory, and could result in increases in the price of commercial advertising and the potential loss of commercial advertisers.
As the internet evolves, an increasing amount of online content may be held in closed social networks, mobile apps or proprietary document formats, which may limit the effectiveness of our search technology, which could adversely affect our brand, business, financial condition and results of operations.
Social networks are important players in the internet market and have a significant degree of control over the manner and extent to which information on their websites can be accessed through third-party search engines. Information can also be stored in other closed systems, such as mobile apps.
If social or other networks or software providers take steps to prevent their content or documents in their formats from being searchable, such content would not be included in our search results even if the content was directly relevant to a search request. These parties may also seek to require us to pay them royalties in exchange for giving us the ability to search content on their sites, in their networks or documents in their format and provide links thereto in our search results. If these parties also compete with us in the search business, they may give their search technology a preferential ability to search their content or documents in their proprietary format. Any of these results could adversely affect our brand, business, financial condition and results of operations.
We may have difficulty in continuing to scale and adapt our existing technology architecture to accommodate increased traffic and technology advances or new requirements of our users and advertisers, which could adversely affect our business, financial condition and results of operations.
With some of the most highly visited websites in Russia, we deliver a growing number of services, page views and video programs to an increasing number of users. In addition, the services we offer have expanded and changed significantly and are expected to continue to do so in the future to accommodate bandwidth-intensive technologies and means of content delivery, such as interactive multimedia and video. Our future success will depend on our ability to adapt to rapidly changing technologies, to adjust our services to evolving industry standards and to maintain the performance and reliability of our services. Rapid increases in the levels or types of use of our online services could result in delays or interruptions in our services.
As we expand our services, we will need to continue to invest in new technology infrastructure, including data centers. We may have difficulty in continuing to expand our infrastructure to meet increased demand for our services, including difficulties in obtaining suitable facilities or access to sufficient electricity supplies. A failure to expand our infrastructure could materially and adversely affect our ability to maintain and increase our revenues and profitability and could adversely affect our business, financial condition and results of operations.
Certain technologies could block our ads, which may adversely affect our business, financial condition and results of operations.
Advertising displayed on our platforms may be interfered with by third parties, which may adversely affect our ability to attract advertisers. For example, third parties had in the past, and may in the future, employ technologies to block the display of ads on webpages. The wide and effective use of ad-blocking technologies can reduce the amount of revenue generated by the ads we serve and decrease the confidence of our advertisers and Yandex Advertising Network partners in our advertising technology, which may adversely affect our business, financial condition and results of operations.
If we fail to detect impressions and click fraud or other fraudulent activity or if our partners (including Yandex Advertising Network partners) disagree with our fraud detection techniques, we may face litigation and may lose the confidence of our advertisers or partners which may adversely affect our business, financial condition and results of operations.
We are exposed to the risk of fraudulent and invalid impressions and clicks on the ads we serve from a variety of potential sources. Invalid impressions and clicks are those that we have determined are not intended by the user to view or access the underlying content, including impressions and clicks resulting from fraud executed by automated scripts of computer programs. We monitor our own websites and those of our partners for click fraud and proactively seek to prevent such fraud and filter out fraudulent or other invalid impressions and clicks. To the extent that we are unsuccessful in doing so, we credit our advertisers for impression or clicks that are later attributed to fraud. If we are unable to stop this activity, these credits to our advertisers or the amounts we pay to our partners for such invalid impressions and clicks may increase, and could exceed what they have actually earned. This could negatively affect our profitability, and these invalid impressions and clicks could result in legal claims or harm our brand.
We acquire complementary businesses, teams and technologies from time to time, and may fail to identify additional suitable targets, acquire them on acceptable terms or successfully integrate them, which may limit our ability to implement our growth strategy. Acquisitions of new businesses may also lead to increased legal risks and other negative consequences, which could have an adverse effect on our business, financial condition and results of operations.
We regularly acquire other businesses, technologies and teams. The acquisition and integration of new businesses, technologies and people pose significant risks to our existing operations, including:
|●||additional demands placed on our management, who are also responsible for managing our existing operations;|
|●||increased overall operating complexity of our business, requiring greater personnel and other resources;|
|●||difficulties in expanding beyond our core expertise;|
|●||significant initial cash expenditures or share dilution in connection with acquiring and integrating new|
|●||legal risks (including potential claims of the counterparty or of third parties), which may result from our lack of expertise in the field of the target’s business, incomplete or improper due diligence, misrepresentations by counterparties, and/or other causes.|
The integration of new businesses presents a number of challenges, including differing cultures or management styles, the complexities of operational or technical integration, poor financial records or internal controls on the part of the acquired companies, and an inability to establish control over cash flows. Furthermore, even if we are successful in integrating new businesses, expected cost and operating efficiencies may not materialize, the financial benefits from the acquisition may be less than anticipated, and we could be required to record impairment changes as a result of under-performing assets.
Moreover, our growth may suffer if we fail to identify suitable acquisition targets or are outbid by competing bidders. As a NASDAQ-listed company, we are subject to securities laws and regulations that, in certain circumstances, require that we file with the SEC audited historical financial statements for businesses we acquire that exceed certain materiality thresholds. Given financial reporting practices in Russia and other countries in which we operate, such financial statements and documented systems of internal controls over financial reporting are often not readily available or not capable of being audited to the standards required by U.S. securities regulations. As a result, we may be prevented from or delayed in pursuing acquisition opportunities that our competitors and other financial and strategic investors are able to pursue, which may limit our ability to implement our growth strategy.
Failure to maintain effective customer service may result in customer complaints and negative publicity and may adversely affect our business, financial condition and results of operations.
Customer complaints or negative publicity about our services or those offered by us (including services offered by our business units) or one of our joint ventures, or breaches of customers’ privacy or of our security measures, could diminish consumer confidence in and use of our services. Measures we implement to combat risks of fraud and breaches of privacy and security may be viewed as onerous by our customers or those of our joint ventures and damage relations with them. Alternately, should breaches of customers’ privacy or of security measures occur, we could be subject to investigations and claims from governmental bodies, as well as from our customers. These measures heighten the need for prompt and accurate customer service to resolve irregularities and disputes. Effective customer service requires significant personnel expense, and such expense, if not managed properly, may impact our profitability or that of one or more of our joint ventures. Any inability by us or our joint ventures to manage or train our or their customer service representatives properly could compromise our or their ability to handle customer complaints effectively. In case of failure to maintain effective customer service by us or by one of our joint ventures, our reputation may suffer, and we may lose our customers’ confidence, which may adversely affect our business, financial condition and results of operations.
The inherent limitations of the available data regarding internet usage and online advertising may make it difficult to assess our markets and our market position.
We rely on and refer to information and statistics from various third-party sources, as well as our own internal estimates, regarding internet usage and penetration and the online advertising markets in the countries in which we operate. The information and statistics used in our industry are subject to inherent limitations reflecting the differing metrics and measurement methods utilized and applied by different sources; for example, data derived from computer usage contrasted to that derived from user surveys. In addition, while we believe that the available data and research on the Russian market is of comparable quality to that available in most developed countries, the data for certain other countries in which we operate, including Kazakhstan and Belarus, are generally less consistent and reliable due to more limited third-party measurements in those countries.
We have started the construction of our new headquarters, which involves significant risks, including those beyond our control. Construction delays may result in material expenses and distraction of management attention.
Our Russian headquarters are currently located in approximately 64,000 square meters of rented property in central Moscow, with leases generally expiring in 2024. We also lease additional office space of approximately 47,000 square meters in business centers in central Moscow, which houses some of our divisions. In order to secure sufficient
office space to support our expected future growth, in December 2018 we acquired a property site for a new Moscow headquarters situated at 15 Kosygina Street. Even though we have managed to develop a design package for the site and obtain the required approvals for construction, we may face difficulties in managing or coordinating the construction process. If the construction is not finished by the time our lease expires, we may need to negotiate a new lease for our current or future premises, and may be unable to secure favorable terms, or may be required to agree to rent denominated in, or linked to, U.S. dollars, which would subject us to foreign exchange risk, or incur other significant expenses associated with the continuation and completion of construction.
Additional Risks Related to Regulatory Matters
Because the range of the services we provide is increasing and the legal framework governing the operations in our markets is evolving, we may be required to obtain additional licenses, permits or registrations or comply with other requirements, which may be costly or may limit our flexibility to run our business.
As we increase the range of services and diversify our business we may have to apply for additional licenses. Maintenance of granted licenses and obtaining new licenses may require us to spend additional resources. Licensing requirements may also limit our flexibility in running our business. Failure to maintain required licenses may significantly limit our ability to provide new services in respect of which these licenses are required.
As the legal framework in Russia continues to evolve, we may be required to take additional actions in order to comply with new legislation. Although we believe that we are in full compliance with applicable laws, ambiguities in legislation and the wide discretion granted to regulatory authorities may result in us being subject to additional regulatory requirements. Compliance with additional or new regulatory requirements, or new interpretations or applications of existing requirements, may also require us to spend additional resources and limit our flexibility in providing our services.
