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Yandex (NASDAQ:YNDX)
Q4 2018 Earnings Conference Call
Feb. 15, 2019 8:00 a.m. ET

Contents:

Prepared Remarks:

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by, and welcome to the fourth quarter and full-year 2018 financial results conference call. [Operator instructions] I would now like to hand the conference over to your speakers today. Please go ahead.

Katya Zhukova -- Investor Relations Director

Hello, everyone, and welcome to Yandex's fourth-quarter and full-year 2018 earnings call. We distributed our earnings release earlier today. You can find its copy on our IR website as well as on Newswire services. On the call today, we have Arkady Volozh, our chief executive officer; Mikhail Parakhin, our chief technology officer; Tigran Khudaverdyan, our head of YandexTaxi; and Greg Abovsky, our chief operating and chief financial officer.

Vadim Marchuk, our VP of corporate development, will be available on the Q&A session. The call will be recorded. The recording will be available on the IR website in a few hours. As usual, we prepared a few supplementary slides, which are currently available on the IR website.

Now I will quickly walk you through the safe harbor statements. Various remarks that we make during this call about our future expectations, plans and prospects constitute forward-looking statements. Our actual results may differ materially from those indicated or suggested by the forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of our Annual Report on Form 20-F dated March 27, 2018, which is on file with the SEC and is available online. In addition, any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of subsequent date.

Although we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our views change. Therefore, you should not rely on those forward-looking statements as representing our views as of any date subsequent to today. During this call, we'll be referring to some non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with the U.S.

GAAP. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is provided in the earnings release we issued today. And now I'm turning the call over to Arkady.

Arkady Volozh -- Chief Executive Officer

Thanks, Katya, and thank you, everyone, for joining us today. I am very pleased to say that 2018 was a truly remarkable year for Yandex. First, we saw a significant acceleration in our revenue and adjusted EBITDA growth rates, this was the highest rate in five years going back to when we were one-fourth of our current size. We also had great results across all of our core business areas, including Search, and we saw very strong progress in a number of our recent important initiatives.

We had a number of key highlights this year, some of which my colleagues will elaborate on in more detail, but from my side, let me briefly highlight just a few. We grew our share on Android to approximately 50%, and we expect that share to continue to grow. We made significant advancements with Alice, our voice assistant, growing the size of its audience, while enhancing and expanding its functionality. We started producing hardware devices this year with Alice embedded in them, such as the Yandex.Station smart speaker, the Yandex.

Auto on board computer for connected cars and our experimental smartphone. We launched Yandex.Eats, which in December, delivered over one million of orders. Yandex.Drive was launched in February of last year and rapidly became the No. 1 car sharing service in Russia, the second largest in Europe and the third largest in the world.

I believe it is well-positioned to enter into international markets. Our ride-sharing business reached breakeven, and our self-driving car division has significantly progressed over the past year. It operates now in two Russian cities, where it drives in a completely autonomous mode without anyone at the driver seat at all. In Q4, we extended our tests to the street of Tel Aviv, and finally, recently in January, we demonstrated our self-driving car at the CES Conference in Vegas.

And as you may have seen in the press at the time, the demonstration blew people away. For many years, since company's inception, we have been following the concept of just one business model. This was focused around Search and online advertising. This model still continues driving our growth of our core business at 20% per year, but today, Yandex is much more than just Search.

At this point, I can say that we've effectively built yet another company on top of the original one. As a shareholder, I am extremely proud to own the stock. And with this, let me hand over to Mikhail Parakhin. Mikhail, over to you.

Mikhail Parakhin -- Chief Technology Officer

Thank you, Arkady, and hello, everyone. We are very pleased with the results we achieved in Q4. Our consolidated revenue, excluding Yandex.Market from both periods, grew 46% year over year. Revenues of the Yandex properties, excluding Yandex.Market from both periods, grew 27% year over year.

Revenues of Yandex ad network grew 16% year over year this quarter. Acceleration of growth rate was due to greater contribution from small- and medium-size partners. We have always worked hard to provide our clients with great targeting technologies and tools to achieve their goals. And we are always delighted to see new successful use cases.

For example, there is an ad campaign of [Inaudible], a popular travel website, brought 140% return on investment in Yandex advertising network. Search and Portal segment demonstrating solid growth in Q4, with revenue in growth rates of 27% year on year. This growth rate was primarily driven by solid performance of Search, mainly as a result of template launches and mobile search share gains as well as by robust growth across other Yandex properties, such as Zen, homepage and images. Sales of hardware devices contributed approximately one percentage point to Search and Portal revenue growth in Q4.

On netback front, templates continued performing well, and we estimate that templates contributed approximately 5% to our Search revenue growth on Mobile and 2.5% on deskstop; experiments with templates is a continuous process, and we will keep unveiling new ad layouts going forward. We continued rolling out Turbo Pages, our analogue of instant articles. Turbo Pages allow websites to significantly increase traffic and time spent on the website as well as decrease bounce rate. Currently, Turbo Pages appear on 50% of search result engine pages on mobile.

