Yandex is ready to continue investing billions of rubles in its taxi service / Andrey Gordeev / Vedomosti

Yandex's revenue in 2016 grew by 27% to RUB 75.9 billion, the company reported. In the fourth quarter alone, the search engine's revenue increased by 22% compared to the same period in 2015. This is higher than analysts' expectations and higher than the expectations of the company itself, which warned investors last fall that its revenue growth rate could slow significantly due to the unstable economic situation in Russia. Analysts at Renaissance Capital called these figures a "pleasant surprise" for investors.

But Yandex's profitability turned out to be lower than analysts expected. Adjusted EBITDA grew by 25% to RUB 26.1 billion, adjusted net profit by 16% to RUB 14.1 billion. The company's profitability is primarily negatively affected by investments in Yandex.Taxi , analysts from Renaissance Capital and VTB Capital write.

Investors liked Yandex's results: at the opening of the NASDAQ stock exchange, the company's quotes grew by 6.53%. At the time of publication (21:30 Moscow time), Yandex's capitalization was $7.98 billion, which is 7.2% more than at the close of the stock exchange on February 15.

In 2016, Yandex's revenue grew significantly faster than in 2015: then it increased by 18%. On the other hand, the fourth quarter of 2016 was not as successful for the company as the third: then its revenue increased by 25%.

20 minutes of zen

Users of Yandex.Zen, a search engine service for recommending news articles, already spend about 20 minutes a day on it, Shulgin said. This figure is comparable to the global average for activity on social networks, he added.

Yandex continues to generate most of its revenue from advertising placed on its website and partner websites (96% of total revenue). Advertising revenue in Q4 grew by 20%, which is again slightly lower than in Q3 (up 22%). Yandex's revenue is growing both due to an increase in the number of paid user clicks on advertisements on the company's websites (up 12% in Q4 2016 compared to the same period in 2015) and due to an increase in the average cost of such a click for the advertiser (up 8%). The company's CFO Greg Abovsky said on a conference call that in January the company recorded the same high demand from advertisers as in Q4 2016.

Other new businesses – Yandex.Market, Yandex.Taxi – although they occupy a small share of the company’s total revenue, are growing much faster: their income over the past year has more than doubled. Yandex CEO in Russia Alexander Shulgin called the results of Yandex.Taxi particularly successful – the service’s revenue in 2016 grew by 135% to 2.3 billion rubles. Yandex.Taxi users already make 16.2 million trips per month (data for December 2016), which is 5.5 times more than a year earlier. The service’s income is growing more slowly than the number of trips, primarily because since September Yandex has reduced the minimum cost of trips in Moscow by almost half – to 99 rubles. Last year, the service began operating in five new countries and dozens of new cities; it is now available in 48 cities in Russia, Belarus, Kazakhstan, Ukraine, Armenia and Georgia.

Such rapid development of Yandex.Taxi is costing the company dearly – in Q4 2016, compared to Q3 2015, the service’s negative EBITDA more than doubled: up to 1.3 billion rubles, analysts at Renessan write. Shulgin said that he sees great prospects in the development of Yandex.Taxi, and the company will continue to invest in it. Investors may underestimate the scale of expenses that will be required to develop Yandex.Taxi, analysts at Renessan point out. “As we can see from the example of Uber, even billions of dollars of investment have not yet made taxi services profitable, although such projects are valued very highly,” says an analyst at another investment bank. “Yandex will obviously need very large investments to enter all major cities in Russia and the CIS countries with its service. At some point, this may seriously alarm investors.”

Yandex predicts that its revenue will grow by 16-19% this year. Analysts consider this forecast conservative and recall that during 2016 the company changed its forecast several times in favor of increasing the rate of revenue growth. Otkritie analysts believe that the company's revenue will increase by 21.5% this year.

Yandex spent money on taxis