For instance, there are various discussions of regulation applicable to big data processing. Any restrictive regulations in this sphere might negatively affect our business operations and flexibility in providing our services.
We are subject to regulation regarding the processing and retention of personal and other data, which may impose additional obligations on us, limit our flexibility, or harm our reputation with users.
The collection and handling of user data by any entity or person in Russia (as in many other countries) may be subject to certain requirements and restrictions. If these requirements and restrictions are amended, interpreted or applied in a manner not consistent with current practice, we could face fines or orders requiring that we change our operating practices, which in turn could have a material adverse effect on our business, financial condition and results of operations.
Several companies in our group underwent a planned inspection by the competent Russian authority (Roskomnadzor) in 2019. The authority did not find any significant data protection violations. If further inspections are conducted in the future and result in the determination that companies in our group fail to comply with the applicable data protection legislation, we could experience financial and reputational losses and could be restricted from providing certain types of services until we comply with the requirements.
Additionally, “organizers of information distribution” (subjects that ensure the operation of information systems or computer software which are intended or used to receive, transmit, deliver and/or process electronic messages of internet users) are required to notify the relevant Russian authority about the commencement of their operations and must retain a broad range of data relating to and generated by their users for a period of time, which must be provided to the authorities at their request. Our principal subsidiary operating in Russia has notified the relevant Russian authority that it acts as an organizer of information distribution with respect to some of the services it provides. Organizers of information distribution that use encryption when delivering or processing electronic messages are required to provide
the security authorities with information necessary for decoding the delivered or processed messages. Compliance with these requirements may require significant expenditures by us, including additional data centers, servers and other infrastructure or software development. Data retention may also harm our reputation with users. If we fail to comply with the above requirements, the Russian authorities can block access to our services in Russia.
Companies are also required to store all personal data of Russian users in databases located inside Russia. Ongoing compliance with the requirements provided in this legislation may be practically difficult, require significant efforts and resources, could lead to legal liability in other jurisdictions and limit functionality of our services. Compliance with these requirements may also limit our ability to compete with other companies located in other jurisdictions that do not require mandatory local storage of personal data related to their users and that may elect not to comply with such requirements in Russia.
Due to the nature of the services we offer and the fact that we have a presence in a number of countries, we may also be subject to data protection laws of other jurisdictions, especially laws regulating the cross-border transfer of personal data, which may require significant compliance efforts and could result in liability for violations in other jurisdictions. For example, the General Data Protection Regulation (the GDPR) came into force in May 2018 in the EU. Although we have only modest operations in the EU and therefore our exposure under the GDPR is generally limited, we believe that we are taking all necessary steps to comply with the GDPR. However, if we fail to interpret all the requirements of the GDPR in accordance with the official interpretation, we may be held liable for noncompliance. As our business grows, we may also encounter increased pressure from foreign state authorities with respect to the production of information related to users in circumvention of the international legal framework regulating the provision of such information. Any non-compliance with such requests may lead to liability and other adverse consequences. Further, current law imposes restrictions on the distribution of satellite images of certain areas in Russia and the other countries in which we operate and imposes requirements with respect to the information provided by the traffic monitoring service we offer. If we were found to be in violation of any such restrictions, we may be forced to suspend such services or may potentially be subject to fines or other penalties.
We may be subject to existing or new advertising legislation that could restrict the types and relevance of the ads we serve, which would result in a loss of advertisers and therefore a reduction in our revenues.
Russian law prohibits the sale and advertising of certain products and heavily regulates advertising with respect to certain products and services. Ads for certain products and services, such as financial services, as well as ads aimed at minors and some others, must comply with specific rules and must in certain cases contain required disclaimers.
Future amendments to legislation regulating advertising may impact our ability to provide some of our services or limit the type of advertising we may offer. The application of these laws to parties, such as Yandex, that merely serve or distribute ads and do not market or sell the product or service, however, can be unclear. Pursuant to our terms of service, we require that our advertisers have all required licenses or authorizations. If our advertisers do not comply with these requirements, and these laws were to be interpreted to apply to us, or if our ad-serving system failed to include necessary disclaimers (or otherwise ensure compliance of the ads with advertising legislation), we may be exposed to administrative fines or other sanctions, and may have to limit the types of advertisers we serve.
The regulatory framework in Russia governing the use of behavioral targeting in online advertising is unclear. If new legislation were to be adopted, or current legislation were to be interpreted, to restrict the use of behavioral targeting in online advertising, our ability to enhance the targeting of our advertising could be significantly limited, which could result in a loss of advertisers or a reduction in the relevance of the ads we serve, which would reduce the number of clicks on the ads and therefore our revenues.
Our need to comply with applicable Russian laws and regulations could hamper our ability to offer services that compete effectively with those of our foreign competitors and may adversely affect our business, financial condition and results of operations.
Many of our global competitors, such as Google, have their principal operations outside of Russia, putting them generally outside of the jurisdiction of Russian courts and government agencies, even though some of them have offices in Russia. Our systems and operations are located principally in Russia; therefore, we closely monitor current practice in specific areas of law in the Russian regional and federal courts. There are a number of pending lawsuits against Yandex, the outcome of which could significantly affect the operation of certain of our services (e.g. toughen the liability of
Yandex as information intermediary and provider of the online ads platform)
Russian laws and regulations that are applicable to us, but not to our non-Russian competitors, may impede our ability to develop and offer services that compete effectively on a global scale as well as in Russia with those offered by our non-Russia-based competitors and generally available worldwide over the internet. For instance, our non-Russian competitors might be not in compliance with the requirement of the Russian data protection legislation to store all personal data of Russian users in databases located inside Russia. In addition, our non-Russian competitors have not joined an anti-piracy memorandum signed between the major Russian IT companies and copyright holders. This memorandum stipulates an out-of-court procedure that obligates search engines to remove URLs that link to infringing audio-visual content at the request of the rights holders.
Any inability on our part to offer services that are competitive with those offered by our non-Russian competitors may adversely affect our business, financial condition and results of operations.
The competent authorities could determine that we hold a dominant position in one or more of our markets and could impose limitations on our operational flexibility that may adversely affect our business, financial condition and results of operations.
Applicable antimonopoly legislation imposes restrictions on companies that occupy a dominant position in a given market. The competent authorities might from time to time investigate the internet or online advertising industries, the ride-hailing business or other sectors in which we operate, and may conclude that, given our market share, we hold a dominant position in one or more of these markets. Additionally, from time to time we receive information requests from the Russian Federal Antimonopoly Service (FAS) related to certain of our services. If the FAS deems that we hold a dominant position in one or more of the markets in which we operate, this could result in limitations on our future acquisitions and a requirement that we pre-approve with the authorities any changes to our standard agreements with advertisers and Yandex Advertising Network partners, as well as any specially negotiated agreements with business partners. In addition, if we were to decline to conclude a contract with a third party or terminate an existing agreement without sufficient substantiation this could, in certain circumstances, be regarded as an abuse of a dominant market position.
Any abuse of a dominant market position could lead to administrative penalties and the imposition of fines of up to 15% of our prior year annual revenues in the relevant market. These limitations may reduce our operational and commercial flexibility and responsiveness, which may adversely affect our business, financial condition and results of operations.
In February 2021, FAS notified Yandex that it has identified indications of the abuse of dominance in the way that Yandex presents enriched results in its search engine. FAS suggested that Yandex may be discriminating against third-party online services by presenting its own digital products in such enriched results. Despite the evidence provided that integration in various types of enriched results is available for third-party services and that Yandex has never refused to develop other types of integration with enriched results for rival services, FAS required that Yandex undertakes a number of measures to stop the alleged discrimination (including potentially the removal of enriched results that are not fully available for third parties). If Yandex fails to comply with these requirements, FAS may initiate an investigation, which could result in a fine of up to 15% of our prior year annual revenues in the relevant market (if FAS proves that we hold a dominant position and concludes that the violation occurred).In addition, Yandex may be obliged to comply with the above-mentioned requirements following any such investigation.
In addition, under Russian antimonopoly legislation some potential acquisitions that we may consider require a preliminary approval by FAS. FAS may withhold the approval or may approve transactions subject to particular conditions. Such conditions could place significant restrictions on Yandex businesses, could make the acquisition less attractive, and could result in a termination of the proposed transaction.
Risks Related to Tax Matters
Some of our counterparties provide limited transparency in their operations, which could subject us to greater scrutiny and potential claims from government authorities.
We do business with a number of companies, especially small companies that may not always operate in a fully
transparent manner and that may engage in unpredictable or otherwise questionable practices with respect to tax obligations or compliance with other legal requirements. We have been approached by government authorities from time to time regarding potential tax claims or other compliance matters in connection with such transactions. As we are a larger and more transparent company with greater resources than such counterparties, governmental authorities may seek to collect taxes and/or penalties from us in relation to such transactions on the basis that we could have had knowledge of or aided such practices even when we did not.