In Q4, monetization of Turbo Pages has increased 6 times compared to a year ago. In Q4, the share of mobile traffic reached 49.2% of our total search traffic. Mobile revenues represented 41.4% of our Search revenues. Revenue-to-traffic ratio improved 320 basis points compared to the previous quarter.

To continue the Mobile topic, it is certainly worthwhile mentioning Geo services, providing users with local-based search experience and helping us in bids get online. In Q4, local-based mobile searches grew 30% year over year. Ad App pings in Navigator were shown approximately five billion times. Just recently, we started experimenting with new native ad formats.

Now when a driver stops near a shopping mall or a gas station, we show them a small, but highly relevant ad banner at the bottom of the screen. This is an efficient way to provide drivers with information and to convert online-to-offline traffic for advertisers. It is really impressive the way our Geo services evolved beyond just navigation. Now I can arrive at a gas station, open my Yandex.Navigator app, choose the pump number, gas amount and pay inside the app.

This is extremely helpful during severe winters in Russia. Currently, the service is available on over 1,000 gas stations. Yandex.Taxi drivers can also use this option in their driver app. Turning to recent product launches and updates.

In November, we presented Andromeda, our latest search algorithm update. It further improves personalization of user search experience and helps find answers as quickly as possible. Now we provide increased coverage of in line answers on surf, feature badges for the most relevant and accurate websites and allow users to save searches in visual format in Yandex. Collections.

Collections particularly drew large interest among users. There are already over 100 million carts added by users and are up 500-plus percent year over year. Another great feature that we've been testing for several months now already with chartered business. This is a kind of a messenger that appears right on our search result page and allows users to interact with businesses in a real-time manner, while businesses get a unique opportunity to reach out to users from Yandex.Serve.

The quicker the business responds to a user, the higher the probability that this user converts into a client. Now over one million messages per day already including messages generated through the dialogues with our AI system, Alice. An offline business, which often doesn't have a website can use our chatting tool as well. Turning to Search share dynamics.

In December, our overall Search share reached 56.4%, down 30 basis points compared to the year ago due to the mobile and desktop mix effect. In January, our overall Search share increased to 56.9%. Our Search share on desktop reached 68% in December, gaining 110 bps from September and 70 bps from a year ago. On Mobile, our Search share averaged 47.3%, growing 280 basis points year on year.

Our Search share on Android was 49.4% in December, up 380 basis points versus a year ago. In January, we reached 50.7% on this platform. Our Search share on iOS was 40% in December, down 70 bps compared to September 2018 and up 110 bps from a year ago. While we improve user experience online, our Taxi and related businesses help our customers off-line.

Tigran will walk through these services. Tigran, please go ahead.

Tigran Khudaverdyan -- Head of YandexTaxi

Thank you, Mikhail, and hello, everyone. During the past couple of years, we have been focusing on services that significantly improve user off-line experience, including the ride sharing food, delivery and in the future, autonomous vehicles. 2018 was a truly great year for us. We completed the integration of Yandex and Uber's ride-sharing businesses in Russia and CIS.

We have learnt how to efficiently optimize subsidies without sacrificing growth. This allowed us to achieve profitability on the adjusted EBITDA level in our ride-sharing business in H2 2018. In September, we fulfilled one billionth ride, and we will reach two billion rides sometime this year. We launched our food delivery business and quickly gained significant market share.

We significantly progressed on our self-driving front. Our self-driving car is driving Skolkovo and Innopolis in Russia without a driver at the wheel. We also started testing in Israel and successfully demonstrated our capabilities at this year's CES in Las Vegas. I'm extremely proud of what we have achieved.

Now the details. Full-year revenues of Taxi grew 293% year on year. In Q4, our revenues increased 216%, driven by unit growth and lower subsidies. Adjusted EBITDA loss of the Taxi segment was RUB 129 million in Q4.

Our ride-sharing business was consistently profitable, while the loss was driven by our investments in food delivery and driverless technology. In Q4, the number of rides grew 112% year on year. We believe that our technological expertise in mapping, ride dispatch, dynamic pricing and management of the balance between supply and demand are very important competitive advantages, which are applicable beyond our domestic markets as well. Turning to food delivery.

Yandex. Eats, our food delivery service, has been growing rapidly since its launch in February 2018. In December, the number of orders delivered exceeded 1 million. As of today, we have over 8,000 restaurants.

We mostly rely on our own delivery as it allows us to better control the service quality. We leverage our proprietary technological set to optimize routing and logistics. Since February, we lowered our delivery times from order-to-delivery by 35% to approximately 32 minutes currently. We will continue investing in our food delivery service as we believe that this market has a huge potential, and we are at early stage of this development.

Our self-driving technology is another great testament to our deep expertise in machine learning, navigation, mapping tools and cloud technologies. We are very excited to be at the forefront of driverless technology, which will completely change the way people commute within the next decade. With this, I'm turning the mic over to Greg, who will walk you through the operational performance of business units and our financials.

