Nebius Group NV Q2 FY2021 earnings call

Management Statement and Operational Highlights

• E-commerce: Total e-commerce GMV grew 2.6x in Q2. Yandex.Market standalone GMV grew 144% in Q2. Expanded assortment and logistics infrastructure. Upgraded full year e-commerce GMV growth guidance to 3x from 2.5x.
• Advertising: Core advertising business recovering. Ad revenue growth driven by Search and other properties. Invested in ad tech, launched Campaign Wizard. Share of CPA conversion strategies increased.
• Ride-hailing: Ride-hailing GMV up 161% YOY. Adjusted EBITDA margin 3.5% of GMV. Focused on driver acquisition and improving service quality.
• FoodTech: Eats and Lavka showed solid growth. Lavka expanded dark stores, with orders and frequency increasing. Yandex.Plus synergy with FoodTech services.
• Yandex.Plus: Subscribers increased to 9.5 million in July, over 75% paying. Synergistic with e-commerce and other services, contributing to GMV growth.

Segment Performance

• E-commerce: Total e-commerce GMV grew 2.6x in Q2. Yandex.Market standalone GMV grew 144% in Q2 from 126% in Q1. Total e-commerce GMV increased approximately 2.8x to 2.9x in July. Yandex.Plus subscribers increased to 9.5 million in July with over 75% paying subscribers. Plus subscribers generate around 50% of market GMV and over 70% of Lavka GMV.
• Advertising: Core advertising business performing well with ad revenue recovery. Search and other Yandex properties drive growth. Zen's video time spent increased from 25% in March to 28% in June. Share of ad revenues based on CPA conversion strategies increased from 20% in April to 25% in June.
• Ride-hailing: Ride-hailing GMV up 161% YOY. Adjusted EBITDA margin including overhead came to 3.5% as a percentage of GMV, the highest among global public peers.
• FoodTech: Eats orders up 50% YOY, GV up 53% YOY. Lavka orders up 3x YOY, with 362 dark stores by end of Q2.
• Yandex.Market: GMV growth accelerated. Invested in assortment and logistics, expanding warehouse footprint by 70% and nearly tripling last-mile capabilities.

Guidance

• Upgraded full year Search and Portal revenue growth to mid-20s from high teens.
• Total e-commerce GMV expected to grow at 3x, up from previous 2.5x guidance.
• Ride-hailing GMV expected to increase by around 60% for the full year.
• Expect margin in Search and Portal second half to be higher than first half due to seasonally stronger revenue and industry improvements.
• FoodTech losses expected to come down in second half with growing order density and efficiency improvements.

Risks

• Competitive pressures in various segments, including e-commerce and ride-hailing.
• Regulatory uncertainties, especially for self-driving technology.
• COVID-related uncertainties impacting business operations and growth.
• Driver under supply issues affecting ride-hailing and FoodTech operations.
• Dependence on Yandex.Plus success and potential challenges in subscriber growth or retention.

Q: On e-commerce, update on investments and medium-term outlook?

A: Plan to invest around $650 million this year, more than previously guided. Half for logistics infrastructure. Expect comparable spending in near-term e-commerce initiatives depending on market conditions.

Q: On self-driving partnership with Grubhub, similar international partnerships?

A: Rovers are monetizable earlier due to less complex regulation. Self-driving cars face more complex regulation, but Russia has a regulatory sandbox for digital innovations. Plan to use sandbox for autonomous taxi launches.

Q: On e-commerce 3P vs 1P mix and take rates?

A: Aim for balance between 3P and 1P to maximize customer satisfaction and economics. Take rates increased, response from merchants constructive. Still most attractive for merchants, future take rates depend on competitor actions and merchant offering improvements.

Q: On ride-hailing EBITDA margin decrease and trajectory?

A: Decrease due to investments in driver acquisition and supply. Margin expected to increase in 2021 vs 2020. Aim to improve profitability sequentially in next two years barring severe changes.

Q: On FoodTech growth and split in e-commerce GMV?

A: FoodTech has different dynamics. Overall e-commerce GMV expected to grow 3x, but detailed split not disclosed. Lavka and Yandex.Eats have different growth trends due to COVID comps and consumer behavior changes.

Q: On Taxi regulation and driver initiatives?

A: Support regulatory measures for safety. Provide insurance and social initiatives for drivers. In constructive dialogue with authorities on regulations.

Q: On Search margin and Yandex.Plus subscriber flatness?

A: Search margin expected higher in second half due to seasonally strong revenue. Yandex.Plus subscriber flatness due to seasonality; picks up later in year. Multi-subscription details to be provided later.

Q: On e-commerce fulfillment services and grocery expansion?

A: Fulfillment includes dropship by seller, contributing 20% of GMV. Lavka expanding dark stores, expecting Moscow to turn profitable in less than a year. Mix of 1P and 3P models optimized for customer satisfaction and unit economics.

Q: On international expansion and driver supply in ride-hailing?

A: Selectively expand in markets with competitive edge. Driver supply issues seen as temporary with closed borders and increased demand, expecting improvement in mid-term as conditions stabilize.