Changes in the tax systems in the countries in which we operate, or unpredictable or unforeseen application of existing rules, may materially adversely affect our business, financial condition and results of operations.
Russian tax, currency and customs laws and regulations are subject to varying interpretations and changes, which may be frequently revised and reviewed by the authorities. As a result, our interpretation of such tax legislation may be challenged by the relevant authorities. Russian tax legislation largely follows the OECD approach but may be implemented in a way which is not in line with international practice or our interpretation. Moreover, under the current conditions of weak economic growth and reduced tax revenue, the authorities are taking a more assertive position in their interpretation of the tax legislation and, as a result, it is possible that transactions and activities that have not been challenged in the past may now be questioned by the authorities. High-profile companies such as ours can be particularly vulnerable to such assertive positions of the authorities.
Although we believe that our interpretation of relevant legislation is appropriate and is in accordance with existing court practice, if the authorities were successful in enforcing differing interpretations, our tax liability may be greater than the estimated amount that we have expensed to date and paid or accrued on our balance sheet. We believe our tax position is consistent with the tax laws in the jurisdictions in which we conduct our business, however, the determination of our worldwide provision for tax liabilities, including digital tax, requires significant judgment and there are many transactions and calculations where the ultimate tax determination is uncertain and we are subject to regular review and audit by both domestic and foreign tax authorities. Generally, Russian taxpayers are subject to inspection of their activities for a period of three calendar years immediately preceding the year in which an audit is carried out, with tax audits routinely undertaken at least every two years. Tax years 2018, 2019 and 2020 are currently open for tax audit of our principal Russian subsidiaries.
There have also been significant developments and proposed changes in recent periods to international tax laws that increase the complexity, burden and cost of tax compliance. The OECD has published proposals covering a number of matters, including tax treaties and taxation of the digital economy. Future tax reform resulting from this development may result in changes to long-standing tax principles, which could adversely affect our effective tax rate or result in higher cash tax liabilities. To date, the OECD has failed to reach a consensus-based solution to address the challenges posed to the current tax system by the digitalization of the economy. Like other countries, Russia may consider the adoption of a “digital turnover” tax, which could materially increase our overall tax liability.
Taxes payable on dividends from our Russian operating subsidiaries to our parent company might not benefit from relief under the Netherlands-Russia tax treaty.
In prior years, our principal Russian operating subsidiary distributed dividends to our parent company (Yandex N.V.) and applied withholding tax at a 5% rate in reliance on the provisions of the Netherlands-Russia tax treaty.
Yandex N.V. is incorporated in the Netherlands and our principal operating subsidiaries are incorporated in Russia. Our management seeks to ensure that we conduct our affairs in such a manner that our parent company is regarded as the beneficial owner of all its incomes and not regarded as tax resident in any jurisdiction other than the Netherlands and, in particular, is not deemed to be a tax resident of, or to have a permanent establishment in, Russia. Thus, dividends paid from our Russian operating subsidiaries to our parent company should generally be subject to Russian withholding tax at a 5% rate. If our parent company were not treated as a Dutch resident for tax purposes or if it were deemed to have a permanent establishment in Russia, or if the Russian tax authorities were to determine that other conditions for the application of the 5% rate are not met because, for example, if Yandex N.V. is not deemed to be beneficial owner of the dividends received, dividends paid from our Russian operating subsidiaries to our parent company would be subject to Russian withholding tax at the rate of 15%.
We can provide no assurance that dividend withholding tax relief may not be challenged by the Russian tax
authorities based on the grounds mentioned above. Furthermore, Russian tax rules regarding residency and beneficial ownership which were recently introduced may change or their interpretation may evolve, thus triggering changes in taxation of dividends from our Russian subsidiaries to our parent company in the future.
Based on the current state of the law and available interpretations, we believe that Yandex N.V. and our material foreign subsidiaries should not be treated as controlled foreign corporations for Russian tax purposes. However, there are risks that any of these rules may be interpreted or applied in a manner that may have an adverse effect on our results of operations.
In addition, in December 2020 Russia’s Finance Ministry announced that it was in the process of drafting a bill denouncing the double taxation treaty with the Netherlands, following reported failure to reach agreement on amendments to the treaty. If the Russian government proceeds with this plan in the first half of 2021, the treaty will cease to have effect from the beginning of 2022. In this case, our Russian subsidiaries would be subject to a 15% rate on dividends to our parent company and their unremitted earnings. This change would materially adversely affect our ability to upstream dividends to our parent company, and may require us to consider changes to the structure of our corporate group.
We may be required to record a significant deferred tax liability if we are unable to reinvest our earnings in Russia.
Our principal Russian operating subsidiary has significant accumulated earnings that have not been distributed to our Dutch parent company. Our current policy is to retain 50% of our earnings at the level of our principal subsidiary for investment in Russia.
As of December 31, 2020, we had an accrual of RUB 1,593 million ($21.6 million) for dividend withholding tax. If circumstances change and we are unable to reinvest in that subsidiary’s current operations or acquire suitable businesses in Russia, U.S. GAAP would require us to record a deferred tax liability representing the dividend withholding taxes that we would be required to pay if this subsidiary were to pay these unremitted accumulated earnings to our Dutch parent company as a dividend, even if such dividends were not actually declared and paid. As of December 31, 2020, the cumulative amount of unremitted earnings in respect of which dividend withholding taxes have not been provided is RUB 101,225 million ($1,370.2 million). The applicable withholding tax rate is 5% and the amount of the unrecognized deferred tax liability related to these unremitted earnings was RUB 5,061 million ($68.5 million) as of December 31, 2020. We expect the amount of unremitted earnings to grow as our principal Russian operating subsidiary continues to generate net income. If we were required to record a deferred tax liability on an amount subsequently made available for distribution it may have a material adverse effect on our results of operations and may require us to consider changes to the corporate structure of our group.
Risks Related to Ownership of our Class A Shares
The price of our Class A shares has been and may continue to be volatile. Market fluctuations specific to developing markets or to high-growth technology companies generally may affect the performance of our Class A shares and could expose us to potential securities litigation, which could result in substantial costs and a diversion of our management’s attention and resources.
Due to macroeconomic and geopolitical events, in 2020, IT companies global demonstrated significant growth, including companies with significant operations in Russia and certain other markets. Generally, the market for technology and other growth companies has generally experienced severe price and volume fluctuations that have often been disproportionate to the operating performance of those companies. These broad macroeconomic, geopolitical, market and industry factors may impact the market price of our Class A shares regardless of our actual operating performance.
The trading price of our Class A shares has been and may continue to be volatile and subject to wide fluctuations in price in response to various factors, some of which are beyond our control. These factors include:
|●||macroeconomic and geopolitical developments, including those specific to technology businesses, the internet and online advertising both in Russia and globally, as well as the impact of COVID-19;|
|●||any proposed or adopted legislation in Russia that would impost limitations on foreign ownership or|
|control of our business;|
|●||changes or proposed changes in the regulation of our services by the applicable government authorities, including with respect to operational requirements and governance;|
|●||market rumors which maynegatively impact the price of our Class A shares);|
|●||quarterly variations in our results of operations or those of our competitors;|
|●||fluctuations in our share of the internet search market or our other markets;|
|●||the proportion of our revenues generated on our websites relative to those generated through the Yandex Advertising Network or through distribution partners, as a result of the revenue sharing arrangements we enter into and the overall volume of advertising we provide our partners;|
|●||announcements of technological innovations or new services and media properties by us or our competitors;|
|●||the amount of advertising purchased or market prices for online advertising;|
|●||the emergence of new advertising channels in which we are unable to compete effectively;|
|●||the volume of searches conducted, the amounts bid by advertisers or the number of advertisers that bid in our advertising system;|
|●||the numbers of users of our other services, and the volume of their activity on our services;|
|●||changes in governmental regulations, in particular those applicable to regulation of online business in Russia and globally;|
|●||disruption to our operations or those of our partners;|
|●||our ability to develop and launch new and enhanced services on a timely basis;|
|●||commencement of, or our involvement in, litigation;|
|●||any major change in our directors or management;|
|●||changes in earnings estimates or recommendations by securities analysts;|
|●||our ability to compete effectively for users, advertisers, partner websites and content;|
|●||the operating and stock price performance of other companies that investors may deem comparable to us;|
|●||fluctuations in the exchange rate between currencies, including the Russian ruble and the U.S. dollar;|
|●||general global or Russian economic conditions and slow or negative growth or forecast growth of related markets; or|
|●||other events or factors, including those resulting from war, incidents of terrorism, natural disasters, public health concerns or epidemics, such as the COVID-19 pandemic, natural disasters, or responses to these events.|
Additionally, volatility or a lack of positive performance in the price of our Class A shares may adversely affect our ability to retain key employees, some of whom have been granted equity awards.
This volatility may affect the price at which holders of Class A shares may sell such shares and the sale of substantial amounts of our Class A shares could adversely affect our trading price.
In the past, following periods of volatility in the overall market and the market price of a company’s securities, securities class action litigation has often been instituted against these companies. Such litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.