Greg Abovsky -- Chief Operating and Chief Financial Officer

Thank you, Tigran, and thank you all for joining our call today. We delivered another strong quarter. Our consolidated revenue excluding Yandex.Market grew 46% year on year in Q4. Online advertising revenues excluding Yandex.Market increased 25% year on year.

Other revenues grew 235% year on year in Q4, primarily driven by the growth of Yandex.Taxi and to a smaller extent of Yandex.Drive. Total TAC increased 29% year on year and amounted to 15.9% of total revenues, down 130 bps from Q4 '17 and down 40 bps on a sequential basis. Traffic acquisition costs related to partner advertising network grew 24% year on year, mainly reflecting partner and products mix shifts. Traffic acquisition costs related to the distribution partners increased 44% year on year, primarily affected by the growth of Android.

In Q4, distribution tax stood at 7.9% of Yandex properties' revenues, which is 20 basis points higher than in Q3. Turning to our cost structure. In Q4, total OPEX, excluding TAC and D&A, grew 44% year on year. Excluding stock-based comp, operating expenses increased 47%.

The growth is primarily driven by our Taxi and car-sharing businesses. As of December 31, we had 8,767 employees, down 1% compared to September 30. This decrease was mainly due to headcount reclassification, which we implemented to ensure consistency in internal reported. This primarily relates to customer support positions, which we now treat as outsourced labor.

On a year-over-year basis, our headcount was 18% higher. In Q4, our personnel costs amount to 17% of total revenues. Stock-based comp grew 18% year on year in Q4 and constituted 4.2% of revenues. G&A expense in Q4 increased 6% year on year.

Our consolidated adjusted EBITDA, excluding Yandex.Market, grew 38% year on year. This quarter, the impact on FOREX was a gain of RUB 904 million related to the depreciation of the Russian ruble during Q4 from RUB 65.6 to the dollar to RUB 69.5 to the dollar. Adjusted net income was up 32% year over year, and adjusted net income margin was 17.9%. Excluding Yandex.Market, adjusted net income was up 53% from Q4 '17.

Our CAPEX, excluding the one-off effect from the headquarter site acquisition, was 11% of total Q4 revenues, while on an annual basis, our CAPEX-to-revenue ratio was 15%. We expect our CAPEX, excluding expenses related to the new HQ, to be in the low teens as a percent of consolidated revenues in 2019. Just to remind you, in late December, we announced a purchase of the property site for our new Moscow headquarters of approximately 10 acres, situated at Kosygina Street in Moscow. We're very excited with the opportunity to create our own campus in the heart of Moscow.

The acquisition price was $145 million. Turning to the performance of our business units. Search and Portal revenue grew 27% year on year, driven by the growth on our owned and operated properties as well as in partner websites. Adjusted EBITDA in Search and Portal grew 24% year on year in Q4 and it's adjusted EBITDA margin was 43.5% down 100 bps compared with Q4 of last year and down 230 bps compared to the previous quarter.

This decrease was mainly due to the sales of hardware devices as we previously talked to you about. In 2019, we expect margins of Search and Portal to be down 100 to 200 basis points primarily due to sales of hardware devices. Since Tigran has just updated you on the Taxi business, let me turn to Classifieds. Revenue of Classifieds business grew 61% year on year in Q4, primarily driven by revenues from listing fees and VAS, which grew 90% year on year.

Auto.ru continued strengthening its market positions in its core markets. Adjusted EBITDA of Classifieds was negative RUB 18 million in the quarter. Turning to Media Services. In Q4, Media Services revenues were RUB 679 million and grew 69% year on year, primarily driven by subscription services, video advertising and to a smaller extent by commissions from ticket sales.

Media Services adjusted EBITDA loss was negative RUB 215 million and mainly reflected the growth of advertising and marketing costs, our continuing investments in content and product development. KinoPoisk keeps expanding its content library, which currently includes over 5,000 movies and TV shows available by subscription. In Q4, KinoPoisk launched premium subscription in partnership with Amediateka, the exclusive distributor of HBO content in Russia. On the Experiments front.

In Q4, revenues of Experiments primarily represented by Yandex.Drive, Zen, and Cloud reached RUB 1.2 billion, led by Yandex.Drive and Zen. Adjusted EBITDA loss of Experiments was RUB 665 million, primarily due to our investments in Yandex.Drive and Yandex.Cloud. The Yandex.Drive maintained its leading position with total fleet of 8,000 cars and over 11 million rides completed since launch. In Q4, we extended Yandex.Drive to St.

Pete, where we also became the market leader. In December, we introduced our car-sharing service in the cargo segment. Our personalized content feed service, Yandex.Zen, continues actively developing its publisher content platform, which currently generates over 50% of Zen's feed content. According to recent operators data, monthly audience of Zen reached over 39 million people, while time spent averaged approximately 35 minutes per day.

Number of daily unique users reached 9.5 million, while number of visitors and devices exceeded 15 million on a daily basis. In late December, Zen become available to users of Opera desktop browser in Russia. Zen's annualized revenue run rate was RUB 5.9 billion in December. Moving on to Yandex.Market, which we no longer consolidate in our financial results.