The concentration of voting power with our principal shareholders, including our founders, directors, senior management and principal non-institutional shareholders, together with the Priority Share held by the Public Interest Foundation, limits your ability to influence corporate matters, while a loss of voting control by our principal shareholders could affect the direction of our company.
Our Class B shares have ten votes per share and our Class A shares have one vote per share. As of February 15, 2021, our founder, directors, senior management (and their affiliates) and principal non-institutional shareholders together own 95.51% of our outstanding Class B shares and 3.63% of our outstanding Class A shares, representing in the aggregate 52.09% of the voting power of our outstanding shares. In particular, our founder, Mr. Volozh, directly or indirectly controls 86.22% of our outstanding Class B shares and 0.01% of our outstanding class A shares representing in the aggregate 45.48% of the voting power of our outstanding shares. Additionally, the Priority Share provides the Public Interest Foundation with certain rights, including an effective veto on acquisitions related to our Company or the sale of our material businesses.
In addition, as part of the restructuring that was approved in late 2019, the automatic conversion feature of the Class B Shares was amended to provide that, upon the death of a Class B holder, including Mr. Volozh, Class B Shares held by a family trust established by such holder will not automatically convert for a period of two years. During the two-year transition period following the death of Mr. Volozh, the trustee of the family trust will be bound to vote in favor of any proposal of the Board, and in accordance with the Board’s recommendation on any other matter. These restrictions will fall away, and the shares will automatically convert into Class A Shares, after the end of that two-year period.
As a result, our founder, directors, senior management and their affiliates have significant influence over the management and affairs of our company and over all matters requiring shareholder approval, including the election of directors, the amendment of our articles of association and significant corporate transactions, such as a sale of our company or its assets.
This concentrated control limits your ability to influence decisions on corporate matters. We may take actions that our public shareholders do not view as beneficial or as maximizing value for them. As a result, the market price of our Class A shares may be adversely affected.
Certain of our directors and shareholders and their affiliates may have interests that are different from, or in addition to, the interests of other Yandex shareholders.
Some of our directors are affiliated with investment funds or financial institutions that have investments in other businesses or entities that currently or may in the future compete with us or with whom we may enter into transactions. Such affiliations may require the directors to recuse themselves from consideration of certain transactions or may otherwise create real, potential or perceived conflicts of interest.
Our Board of Directors and our priority shareholder have the right to approve accumulations of stakes in our company or the sale of our principal Russian operating subsidiary, which may prevent or delay change-of-control transactions.
Our Board of Directors has the right to approve the accumulation by a party, group of related parties or parties acting in concert of the legal or beneficial ownership of shares representing 10% or more, in number or voting power, of our outstanding Class A and Class B shares (taken together). If our board grants its approval of such share accumulation, the matter is then submitted to Public Interest Foundation, as holder of our priority share, which has a further right of approval of such accumulation of shares. In addition, any decision by our Board of Directors to transfer all or substantially all of our assets to one or more third parties, including the sale of our principal Russian operating subsidiary, is subject to the prior approval of Public Interest Foundation, as priority shareholder.
Any holding, transfer or acquisition by a party, group of related parties or parties acting in concert of the legal or beneficial ownership of Class B shares representing 10% or more, in number or by voting power, of our outstanding Class A and Class B shares (taken together), without the prior approval of our Board of Directors, first, and then the priority shareholder, will be null and void. The acquisition of shares in excess of the thresholds permitted by our articles of association will be subject to certain notification requirements set forth in our articles of association. Failure to comply with those terms would render the transfer of such shares null and void. In addition, the holders of such shares would not be entitled to the dividend or voting rights attached to their excess shares. The rights of our Board of Directors and our priority shareholder to approve accumulations of stakes in our company may prevent or delay change-of-control transactions.
Anti-takeover provisions in our articles of association may prevent or delay change-of-control transactions.
In addition to the rights of our board and of the priority shareholder to approve the accumulation of stakes of 10% or more, as described above, our multiple class share structure may discourage others from initiating any potential merger, takeover or other change-of-control transaction that our public shareholders may view as beneficial. Our articles of association also contain additional provisions that may have the effect of making a takeover of our company more difficult or less attractive, including:
|●||the staggered terms, of up to four years, of our directors, as a result of which only a minority of our board is subject to election in any one year;|
|●||a provision that our directors, other than the two directors designated by the Public Interest Foundation from time to time, may only be removed by a two-thirds majority of votes cast representing at least 50% of our outstanding share capital;|
|●||requirements that certain matters, including an amendment of our articles of association, may only be brought to our shareholders for a vote upon a proposal by our Board of Directors;|
|●||minimum shareholding thresholds, based on par value, for shareholders to call general meetings of our shareholders or to add items to the agenda for those meetings, which will be very difficult for Class A shareholders to meet given our multiple class share structure; and|
|●||supermajority requirements for shareholder approval of certain significant corporate actions, including the legal merger or demerger of our company and the amendment of our articles of association.|
The Dutch public offer rules, which impose substantive and procedural requirements in connection with the attempted takeover of a Dutch public company, only apply in the case of Dutch target companies that have shares listed on a regulated market within the European Union. We have not listed our shares, and do not expect to list our shares, on a regulated market within the European Union, and therefore these rules do not apply to any public offer for our Class A shares.
We rely on NASDAQ Stock Market rules that permit us to comply with applicable Dutch corporate governance practices, rather than the corresponding domestic U.S. corporate governance practices, and therefore your rights as a shareholder differ from the rights you would have as a shareholder of a domestic U.S. issuer.
As a foreign private issuer whose shares are listed on the NASDAQ Global Select Market, we are permitted in certain cases to follow Dutch corporate governance practices instead of the corresponding requirements of the NASDAQ Marketplace Rules. We follow Dutch corporate governance practices with regard to the quorum requirements applicable to meetings of shareholders and the provision of proxy statements for general meetings of shareholders. In accordance with Dutch law and generally accepted business practices, our articles of association do not provide quorum requirements generally applicable to general meetings of shareholders. Although we do provide shareholders with an agenda and other relevant documents for the general meeting of shareholders, Dutch law does not have a regulatory regime for the solicitation of proxies and the solicitation of proxies is not a generally accepted business practice in the Netherlands. Accordingly, our shareholders may not be afforded the same protection as provided under NASDAQ’s corporate governance rules.
We do not comply with all the provisions of the Dutch Corporate Governance Code. This may affect your rights as a
As a Dutch company we are subject to the Dutch Corporate Governance Code, or DCGC. The DCGC contains both principles and best practice provisions for management boards, supervisory boards, shareholders and general meetings of shareholders, financial reporting, auditors, disclosure, compliance and enforcement standards. The DCGC applies to all Dutch companies listed on a government-recognized stock exchange, whether in the Netherlands or elsewhere, including the NASDAQ Global Select Market. The principles and best practice provisions apply to the board (in relation to role and composition, conflicts of interest and independence requirements, board committees and remuneration), shareholders and the general meeting of shareholders (for example, regarding anti-takeover protection and obligations of the company to provide information to its shareholders) and financial reporting (such as external auditor and internal audit requirements). The DCGC requires that companies either “comply or explain” any noncompliance and, in light of our compliance with NASDAQ requirements and as permitted by the DCGC, we have elected not to comply with all of the provisions of the DCGC. This may affect your rights as a shareholder and you may not have the same level of protection as a shareholder in a Dutch company that fully complies with the DCGC.
Because of the secondary listing of our Class A shares on the Moscow Stock Exchange, we are subject to additional disclosure and compliance requirements that may conflict with those imposed by the SEC and NASDAQ, and we may experience trade fluctuations based on arbitrage activities.
In June 2014, we established a secondary listing of our Class A shares on the Moscow Stock Exchange. Pursuant to that listing, we and our insiders must comply with certain disclosure and other obligations that may differ in timing and substance from those applicable to our NASDAQ listing. In addition, many of the obligations imposed by the Moscow Stock Exchange are formalistic in nature, and that exchange has limited experience in the application of its requirements to companies incorporated outside Russia. As a result, we may not be able to comply with all formal obligations in a manner that is consistent with the requirements or interpretations of that exchange.
In addition, this secondary listing may create opportunities for trading arbitrage, particularly in connection with currency fluctuations between the trading in U.S. dollars on NASDAQ and in rubles on the Moscow Stock Exchange, which could impact the trading price of our Class A shares.
Risks for U.S. Holders
We cannot assure you that we will not be classified as a passive foreign investment company for any taxable year, which may result in adverse U.S. federal income tax consequence to U.S. holders.
Based on certain management estimates with respect to our gross income and the average value of our gross assets and on the nature of our business, we believe that we were not a “passive foreign investment company,” or PFIC, for U.S. federal income tax purposes for the 2020 tax year, and do not expect to be a PFIC in the foreseeable future. However, because our PFIC status for any taxable year will depend on the composition of our income and assets and the value of our assets in such year, and because this is a factual determination made annually after the end of each taxable year and there are uncertainties in the application of the rules, there can be no assurance that we will not be considered a PFIC for the current taxable year or any future taxable year. In particular, the value of our assets may be determined in large part by reference to the market price of our Class A shares, which has fluctuated, and may continue to fluctuate, significantly. If we were to be treated as a PFIC for any taxable year during which a U.S. holder held our Class A shares, certain adverse U.S. federal income tax consequences could apply to the U.S. holder. See “Taxation—Taxation in the United States—Passive foreign investment company considerations.”
Any U.S. or other foreign judgments you may obtain against us may be difficult to enforce against us in Russia or the Netherlands.
We have only very limited operations in the United States, most of our assets are located in Russia, our company is incorporated in the Netherlands, and most of our directors and senior management are located outside the United States. As a result, it may be difficult to serve process on us or these persons within the United States. Although arbitration awards are generally enforceable in Russia and the Netherlands, and Russian courts may elect to enforce foreign court judgments as a matter of international reciprocity and judicial comity, you should note that judgments obtained in the United States or in other foreign courts, including those with respect to U.S. federal securities law claims, may not be enforceable in Russia or the Netherlands. There is no mutual recognition treaty between the United States
and the Russian Federation or the Netherlands, and no Russian federal law or Dutch law provides for the recognition and enforcement of foreign court judgments. Therefore, it may be difficult to enforce any U.S. or other foreign court judgment obtained against our company, any of our operating subsidiaries or any of our directors in Russia or the Netherlands.
The rights and responsibilities of our shareholders are governed by Dutch law and differ in some important respects from the rights and responsibilities of shareholders under U.S. law.
Our corporate affairs are governed by our articles of association and by the laws governing companies incorporated in the Netherlands. The responsibilities of members of our Board of Directors under Dutch law are different than under the laws of some U.S. jurisdictions. In the performance of its duties, our Board of Directors is required by Dutch law to consider the interests of Yandex, its shareholders, its employees and other stakeholders and not only those of our shareholders. Also, as a Dutch company, we are not required to solicit proxies or prepare proxy statements for general meetings of shareholders.
In addition, the rights of our shareholders are governed by Dutch law and our articles of association and differ from the rights of shareholders under U.S. law. For example, Dutch law does not grant appraisal rights to a company’s shareholders who wish to challenge the consideration to be paid upon a merger or consolidation of the company.
Item 4. Information on the Company.
History and Development of the Company; Organizational Structure.
Our founders began the development of our search technology in 1989, and launched the yandex.ru website in 1997. Our principal Russian operating subsidiary, Yandex LLC, was formed in 2000, as a wholly owned subsidiary of our former Cypriot parent company. In 2007, we undertook a corporate restructuring, as a result of which Yandex N.V. became the parent company of our group. Yandex N.V. is a Dutch public company with limited liability. Its registered office is at Schiphol Boulevard 165, 1118 BG, Schiphol, The Netherlands (tel: +31-20-206-6970). The executive offices of our principal operating subsidiary are located at 16, Leo Tolstoy Street, Moscow 119021, Russian Federation (tel. +7-495-739-7000).
Our company became profitable in 2003 and its revenues have been continually growing ever since. In May 2011 Yandex went public on the NASDAQ stock exchange, under the ticker YNDX, and subsequently listed on Moscow Exchange in June 2014.
For a discussion of our principal acquisitions and disposals in 2020, see “Operating and Financial Review and Prospects — Recent Acquisitions”.
Yandex is a technology company that builds intelligent products and services powered by machine learning. Our goal is to help consumers and businesses better navigate the online and offline world. Since 1997, we have delivered world-class, locally relevant search and information services. Additionally, we have developed market-leading on-demand transportation and delivery services, and navigation products, and have expanded into e-commerce, entertainment and cloud markets to assist consumers in Russia and number of international markets. As of the end of December 2020 Yandex had over 30 offices in 8 countries.
We derive a substantial part of our revenues from online advertising. We enable advertisers to deliver targeted, cost-effective ads that are relevant to our users’ needs, interests and locations. We serve ads on our own search results and other Yandex webpages, as well as on thousands of third-party websites that make up our Yandex Advertising Network. Through our ad network, we extend the audience reach of our advertisers and generate revenue for both our network partners and us. We offer a variety of ad formats to our advertisers, including performance-based, brand and video advertising formats across different platforms.
A few years ago, we embarked on a strategy to diversify our revenue streams and broaden the appeal of our ecosystem. Other revenue streams are growing rapidly and come from our Taxi segment, which includes our B2C and B2B ride-hailing, FoodTech, logistics and car-sharing services; Yandex.Market; Media Services and other initiatives related to IoT (Internet of Things); as well as Other Bets and Experiments. The contribution of non-advertising businesses have increased significantly. For the year 2020 the non-advertising segments accounted for 42% of our total group revenue compared with 31% in 2019 and 20% in 2018.
Our businesses are organized in the following operating segments:
|●||Search and Portal, which includes Search, Mail 360, Weather, News, Uslugi, Travel, Alice voice assistant and number of other services offered in Russia, Belarus and Kazakhstan, as well as our Devices business (Internet of Things);|
|●||Taxi, including our ride-hailing business (which consists of Yandex.Taxi in Russia and 16 other countries across CIS and EMEA, and Uber in Russia and CIS) for both B2C and B2B, Logistics, FoodTech businesses (including Yandex.Eats, our ready-to-eat and grocery delivery service, and Yandex.Lavka, our hyperlocal convenience store delivery service) and Yandex.Drive, our car-sharing business;|
|●||Yandex.Market (including our price comparison service, e-commerce marketplace and several small experiments);|
|●||Media Services (including our subscription service Yandex Plus, Yandex Music, KinoPoisk, Yandex.Afisha and our production center Yandex.Studio);|
|●||Classifieds (including Auto.ru, Yandex.Realty, Yandex.Jobs, and Yandex Classifieds); and|
|●||Other Bets and Experiments (including Yandex Self-Driving Group (“Yandex SDG”), Zen, Geolocation Services (“Geo”), Edadeal, Investments, Yandex.Cloud and Yandex.Education).|
Our Other Bets and Experiments segment consists of smaller business units and experiments that we aim to develop into thriving and successful businesses.
In February 2021, we have made changes to our organizational structure and created two core business groups: Search, Advertising and Cloud Services; and E-commerce and RideTech. Each of these business groups combines several segments and experiments, with similar business models, development mechanics and consumer problems they solve, under a single leader. The Search, Advertising and Cloud business group includes Search and Portal segment as well as smaller experiments such as Zen, Cloud, Geo and a few smaller services. The E-commerce and RideTech business group combines our key transactional services, including on-demand transportation, delivery and logistics services (i.e. Taxi segment) as well as Yandex.Market. Other businesses, such as Media Services, Classifieds, Self-Driving Group remain separate business units. The new structure aims to further improve coordination and integration between different services within the Yandex platform as well as to allow for more efficient realization of cross-segment synergies.
Search and Portal
We offer a broad range of world-class, locally relevant search and information services that are free to our users and that enable them to find relevant information quickly and easily.
Our search engine offers almost instantaneous access to the vast range of information available online. We utilize linguistics, mathematics, machine learning and AI to develop proprietary algorithms that efficiently extract, compile, systematize and present relevant information to our users. Our organic search results are ranked by computer algorithms based exclusively on relevance, and we clearly segregate organic results from paid results to avoid confusing our users.
According to Yandex.Radar, our total search share reached 59.2% of all search traffic in Russia in 2020, up from 56.3% in 2018 and 57.0% in 2019, which was driven by share growth on both desktop and mobile devices. In 2020, our search share on desktop and mobile reached 69.2% and 54.5%, respectively. We continued to gain share in mobile search, reaching 57.6% on Android and improving our share to 41.8% on iOS in 2020 (from 52.6% and 40.6% in 2019, respectively). In February 2021, our search share averaged 70.2% on desktop and 55.8% on mobile, respectively, with mobile search share of 59.3% on Android and 41.9% on iOS. Also, we further improved mobile monetization. The percentage of our total search traffic generated from mobile devices averaged approximately 60% in Q4 2020 compared with 58% in Q4 2019, while the percentage of our search revenues generated from mobile devices increased to approximately 53% in Q4 2020 from approximately 49% in Q4 2019.
In 2020, Yandex Search introduced YATI (Yet Another Transformer with Improvements) – a neural network based on the Transformer architecture, which allows us to evaluate semantic relationships between user queries and the content of web documents. Transformer architecture has several key advantages — it works not only with short texts, such as queries or article titles, but also with longreads. YATI is able to identify the most significant sections of a text and take those into account while delivering search results. YATI is also able to “understand” the relevant context, such as the sequence of words and how words affect each other. Overall, YATI is several million times more complex than our previous generation neural network and is one of the biggest updates to our core search technology in the last ten years.
Yandex Search App
Enhanced with Alice, the first conversational voice assistant on the Russian market, Yandex Search App integrates Yandex’s must-have services into one app, including Search, Maps, News, Zen, Weather and many others. At the beginning of 2021, our Search App was installed on 57% of Android smartphones in Russia and generated 56% of Yandex’ search traffic on the Android platform. The Yandex Search App audience reached 61 million users on Android on a monthly basis in February 2021.