In Q4, revenues of Yandex.Market on a like-for-like basis grew 136%, mainly driven by the marketplace launches as well as solid performance in price compression service. Adjusted EBITDA loss at Yandex.Market was RUB 1.3 billion in Q4, reflecting our investments in both food delivery and marketing expenses, primarily related to the launch of the Beru marketplace. In Q4, our marketplace Beru came out of data with 15 shopping categories and 100,000 SKUs. In November, we introduced first Beru-operated fulfillment center in the Rostov region to ramp up fast delivery across the southern part of Russia.

In addition, Yandex.Market launched its cross-border marketplace, Bringly. Getting back to corporate matters. We ended the quarter with approximately RUB 68.8 billion in cash and equivalents, which is approximately $990 million with the exchange rate as of December 31. This includes the cash of Yandex.Taxi, which amounted to RUB 27 billion.

Cash and equivalents of Yandex.Market are approximately RUB 29.1 billion are not included in the consolidated results of Yandex N.V. In December, we repaid in full the amount of convertible senior notes in the face amount of RUB 321 million. Turning to guidance. Based on the recent solid performance, we provide an early outlook for the Search and Portal business to be in the range of 18% to 20% year over year in 2019.

Excluding Yandex.Market from 2018 results, we expect our total revenues to grow 28% to 32% in 2019 compared with 2018. With this, I'm turning the mic over to the operator for the Q&A session. 

Questions and Answers:

Operator

Thank you. [Operator instructions] Your first question comes from the line of Lloyd Walmsley of Deutsche Bank. Please ask your question.

Lloyd Walmsley -- Deutsche Bank -- Analyst

Thank you. I have two, if I can. First, just on templates. It sounds like it's really starting to move the needle on revenue.

Wondering if that contribution is mostly helping O&O or if that's also part of the network strength? And can you kind of talk about the timing of that inflection point? Was it really kind of a 4Q event? Because you all have been downplaying the impact to somewhat to revenue. So it sounds like a bit of a change in tone there. And then the second question would just be on kind of scaling the robo-taxi business. Can you talk about what your plans are this year? And what really needs to happen from a technical standpoint, operationally, from a compliance kind of regulatory perspective, to really scale that business in Russia or any other markets, I guess, around the world?

Mikhail Parakhin -- Chief Technology Officer

Mikhail, sure, I'm going to take the first one and then maybe Greg will take the second one. So on templates, as we repeatedly said, templates are not like a one thing, right? It's a constant work in progress where we release new bids every month essentially. So as you correctly pointed out, in accumulation, you could see already the impact quite a bit, and we're going to continue rolling out new templates going forward. This is -- so templates is mainly search result, so it's search only, it's not Yan.

They do not impact Yan results.

Greg Abovsky -- Chief Operating and Chief Financial Officer

Hey, Lloyd. And on self-driving cars, what I would say is, we're still very much in the investment phase. We're looking to ramp up the fleet of vehicles that we will be deploying, mostly in development and test mode. I'm not sure there's going to be a whole lot of live deployment such as the one you saw with Innopolis and Skolkovo, but we will look to ramp those up as well.

Overall, I'd say we're extremely bullish by the technology that we have created around self driving, and we think that obviously, over the long term, this is definitely the future of transportation. And we want to be one of the companies globally that's at the forefront of this innovation.

Lloyd Walmsley -- Deutsche Bank -- Analyst

Thank you.

Operator

Your next question comes from the line of Miriam Adisa of Morgan Stanley. Please ask your question.

Miriam Adisa -- Morgan Stanley -- Analyst

Hi. Good morning, everyone. Two questions from me. Just firstly, on the Search guidance of 18% to 20%, just wondering how much of an impact from smart speakers is baked into that, as that looks rather conservative sort of based on the guidance, the margins deteriorate by up to 200 bps? And then secondly, on Taxi.

Based on the current structure, it looks like you can reach profitability in Q1 this year. Is that a fair statement? Or is there any reason assisting why that wouldn't be the case?

Greg Abovsky -- Chief Operating and Chief Financial Officer

Hey, Miriam, it's Greg, let me try to take them one by one. On the Search and Portal, so what we've said is, we expect that the margins will be down about 100 to 200 basis points in the Search and Portal segment. Obviously, the revenues are also in that 18% to 20% guidance a little bit of them in there. Given that they are either done at breakeven or even the slight loss, they have quite an impact.

And then the rest of the margin compression is just a result of the fact that we continue to invest in new products, right? The Search business has very natural operating leverage. And every year, we reinvest that operating leverage back into important products that the team develops, whether it's the Alice intelligent voice assistant, the Collections that Mikhail was just talking about, the chats with businesses that we recently rolled out, the neighborhood, social network that we are currently deploying, so on and so forth. All of those require investments, all of those require investment in people, first and foremost. And so what we like to do is, we like to maintain this kind of high-teens, low-20s types of growth rates in the Search portal over the long term and that requires coming up with new things constantly rather than just focusing on search and search only.