Our Yandex Browser is the second most popular browser on desktops and the most popular non-native browser on mobile platforms in Russia. Yandex Browser is committed to delivering high-quality user experiences and to ensuring security for users online. Yandex Browser’s built-in Antishock technology blocks malicious and fraudulent advertising and its “Protect” technology offers comprehensive protection against the majority of online threats. For example, Yandex Browser checks all downloaded files for viruses, warns users about dangerous websites, encrypts users’ passwords with strong cryptography, and ensures safe payments. Also, the Russian version has native ad blocking to enhance users’ browsing experience by filtering intrusive advertising. In 2019, we started offering an energy-saving mode, making Yandex Browser the most energy-efficient browser, according to the tests of ixbt.com, the Russian information and analytical website focused on IT technologies. We have also created a set of free technologies for online stores that help increase the conversion rate of a website and simplify the user’s path to purchase. In early 2021 we have rolled out Your Tracking Protection (YTP), a feature that lets each individual user control whether to block or unblock third-party cookies through a simple, intuitive dashboard already built into the Yandex Browser. This is a further step to make browser experience safer and more secure.
The combined share of our desktop and mobile visits processed through Yandex Browser in Russia reached 21.6% in February 2021, according to Yandex.Radar.
Voice assistant Alice
In October 2017, we launched Alice, the first conversational intelligent assistant for the Russian market. Alice assists users with a broad range of inquiries, such as factoid questions, weather forecasts, directions and currency exchange rates, as well as helping users to manage daily tasks, such as setting up an alarm, reminding of important things or hailing a taxi. Alice is not limited to predefined scenarios and includes a general “chit-chat” mode – a unique feature among intelligent assistants that has been embraced by millions of users. It also benefits from the near-human level of speech recognition accuracy (based on the Word Error Rate measurement) provided by the Yandex SpeechKit platform. In May 2018, we launched a developers’ skills platform, Yandex.Dialogues, designed to make it easy for any third-party developer to create new skills for Alice. Today, there are about 4 million monthly users of external voice applications with Alice.
In May 2019, we announced our own smart home ecosystem powered by Alice, and currently, the number of supported smart home device models is more than 8,000, including air-conditioners, robot vacuum cleaners, light switches, power sockets, remote controllers and more. While initially only accessible through our search app, Alice is now accessible through Yandex Browser, Yandex.Navigator, Yandex.Station, Yandex.Station Max, Yandex.Station Mini, Yandex.Auto and Yandex.TV, our smart TV platform based on AOSP (Android Open Source Project), as well as on third-party platforms and smart speakers.
In April 2020, we announced Yandex.TV, our own smart TV multimedia platform that comes pre-installed in a variety of budget and mid-range TVs offered in Russia based on the AOSP. Yandex.TV offers users seamless way of interacting with different kinds of content on one screen, including Yandex’s own KinoPoisk HD content, blogger videos and TV channels. Yandex.TV users can also stream videos from other streaming services such as ivi, MEGOGO and others. Since its launch, it has been integrated into more than 80 TV models by brands such as Hyundai, Leff, Hi, DEXP and others. In November 2020, voice assistant Alice was made available in all TVs with Yandex.TV on board: it can help navigate through content via smart voice search, find specific movies, answer general questions, tell the weather and much more.
Internet of Things (Yandex.Station)
In May 2018 we launched Yandex.Station, the first smart speaker designed for the Russian market and Yandex’s first hardware product, equipped with our AI voice assistant, Alice, to help users manage their daily tasks. Yandex.Station provides a complete in-home multimedia entertainment experience. As the first smart speaker with both audio and video capabilities, it plays music and also streams films, videos and television through its HDMI port to any connected display. Currently, Yandex.Station has access to our streaming services Yandex Music (audio) and KinoPoisk HD (video).
In 2019, we launched our next smart speaker – the compact and affordable Yandex.Station Mini, which has all the features of Yandex.Station apart from video capabilities. In addition, it features gesture control.
In November 2020, we presented a new addition to our family of smart speakers. The new Yandex.Station Max is the most powerful smart speaker produced by Yandex to date. It features advanced Dolby Audio technology for a perfect audio experience, 4K HDR for streaming films in crystal clear quality, and an interactive LED screen to visually augment Alice’s replies.
In February 2021 we have announced that sales of smart speakers with voice assistant Alice reached 1.3 million devices since inception.
Other Products and Services
Search and Portal segment includes number of other products and services, the key ones of which are the following:
|●||Yandex.Mail 360 unites our various productivity tools, including Yandex.Mail, Yandex.Disk, cloud-based storage service, Yandex.Telemost, our video conferencing service launched in 2020, Yandex.Calendar, and Yandex.Notes to help users with correspondence, time tracking, document management and conferencing services.|
|●||Yandex.News, the most visited online news aggregation service in Russia, providing a comprehensive and up-to-date news coverage for our users.|
|●||Yandex.Weather service, offering hyperlocal, real-time weather information based on our proprietary weather forecasting technology - Meteum, powered by machine learning.|
|●||Yandex.Travel, our travel aggregator service, which allows users to search for flight tickets and hotels, compare prices, as well as offers users an opportunity to purchase train and intercity bus tickets.|
|●||Yandex.Uslugi, our free of charge service helping users to find independent professionals to perform various types of works and services such as tutors, repairman, driving instructors and many others. As of December 31, 2020, the daily audience of the service reached 650,000 users and the number of professionals and freelancers exceeded 1 million.|
|●||Yandex.Q is a community of experts in science, medicine, economics, education, art, and many other areas of life, who share their knowledge in a question-and-answer format. The daily audience of the service reached 2.5 million users in December 2020.|
Our Monetization and Advertiser Services
We offer a variety of ad formats to our advertisers, including performance-based, brand and video advertising formats.
Performance-based ads are principally targeted to a particular user query on our search engine result pages, and on the search result pages of our partners, as well as to the content of a particular website or webpage being viewed, or to user behavior or characteristics. Such ads are clearly marked as paid advertising and are separate from our organic search results and non-advertising content.
Most of our revenues are generated from performance-based advertising, on a pay-per-click basis, with a smaller, but growing portion of revenues generated from brand advertising and video advertising, based on the number of impressions delivered. We actively monitor the ads we serve, both automatically and manually, in order to help ensure the relevance of the ads as well as compliance with applicable laws.
Yandex.Direct is our auction-based advertising placement platform, which uses auction theory and relies on our distributed infrastructure to process millions of auctions every day. Yandex.Direct lets advertisers cost-effectively deliver relevant ads targeted at particular search queries or content on Yandex websites or third-party websites in the Yandex Advertising Network. Advertisers may use our automated tools, often with little or no assistance from us, to create performance-based ads, bid on keywords that are likely to trigger the display of their ads, and set total spending budgets. Yandex.Direct features an automated, online sign-up process that enables advertisers to create and quickly launch their advertising campaigns. Advertisers may also work with our sales staff to design and implement more specialized or sophisticated advertising campaigns. We also offer a Yandex.Direct mobile app to better facilitate advertisers’ access to our service to manage their advertising campaigns.
Performance-based ads on our desktop search engine results page (SERP) appear in one of several general categories: top of the page, appearing above the organic search results; and bottom of the page, which appears either below the organic search results or the right-hand block located to the right of the organic search results. Advertisers bid for the amount of traffic they want to purchase, instead of traditional bidding for a specific ad placement block. Yandex.Direct continues using a Vickrey-Clarke-Groves (VCG) auction to serve ads on our SERP.
We are constantly working to improve our automatic strategies, to make them better help businesses reach their goals. In the second quarter of 2020, we launched new a Fixed Cost Per Action (CPA) model in Yandex.Direct, as a result of which any business, regardless of size or industry, can pay a specific price for targeted user actions, like placing an order on the website or filling out a request. This strategy allows advertisers to spend their ad budgets more efficiently and receive better return on advertising spend. Moreover, this model allows us to attract new customers for whom the auction model was too complicated. This CPA model brought users more than 10 million targeted actions in the two quarters post launch.
For many businesses, phone calls are one of important metrics of ad campaigns effectiveness, as well as a channel of communication with customers. Therefore, we have started to test the implementation of a free of charge call tracking feature, which we will continue to develop in 2021.
Yandex Advertising Network
Our Yandex Advertising Network partners include search websites, for which we provide search capabilities, as well as contextual network partners, where we serve ads on websites, based on user behavior or characteristics or website content. Among our partners are some of the largest Russian websites, including Avito, Mail.ru Group, Rambler, RIA and others.
We help third-party website owners monetize their content while extending the reach of our advertisers. Through the Yandex Advertising Network, our partners can deliver performance-based ads on their search results pages or websites. Our advertising algorithms use our proprietary MatrixNet technology, which optimizes the click-through rate on our network through improved click prediction. We screen applicants for the Yandex Advertising Network and favor websites with high-quality content and stable audiences to offer advertisers high-quality traffic.