Hopefully, that answers your question about the guidance? On the Taxi front, just as a reminder, within the Taxi segment, you have sort of four different buckets, if you will. You have Russia or Russia CIS ride-sharing business, which is profitable -- increasingly profitable, I would add, over the last few quarters, and we expect it to keep getting better and better. It includes sort of the emerging countries where we launched service recently and obviously, many of those are loss making, and we're still kind of in the investment phase there. It also includes the self-driving business that I just talked about in response to Lloyd's question.

And finally, it includes the Eats segment. Eats is a new business -- relatively new business for us. We started in food delivery in December 2017. And only the course of a year, we grew the size of that business to 10 times and are now a significant and important player in this business.

We think that food delivery is a very attractive part of the business, and we'll continue to invest in it. So net of that is we expect that the losses in the segment will moderate in 2019, driven by very healthy economics in the core Russian CIS segments, offset by investments in earlier stage undertakings.

Miriam Adisa -- Morgan Stanley -- Analyst

That's helpful. Thank you.

Operator

Your next question comes from the line of Slava Degtyarev of Goldman Sachs. Please ask your question.

Slava Degtyarev -- Goldman Sachs -- Analyst

Hi. Thanks for the call. Also couple of questions. Firstly, can you comment on the Taxi gross bookings dynamics or if possible disclose some of the basically recent run rate for the Taxi business? And the second question is, maybe you can comment on the advertiser behavior by the key subsegments at the beginning of the year? Do you see directly or maybe indirectly the effect from the increase in value-added tax started from January this year? Thank you.

Tigran Khudaverdyan -- Head of YandexTaxi

Hello, this is Tigran. CEO of Yandex Taxi, may I take this question? So gross bookings are -- so let's start from rides. Rides are growing 112% year over year in Q4. The gross bookings generally annualized run rate reached USD 4.2 billion based on December.

Let's keep in mind, please, that December is high season. And so taking -- talking about gross revenues. This grew 170% year over year in Q4. This is a slight slow down from 200% growth rate last quarter.

And also, we are continuing optimizing subsidies. They declined as a percent of gross revenues and in absolute terms also.

Mikhail Parakhin -- Chief Technology Officer

Hey, Mikhail here for the advertiser's question. So -- well, we just gave the outlook on Search and Portal revenue growth, 18% to 20%. So that sort of reflects of what we see right now and basically, what -- how we see the business. We will give update on trends probably in April.

So far, we see that our key advertising category is continuing to grow well. The top is auto, finance, eating out, there are IT, there are all growing at healthy double-digit, 30%, 40% range.

Slava Degtyarev -- Goldman Sachs -- Analyst

OK. Thank you very much.

Operator

Your next question comes from the line of Cesar Tiron of Bank of America. Please ask your question.

Cesar Tiron -- Bank of America Merrill Lynch -- Analyst

Hi, everyone. Thanks for the call and the opportunity to ask questions. I have three questions if that's OK. The first one, I just wanted to clarify on the margins for our core search in 2019.

Do you expect those to trend down? Second question is on food delivery. Is it fair to say that we're seeing some rationalization in the market? It looks like subsidies are being reduced, and you're now charging for deliveries in Moscow. And then the third question would be on potential regulation for Taxi. I mean, I think there were some proposals, for example, to ban foreigners to drive taxes and few other things if you can clarify.

Thank you so much.

Greg Abovsky -- Chief Operating and Chief Financial Officer

Hey, Cesar, let me try to take these. On margins, I think, we've sort of said everything that there is to say, which is we expect that they will be down about 100 to 200 basis points driven almost entirely, if not entirely, by sales of hardware devices. Whereas, the national operating leverage of the core Search gets reinvested in new products that we just named or new ones that will launch over the course of the year. So there is not much to add on that front.

On food delivery, I think it's early to draw conclusions whether or not this market is rationalizing or not. We have been extremely disciplined in terms of our pace of investment in this segment. And so far, well, I think we've achieved very significant results without sort of irrational exuberance in this segment. With respect to delivery fees, yes, we do introduce them from time to time and what -- we tested them out, but our primary focus is on product, which means that, gets -- getting the click to eat time down to -- this is 30 minutes or so is that consumers in the Western world are sort of used too.

As you know, historically, delivery times for Russian restaurants were an hour or more, which is just completely different type of experience. I would draw the parallel to calling up a taxi aggregator company back five, six years ago and having to wait 45 minutes for a taxi. Now you open up your Yandex.Taxi app and within three, four minutes, there is a car waiting for you of any type, class, size, whatever you want. So it's quite an investment that you need to make, but it's also quite a difference in product that consumers are really appreciate.

And then finally, on regulation. Look, I'd say is that we're in constant dialogue with regulators kind of regarding a wide array of questions that come up. And it covers sort of many different aspects of the business both ride-sharing, news aggregation and so on. I think our position is consistently to be in a constructive dialogue with its regulators.