Yandex’s video advertising network allows users to place full-screen videos, video ads on pages of websites and ads within the video content available on over 450 advertising platforms, including desktop and mobile websites, mobile apps and Smart TV applications. Yandex’s video ad network covers over 67 million users. Yandex’s technologies enable users to provide advertising to the targeted audience and offer analysis of its efficiency through different tools and instruments, such as Brand Lift or video roll analysis.
In 2020 we completed the acquisition of K50, an efficient and fully automated platform for centralized ad placement in different channels, and one of the leading ad solutions for ad agencies on the Russian market.
We have developed a range of programmatic advertising products, which utilize real-time bidding, or RTB, technologies to provide effective solutions to our publisher and advertiser partners. Our RTB ad exchange connects our performance-based demand-side platform (DSP) Yandex.Direct, to our display-based DSP (called AWAPS) as well as to integrated third-party DSPs. Our RTB ad exchange leverages the wealth of targeting data generated by our own Data Management Platform, including Crypta, and search and browsing history. The RTB ad exchange is connected to many of our Yandex Advertising Network partners who have chosen to display ads from our RTB ad exchange as well as or in lieu of our regular Yandex.Direct ads. In addition, through ADFOX, an online ad management platform for media publishers, we provide a supply-side platform to our publisher partners. ADFOX is able to mediate in real-time between programmatic brand ads from AWAPS, performance-based ads from Yandex.Direct, ads from integrated third-party DSPs and the publisher’s own direct sales. In 2020 we introduced Outstream video ads, a mobile-specific video ads that reach potential customers on partner site, along with contextual and display ads in the same RTB block. This format helps website owners to use their ad inventory more efficiently.
We offer our advertisers the ability to display ads on mobile versions of Yandex services, including Search, Zen, and our Advertising Network partner websites, as well as in mobile applications, including our Yandex Search App. Advertisers are able to set up their mobile bids as a coefficient of their desktop bids.
Launched in mid-2017, Turbo pages is a format of displaying content on mobile devices that loads several times faster than regular web pages and is optimized for smaller screens. Our Turbo pages are easier to implement compared to other similar products and offer monetization from Yandex out of the box. Turbo pages are available on Search, Zen and News, in mobile and desktop. In 2020, our Turbo-pages were being used by tens of thousands of internet websites.
Our web analytics system, Yandex.Metrica, has the largest coverage among web analytics platforms in Russia. It is installed on 89% of all “.ru” domains using at least one web analytics tag. It is also one of the three most popular web analytics tools in the world. Yandex.Metrica combines near real-time reporting tools with intuitive heat maps and session replay. It features online-to-offline and cross-device tracking, easy-to-use attribution models, intuitive
dashboards and fully customizable reports and segments. Yandex.Metrica offers a comprehensive set of tools for ad analytics, helping businesses easily find traffic sources with the highest ROI. Yandex.Metrica provides the Logs API to export all raw data in order to accomplish complex tasks. Yandex.Metrica is available without any data caps, regardless of the traffic volume.
We also provide users with AppMetrica, a universal app analytics and marketing platform for install attribution that can be used for tracking various kinds of ad campaigns, as well as for product analytics, crash reports and push campaigns.
Yandex.Radar is our analytics tool, which provides statistics on search market shares and browser usage, as well as traffic breakdown by operating system and device type.
Our taxi segment provide a multi-mode experience that seamlessly and efficiently satisfies the needs of users and business for ride-hailing, car-sharing and delivery (including food and grocery delivery). Our platform enables access to a wide range of personal mobility and delivery services through our Yandex Go super app, which we launched in August 2020 and which combines ride-hailing, logistics, car-sharing, and public transport schedules, as well as food and grocery delivery services, in one app. Our users can also access this collection of services through standalone apps, including Uber Russia ride-hailing app, Yandex.Drive car-sharing app, as well as Yandex.Eats and Yandex.Lavka.
We launched our ride-hailing service in Russia in 2011. As of December 31, 2020, our ride-hailing services are available in 17 countries, including Russia, and approximately 800 cities (with over 50,000 population). The scale of our network coupled with our proprietary technology and marketplace efficiency enable us to accurately forecast demand and incentivize drivers to be available to accept rides, providing highly reliable ride-hailing services for individual users and businesses.
We have established one of the largest ride-hailing networks in Russia and much of the CIS, providing over 900,000 drivers with taxi orders and enabling riders to complete over 1.6 billion rides across all our geographies in 2020. Our total number of rides grew 18% year-over-year in 2020, despite the pandemic-related slow-down during the first half of the year.
Russia has historically accounted for a large portion of our ride-hailing operations, where we offer the broadest range of ride-hailing tariffs, varying by both price and functionality.
In addition to our primary ride-hailing services, our B2B platform offers comprehensive solutions for corporate ride-hailing services, including business trips, airport transfers and staff logistics, as well as transportation budget management. We launched our B2B platform in Russia in 2016 and have since expanded it to include Kazakhstan, Armenia, Belarus and Israel.
Our app utilizes smartphone GPS to detect a rider’s location and efficiently connect a rider with an available driver. Our app also provides robust features and functionality for riders throughout a trip, including the efficient determination of pickup points to reduce estimated arrival and waiting times. Our proprietary map infrastructure allows our apps to more precisely locate cars, as well as offer a more accurate match with nearby drivers. Our app provides riders with upfront pricing and may also suggest alternative pickup points with a shorter wait time or lower fare. At locations with more complicated logistics such as airports or stadiums, pickup points are predetermined in our app and are integrated with offline signage. Our app accepts a variety of payment methods, including credit cards, cash paid directly to the driver in certain markets and e-wallet payment solutions (including Apple Pay, Google Pay and others).
We currently build relationships with our drivers for our ride-hailing services both directly and through a wide partner network (Fleet Management Companies or FMCs). In certain Russian regions, we also support the new simplified self-employment regime that has been introduced by the tax authorities in Russia, which allows us to engage more drivers directly.
We offer our FMC partners access to efficient fleet management software to manage their driver base and fleet, optimizing their administrative and technical workflows.
Safety is of the utmost importance, and we take a comprehensive approach to monitoring and improving the safety of all our platform users, before, during and after their rides. We offer insurance that covers passengers, drivers
and third party participants in the event of personal injuries sustained in a ride. We have also implemented service access controls, such as driver scoring and detailed driver identification methods. We also tailor certain safety features to particular users, such as providing child safety seats. For drivers, we offer training and vehicle check-ups, both remotely and in person, and we continue piloting various technological tools to improve trip safety, such as video and telemetry monitoring to ensure drivers are alert, while our support service provides emergency support and a safety center services right within the app for both riders and drivers.
During COVID-19 pandemic, we created a separate fleet of vehicles drawn from the hundreds of thousands of cars available through the Yandex.Taxi service and organized more than 160 points for taxi cars disinfection throughout Russia, where drivers also received personal protective equipment. We also established a Support Fund for our drivers and couriers who were infected with COVID-19, in order to support them and their families during the period they were not able to perform ride-hailing services.
Our FoodTech business consists of Yandex.Eats, our ready-to-eat and grocery delivery services, and Yandex.Lavka, a hyperlocal convenience store delivery service. We see a large potential for both segments in our target markets.
Our FoodTech business relies on a wide partner network of couriers, who make deliveries on cars, bikes, scooters and on foot.
As of December 31, 2020, our Yandex.Eats services was available in 170 cities in Russia and Kazakhstan, with the majority of operations in Russia. Yandex.Eats is one of the leading online food ordering and delivery marketplaces in Russia working with approximately 33,000 restaurants as of the end of December 2020. In 2020, in addition to food delivery services, we started to provide grocery delivery from third party retail stores. As of the end of 2020, we partnered with over 20 retail chains across Russia. Approximately 85% of our orders in 2020 were through a first-party delivery model.
Yandex.Lavka offers on-demand delivery of groceries, ready-to-eat and other FMCG products within 10 to 30 minutes. The assortment includes over 2,500 SKUs with a focus on fresh and ready-to-eat categories. As of the end of December 2020 Yandex.Lavka operated 270 “dark” stores (mini warehouses) across Russia and Israel.
Yandex Logistics is our delivery solution for consumers and businesses, which we launched during the pandemic as a mean to serve the increased demand for delivery services. The service leverages Yandex’s routing and mapping platform to provide on-demand B2C and B2B delivery services.
Our logistics services are available to users in the Yandex Go super app, while for businesses we developed proprietary software, tailored for specific needs of SMBs and large enterprises.
In 2020 the service grew rapidly, and its annualized run-rate reached 55 million deliveries in December 2020. The number of businesses actively using our Logistics services in December exceeded 15,000. We provide logistics services for internal Yandex businesses, such as Market, Eats and Lavka, as well as for third party companies, such as Detsky Mir, VkusVill, L’Etoile, Pandora, Ozon, Avito, Beeline, Tele2, MTS, 1C, VTB, various food retailers and pharmacies.
The service is currently available in over 350 cities in 12 countries.
In February 2018, we launched our free-floating car-sharing service, Yandex.Drive, providing users with vehicles that can be reserved for a different period of time through a standalone mobile app, as well as through Yandex Go, and which can be dropped off in any permitted parking place across the cities we serve, as well as at airports and shopping malls. Offering on-demand access to cars in Moscow, Saint Petersburg, Kazan and Sochi, Yandex.Drive operates the leading car-sharing platform in Russia.
Yandex.Drive has been working with corporate clients since 2019. In 2020, Yandex.Drive launched a car subscription service, which allows a user to rent a car by subscription for a period of one month to one-and-a-half years through the app and includes maintenance and insurance.
We equip Yandex.Drive’s car fleet with our own proprietary telematics system and Yandex.Auto, our in-car infotainment system. Yandex.Auto provides a number of Yandex’s services, including Yandex.Navigator and Yandex Music. Powered by our voice-controlled assistant Alice, Yandex.Auto allows the user to personalize the service. It recognizes each user, greeting them by name, loads their usual routes, plays their favorite music and warns about traffic or weather conditions.
Yandex.Drive pricing is inclusive of fuel, parking, insurance and other costs associated with car ownership. Yandex provides dynamic pricing, which integrates traffic conditions, customer demand and other factors at the time of reservation. In addition, Yandex.Drive became the first car-sharing service worldwide to launch a fixed-price tariffs based on the final destination point, which allows us to improve the utilization rates of our fleet.
In September 2020, Yandex contributed the Yandex.Drive car-sharing business from Yandex N.V. to MLU B.V, our joint venture with Uber.
Yandex.Market is one of the most popular internet services in Russia, working as a multi-category marketplace and price comparison service. We aggregate price, product and availability information from thousands of active online and “brick and mortar” retailers. The marketplace is priced on cost per action (CPA) model, while price comparison is mainly priced on a cost-per-click (CPC) basis and recognizes revenue only when a user clicks on product offerings placed by merchants on Yandex.Market.
Yandex.Market price comparison service was launched in 2000, while the transformation into an e-commerce platform began in 2018 when Yandex and Sberbank of Russia completed the formation of a joint venture to develop a multi-category marketplace in addition to comparison shopping. In 2020, we reorganized our Yandex.Market joint venture by acquiring all of the Sberbank’s stake in the JV (45%). As a result of this transaction, Yandex became a controlling shareholder of Yandex.Market. We believe that the Russian e-commerce market is in the early stages of development and has significant long-term growth potential underpinned by an accelerating shift from offline to online in the retail sector. Full operational control over Yandex.Market allows us to capitalize on these secular trends as well as to unlock significant synergies from the deeper integration of Yandex.Market with other services within our platform.
In October 2020 we combined our price comparison and marketplace businesses into one platform under the Yandex.Market brand. This unified platform enables us to provide the full suite of e-commerce services to over 30,000 partners, including access to consumers, fulfillment, logistics, advertising and marketing, payments, support and analytics. This platform is also a one-stop shop for online buyers. As a part of our integration efforts, we launched an on-demand delivery option, capitalizing on the synergies between Yandex.Market and the courier capabilities of Yandex.Lavka. This service offers 15-30 minute “delivery to the door” and is now available to all users in Moscow, parts of St Petersburg and Nizhny Novgorod. We have also expanded our loyalty program Yandex Plus to our marketplace, so users are now able to receive up to 5% cashback as well as to pay for their purchases with Yandex Plus points. In 2021, in addition to cashbacks, we added free delivery for orders over 699 Rubles for Yandex Plus subscribers. In the current year, we will focus on accelerating growth, transitioning merchants from the CPC to CPA model and expanding our logistics infrastructure.
During 2020 we materially expanded our third-party business (3P) from 34% of the marketplace’s gross merchandise value (GMV) in the fourth quarter of 2019 to 63.5% in the fourth quarter of 2020 (66% in December 2020). More than half of our third-party GMV is fulfilled by Yandex.Market.
Our combined e-commerce GMV, which includes Yandex.Market marketplace GMV, the GMV of Yandex.Lavka and GMV of deliveries from grocery stores on Yandex.Eats grew threefold in 2020 and reached 56 billion rubles (on a pro-forma basis, including Yandex.Market for the full year 2020). In addition to that, our Yandex.Market price comparison platform generated approximately 220 billion rubles of GMV in the full year 2020.
The assortment on Yandex.Market marketplace expanded more than threefold during 2020 and reached 2 million SKUs by the end of the year. The number of buyers increased more than twofold and averaged over 6 million in December 2020. The number of sellers on the marketplace reached 8,000 in early 2021.
By the end of 2020, Yandex.Market operated four fulfillment centers (three in Moscow and one in Rostov on Don) with total area of over 100,000 square meters. In addition, our logistics infrastructure included 8 sorting centers, 632 pick-up points (including 108 branded) and 1,187 branded lockers. In November 2019, we launched a managed courier platform in Moscow, which we further expanded to several other cities including Saint Petersburg, Rostov on Don, Kazan, Nizhny Novgorod, and Krasnodar. Courier delivery remains the primary last-mile delivery option and accounted for 58% of all orders at the end of 2020, including 32% of all orders delivered via our own managed courier platform. The development of our managed courier platform has helped to improve delivery speed compared to third party logistics providers. Around 95% of deliveries via our managed platform were delivered in the customer’s preferred time slot. In November 2020, we began testing our “dropshipping by seller” (DSBS) model, whereby the marketplace is only responsible for customer engagement, while the merchandise moves directly from a merchant to a customer without being handled, stored or delivered by us. The model is gaining traction with merchants and should help us to expand the number of merchant partners as well as widen the assortment on our marketplace.
Media Services include our entertainment services (Yandex Music, KinoPoisk HD, Yandex.Afisha and Yandex.TV Program), our subscription service Yandex Plus as well as our production center Yandex.Studio. Based on Yandex’s recommendation technologies and professional content, Media Services offer its users various entertainment options. We monetize Media Services through subscription revenue, online advertising and transaction revenues, as well as event tickets sales. Our Media Services are available across different platforms, including Yandex.Station and Yandex.Auto.
Media Services include the following:
|●||Yandex Plus is our subscription service to Yandex Music and KinoPoisk HD, cashback loyalty points in the Yandex Go app, Yandex.Market, Yandex.Eats, and Yandex.Lavka and various special offers from other Yandex services (the availability of content, special offers and cashback programs varies by country). Yandex Plus is available in Russia, Kazakhstan, Belarus, Uzbekistan, Israel and some other countries. The subscriber base grew from 2.7 million in December 2019 to 6.8 million in December 2020, and reached over 8 million in February 2021. In Q3 2020, we enhanced the Yandex Plus subscription with access to the full KinoPoisk HD catalog (in addition to previously available Yandex Music). We also replaced several individual bonus programs and discounts for Yandex Plus members in Russia with a unified cashback offering. Subscribers earn cashback loyalty points when they pay for our services and then can use these rewards across the Yandex ecosystem. We currently offer three types of Yandex Plus subscription:|
|o||Plus (for individuals) and Plus Multi (for up to 4 members of a household) subscriptions give access to thousands of movies and TV shows, including all of our original and exclusive content, access to music and podcasts on Yandex Music as well as cashback offerings;|
|o||Plus with more.tv and Plus Multi with more.tv. More.tv is a Russian SVoD (Subscription Video on Demand) service that gives access to original and exclusive TV-shows and series;|
|o||Plus Multi with Amediateka (the subscription also includes more.tv), an exclusive distributor of HBO content in Russia, in addition to the Plus subscription.|
We are pleased that several key benefits of Yandex Plus are already materializing. We see improved conversion from trials to paid subscribers, better cross-service usage and higher average spend. Furthermore, we expect that other advantages of our subscription model such as higher customer retention and lower customer acquisition costs will come to bear soon.
|●||Yandex Music is a streaming platform that provides access to a catalog of 65 million music tracks and 254,000 podcast episodes. The service matches music for every taste using its recommendation system, creating unique playlists for each user. Yandex Music is the largest music streaming service in Russia.|
|●||KinoPoisk is one of the leading video streaming platforms in Russia and the largest Russian-language source for information about movies, TV-shows, celebrity content and entertainment news, providing users with critic and user reviews and ratings, personalized recommendations, local movie showtimes, ticketing, and many other services. In 2018, KinoPoisk launched its own video streaming service, KinoPoisk HD, which allows users to watch content on a subscription basis (through the Yandex Plus subscription) or purchase selected titles. The KinoPoisk HD catalogue contains over 70,000 movies, video episodes and TV shows, including exclusive content, both licensed from leading domestic and international production companies and original content. In December 2019, we announced a deal with the BBC to exclusively host over 100 hours per year of brand new BBC premium dramas, comedies, and children’s titles, plus content from a range of British producers in the BBC Studios’ 2020 catalogue. The number of monthly viewing subscribers on the platform reached over 3 million in January 2021.|