We're sometimes sort of at the forefront of regulation working with other industry participants to introduce new regulation that is beneficial for everyone. I kind of draw your attention to the video anti-piracy memorandum that was signed in Q4 in early November, where Yandex together with other Internet players such as Mail and Rambler got together with the media companies, the guest-run medias, the -- and MGs of the world Channel Ones and so on and signed a memorandum, which has drastically cut the amount of video piracy that is accessible on the Russian Internet. So I think, that that's certainly a very legitimate approach to regulation, which is trying to identify problems that come up from time to time and trying to introduce kind of self-regulatory mechanisms that address the concerns of all the parties involved.

Cesar Tiron -- Bank of America Merrill Lynch -- Analyst

Very clear. Thank you.

Greg Abovsky -- Chief Operating and Chief Financial Officer

Thank you.

Operator

Your next question comes from the line of Maria Kahn with HSBC. Please ask your question.

Maria Kahn -- HSBC -- Analyst

Hi. Thank you so much for the opportunity. Just wanted to ask the take-up of your Cloud business? And that's probably number one question. And second question, I think, investors would be interested to hear what you're doing in terms of addressing the single-person risk in your shareholder structure? Thank you.

Mikhail Parakhin -- Chief Technology Officer

Hey, Mikhail here, on the cloud question. So overall, I'm delighted with how Cloud is progressing. We rolled out our public usage in December of 2018. So it's a bit early to be able to estimate the rates of growth.

Overall, we have 50,000 registered users right now and 10,000, which are active. We added -- we're continually adding new services, just recently added like five services in the last week and things like reddit-based managed service and datarent, our data visualization tool. Of course, all of them are available on serves located in Russia. So right now, all I would say it performs in line with what we would expect.

Greg Abovsky -- Chief Operating and Chief Financial Officer

Maria, it's Greg, and on the second question. Look, I don't think there is anything kind of new to add to the statements we've made in the past, which is to say that the board's committed to good corporate governance and it kind of evaluates any potential steps toward achieving optimal capital or government structure of the groups or its subsidiaries. And obviously, the long-term view is to protect the long-term interest of the company and all of the stakeholders. So there is not much to add to what we said before.

Maria Kahn -- HSBC -- Analyst

OK, OK. Very clear. Thank you so much.

Greg Abovsky -- Chief Operating and Chief Financial Officer

Thank you.

Operator

Your next question comes from the line of Ulyana Lenvalskaya of UBS. Please ask your question.

Ulyana Lenvalskaya -- UBS -- Analyst

Hi, everyone, and congratulations on a very strong quarter. The first question will be on the car sharing. Can you if possible disclose the number of cars you currently have? And also, the regional strategy, like how big is this business in Moscow versus regions and plans about the potential expansion outside of Russia?

Greg Abovsky -- Chief Operating and Chief Financial Officer

Ulyana, it's Greg. On drive, I think, it currently has about 8,000 cars. We're adding a lot of cars every single month. Of the cars, almost all of them with the exception of roughly 1,000 are in Moscow.

We've expanded the services to St. Petersburg back in December, where we very quickly became the largest player there. We are looking to expand the service to other cities within Russia. And we're also evaluating opportunities for international expansion of Yandex.Drive.

I think the achievements that this team has demonstrated are remarkable, driven by their single-minded focus on product, which is quite unique in the marketplace. So we're very excited with the prospects.

Ulyana Lenvalskaya -- UBS -- Analyst

Yes. I agree the achievements are truly remarkable. In that sense, the business really becomes bigger, so you can see there to start reporting it separately outside of Experiments?

Greg Abovsky -- Chief Operating and Chief Financial Officer

Absolutely, I think. We constantly look for how to provide optimal level of disclosure to our shareholders. And I think generally speaking sort of at the forefront of transparency, and we always want to give you guys more information about how we make investment decisions and providing more disclosure around drive is certainly one way of achieving that.

Ulyana Lenvalskaya -- UBS -- Analyst

Thank you. And if I may, just, again, to quantify on the stability outlook. So with the core business, it's very clear, the guidance is straightforward. Taxi, you said that loss should be smaller year on year, but it is still a loss, right? And then how about the Classifieds and Media Services? Should we expect the losses to stay there during 2019?

Greg Abovsky -- Chief Operating and Chief Financial Officer

Sure. So I won't cover for the Search and Portal and Taxi, since I think you got those covered. On Classifieds, our strategy is unchanged from the previous year, which is, we expect a very robust growth in Classifieds as we are increasingly taking share away from the leading competitor there in the regions, and we will continue to reinvest all of the incremental revenues back in the business as we sort of turbocharge this segment. And with respect -- so I assume that it kind of operates at more or less breakeven, maybe slight positive, maybe slight negative depending in kind of the pacings of the business.

On Media Services, we will invest slightly more this year as compared to last year as we invest more in content. And as we look to grow our subscription base of Yandex.Music subscribers as well as video service subscribers.

Ulyana Lenvalskaya -- UBS -- Analyst

Thank you. And just final. On music, can you disclose the number of users you currently have?

Greg Abovsky -- Chief Operating and Chief Financial Officer

I don't think we've disclosed it yet, but it's tracking nicely. I should say, we haven't disclosed recently since we've disclosed it in the past, but it continues to grow month on month and hopefully year on year.

Ulyana Lenvalskaya -- UBS -- Analyst

Thanks.

Operator

Your next question comes from the line of Sebastian Patulea of Jefferies. Please ask your question.

Sebastian Patulea -- Jefferies -- Analyst

Hello, everyone, Sebastian from Jefferies here. I've got two questions, please. Firstly, we've seen an interview with one of your main competitors in the taxi vertical in Russia saying that they are open to the idea of selling that business. I realize this topic is sensitive, but would you be opened for further consolidation? And -- or do you believe that now you've achieved the necessary scale to grow organically and profitably for the foreseeable future? That's the first one.

And the second question still regarding Yandex.Taxi, global ride-hailing companies are pivoting more and more toward the strategy of last mile mobility and one of collaboration with two of your operators. For example, as you know, [Inaudible] recommending bus or train routes. These give the user at the destination both faster and cheaper everything within the same app. So with Moscow being one of the most congested cities in the world, do you guys see any benefit to go through this strategic shift yourselves? And if so, what are the opportunities here?

Greg Abovsky -- Chief Operating and Chief Financial Officer

Sure, Sebastian. First of all, on your second question with last mile mobility, I think that's an excellent question. And one of the remarkable things that the Department of Transportation has done in Moscow is three or four years ago, they introduced regulation which really enables car-sharing initiatives. I think Bloomberg just did a story about this last week, which was very interesting.

What they're doing is, they are allowing for car-sharing vehicles to pay lower parking rates than normal cars. And so what that has done is, it made Moscow of the largest car-sharing market in the world. While bikes and scooters are sort of one aspect of the last mile mobility, I would say Yandex.Drive is kind of an important participant in this space given kind of the weather conditions and the fact that bikes or scooters are probably not the best ways of getting around 250 days of the year or maybe slightly less than that. But we're also looking to integrate our offerings with Yandex.Transport, which provides a live information about the movements of buses, trams and so on throughout the city, and we're looking to see if we can integrate it even further within Yandex.Taxi.

On the question of M&A, look, we obviously don't comment on speculation or market rumors about consolidation. I think the business is in excellent shape and grows strongly organically and is improving its margin profile domestically. So there's not much to add.

Sebastian Patulea -- Jefferies -- Analyst

Thank you very much.

Operator

Your next question comes from the line of Alexander Vengranovich of Sova Capital. Please ask your questions.

Alexander Vengranovich -- SOVA Capital -- Analyst

Hi. So two questions from my side. So first, again, on Taxi. One of your competitors, Citymobil, is actually expanding in Moscow market.

And just wanted to understand whether you see any rising competition from their side? And in the case, they become like more aggressive, how do you plan to handle this situation? Do you think you might continue further shrink the subsidies or drivers in this environment? That's the first question. And the second question is regarding your office. So have you already estimated total construction costs? And when do you plan to start building the new headquarters? So how should we plan the impact of that construction in your financial results? Thank you.

Greg Abovsky -- Chief Operating and Chief Financial Officer

Hi, Alexander. On competitive front, I think that the overall market is to the benefit of the consumer, right? What ride-sharing enables is, it allows consumers to summon a car at the push of a button within a few minutes and get from point A to point B at extremely competitive rates. And so our single-minded focus is on investing in the product and providing the best consumer experience. That's what we worry about.

And from that point of view I'd say, we've done extremely well in terms of growing the number of rides, in terms of growing GMV's and increasing the utilization rates for drivers, which is an extremely important metric to keep in mind, right? The thing that matters most for drivers is how much earnings do they generate per hour. And we basically use all of our expertise in machine learning and artificial intelligence to increase the utilization rates for those drivers and maximize their earnings per hour. And this is, I think, really were kind of the strength of the Yandex ecosystem bears its fruit. On the question of the office, I don't think we're in a position to provide any meaningful updates to you other than to remind you that the office lease for our main office runs through the end of 2021, and obviously, we'd love to start migrating to a new facility at some point in 2022.

Alexander Vengranovich -- SOVA Capital -- Analyst

OK. Just a quick clarification then on the office side. Do you already include any costs associated with the construction in the '19 guidance?

Greg Abovsky -- Chief Operating and Chief Financial Officer

We would break out those separately.

Alexander Vengranovich -- SOVA Capital -- Analyst

OK. Thank you.

Operator

Your next question comes from the line of Vladimir Bespalov of VTB Capital. Please ask your question.

Vladimir Bespalov -- VTB Capital -- Analyst

Hello. Thank you for taking my question. Congratulations on the results. My first question would be on your hardware initiatives.

You are increasingly moving into this area and probably it gives you another angle to look at your technology and for license with clients. Maybe you could share what you learned from developing this initiative. And what probably would be the next steps? Are you going to do something in this area, for example, the -- in the autonomous drive technology? And one more question I have on Media Services. We have heard quite a lot of news on different developments starting from the illegal [Inaudible] contract, some content products, but maybe you could give in a more strategic way the outlook where this Media Services is develop -- how this Media Services is developing where it's heading and what you see, let's say, in two, three years with this vertical?

Mikhail Parakhin -- Chief Technology Officer

Hi, Mikhail here. I'm going to take the first one. Well, what we learned? We learned that hard and hardware is there for a reason. It actually turned out to be surprisingly nonobvious where the pitfalls might be, and we learned a lot about difficulties of manufacturing and even things like you would think that nothing can go wrong and then something definitely goes wrong.

We learned to overcome those. Long term, we don't really disclose our plans, but we are super committed to growing all kinds of digital assistance and smart home presence. We, of course, would prefer not to become a hardware company. We prefer to stay on software side, but if we need to do something to grow the market, we will.

We're still, I would say, in a learning curve period where we sort of manage to overcome manufacturing and now learning to sell things.

Greg Abovsky -- Chief Operating and Chief Financial Officer

Hi, Vladimir. On your question with respect to Media Services, look, our strategy there is focused on kind of three main pillars, subscription music, where we aim to be one of the leading players in this field. We compete with Apple Music and VK to some extent. But our focus is in sort of providing the best consumer experience on creating really compelling playlist for consumers to listen to and for them to have a reason to comeback to the service.

On the video side, look, it's not a secret that consumers tend to watch a lot of video online from -- sometimes it's short-form content, sometimes it's a long-form content. And then we respect kind of our own content creation, let's say, creating our own content is not a goal in itself. The goal is to provide consumers with what they want to watch. We're happy to partner with content owners, but in some cases, the content that we need is either not available on the market or at prices that are not reasonable.

And so in those instances we would look to create our own and go into content production. But look, in an ideal world, obviously, we're happy to partner with content owners, happy not to invest into content production on our own. What we provide is obviously robust monetization opportunities driven by advertising or subscription services we'll provide as a powerful distribution platform, we provide data analytics, obviously. And we provide the physical infrastructure to stream all that content, which we have enhanced.

And then sort of last pillar of Media Services is on ticketing. And over the last year, we have made a real push into ticketing services, initially was focused on movies, but increasingly it's focused on concerts and also on being able to provide sort of end-to-end services to artists, which include ticketing, promotion and subscription sales for music and driving more and more consumers to listen to their content. So I think, all of those things combined make us bullish on Media Services and make us want to invest in this business more.

Vladimir Bespalov -- VTB Capital -- Analyst

OK. Thank you very much.

Operator

Your next question comes from the line of Alexander Vengranovich of Sova Capital. Please ask your question.

Alexander Vengranovich -- SOVA Capital -- Analyst

Yes. Thanks again. So a quick question. So I've noticed you have quite a substantial increase of your distribution TAC in the fourth quarter.

I think it was up 44% year over year. Can you please provide the reason behind that growth? Thank you.

Mikhail Parakhin -- Chief Technology Officer

Sure. Mikhail here. So while you might have noticed that our share on Mobile and especially on Android grew significantly, and also last year, we were able to get much better placements on OEM distribution deals. And of course, that provided an upward pressure on distribution TAC.

And some of the changes were quite large like even if you take Huawei, where we were likely to get very good installation configuration in first screen, they -- their sales grew from 15% in December of 2017 to 38% in December 2018, quite a large shift in that market. So going forward, we still can expect distribution TAC to grow somewhat. We would say next year it might go as high as maybe 100 basis points up from Q4.

Greg Abovsky -- Chief Operating and Chief Financial Officer

I would just add that those increases in TAC have been fairly modest. If you look at full-year 2018 compared to full-year 2017, TAC has gone up a bit, will go up a bit more in 2019, but it'll also come with increased Android share, which we're obviously very excited about.

Alexander Vengranovich -- SOVA Capital -- Analyst

OK.

Operator

We have no further questions at this time.

Katya Zhukova -- Investor Relations Director

Thank you so much for joining our call today. We hope to see you back on our Q1 [Audio gap].

Operator

[Operator signoff]

Duration: 60 minutes

Call Participants:

Katya Zhukova -- Investor Relations Director

Arkady Volozh -- Chief Executive Officer

Mikhail Parakhin -- Chief Technology Officer

Tigran Khudaverdyan -- Head of YandexTaxi

Greg Abovsky -- Chief Operating and Chief Financial Officer

Lloyd Walmsley -- Deutsche Bank -- Analyst

Miriam Adisa -- Morgan Stanley -- Analyst

Slava Degtyarev -- Goldman Sachs -- Analyst

Cesar Tiron -- Bank of America Merrill Lynch -- Analyst

Maria Kahn -- HSBC -- Analyst

Ulyana Lenvalskaya -- UBS -- Analyst

Sebastian Patulea -- Jefferies -- Analyst

Alexander Vengranovich -- SOVA Capital -- Analyst

Vladimir Bespalov -- VTB Capital -- Analyst

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