3. 2
CONFIDENTIAL
Executive Summary – Google Should Acquire Yandex
Google, which essentially invented modern online advertising, still earns almost all of the company’s revenue
from advertising making Google as much an advertising company as an innovative tech company
Search is the main driver of Google’s advertising revenues and thus its cash flows
According to the company’s core philosophy the main competency of Google is search. Google states:
“With one of the world’s largest research groups focused exclusively on solving search problems, we know what we do well, and how we could do it better.
Through continued iteration on difficult problems, we’ve been able to solve complex issues and provide continuous improvements to a service that already
makes finding information a fast and seamless experience for millions of people. Our dedication to improving search helps usapply what we’ve learned to new
products, like Gmail and Google Maps. Our hope is to bring the power of search to previously unexplored areas, and to help people access and use even more of
the ever-expanding information in their lives.”
In almost all markets around the world users have voted and Google is clearly the best search company in the
world with a market share of over between 65% and 88% worldwide depending on the source
Yet in a few major internet markets in the world Google is not the dominant search engine: China where Baidu
has over 60% of the market, South Korea where Naver is used by about 70% of users and Russia where Yandex, the
“Google of Russia” has a market share of 62% - 64% depending on the source
China is not a market Google can enter in a big way due to well publicized censor concerns, leaving only
South Korea and Russia as markets where Google has not managed to achieve dominance despite best efforts
Google should acquire Yandex to obtain dominance in the Russian market
Based in the Netherland’s Yandex adheres to relatively strict requirements for accounting and other
procedures vs. other Russian based companies
4. 3
CONFIDENTIAL
Executive Summary – Google Should Acquire Yandex
“There are very few companies in the world that can
compete with Google, and Yandex is one of them and the
only one in Europe.” Konstantin Belov, an analyst at
UralSib Financial Corp.
“Yandex's algorithm accounts for the intricacies of Russian
grammar, where the same word can have dozens of
different endings depending on its place in a sentence.” –
BusinessWeek
“Yandex is geared to structural growth in internet advertising
as the Russian market sees higher internet penetration and
higher share of ad budgets moving away from traditional
media to new media. We expect rapid growth of the internet
advertising sector and Yandex to stay in the lead in paid
search.” – Bank of America Merrill Lynch“It’s remarkable that there are fewer countries with their own
search engines today than those with their own space
program.” Dmitry Grishin, Co-Founder and CEO of Mail.Ru
Group
“Russia is a key market, with more internet users than any
other country in Europe. But participants clearly must be
ready to play by a whole other set of rules and against
especially well-entrenched competitors.” – Wired Magazine
“In some directions, Yandex is even ahead of Google, for
example, the Yandex real-time traffic monitoring service
launched 4 years before Google could offer a similar service
to its Russian users.” - Sergey Kuznetsov HSE‘s School of
Applied Mathematics and Information Science
“Of course, Yandex’s leadership might not be eternal.
Google could significantly reduce the gap with a strong team
and sufficient investment on the Russian market. But it is
difficult to imagine Google seriously threatening Yandex
positions in the next 5 to 7 years.” - Andrey Zotov, East-
West Digital News co-founder:
“In the medium or long term, Google has its chance,
especially if Google will make some special deal with
leading telecoms. It won’t be easy, however, since Yandex is
a well structured company and it will be almost impossible
for anyone to win the search competition with Yandex. The
best Cyrillic search results will keep users around Yandex for
a long time to come.” - Alexander Galitsky, co-founder and
managing partner at Almaz Capital Partners
5. 4
CONFIDENTIAL
Experienced Management
Yandex is run by a very experienced team
of computer scientists
Yandex has been around as long as
Google and has a team that is much more
experienced in Russian, the second most
popular web language
Patent Portfolio & Search
Knowledge Helpful to Google
Yandex has a large patent and IP portfolio
from its years in the internet business
Having been in the search business as
long as Google, Yandex’s knowledge and
team would be an asset to Google
Russian Mobile Is A Big Opportunity
Despite having the highest wireless
penetration rate in Europe, Russia’s
Smartphone penetration is low
For key areas like social, video and apps
Russia is one of the most active countries
Unlike the U.S., Android has a higher tablet
market share than iOS in Russia
Gives Google Immediate
Dominance in Russia
Yandex is the search leader in Russia with
62% market share in the country
Has 54 million unique visitors a month in
Russia alone
Has 241K advertisers and over 50% of
online ad market share
Significant Initial Synergies Make
Acquisition Cheap For Google
A large number of overlapping product
focuses leads to significant synergies
The transaction is accretive on both a
GAAP and a cash basis without including
significant additional revenue opportunities
in Russia from being a combined firm
Russia Is An Attractive Market
Russia is the top internet market in Europe
by number of users and 6th in the world
With only about 50% penetration there is
still plenty of room for growth
With ecommerce penetration of 1.9%
Russia is set for advertising growth despite
already being a top digital advertiser
Highlights – Why Google Should Acquire Yandex
6. 5
CONFIDENTIAL
Russia Is One Of The Few Markets Where Google Is Not Dominant
Russia is one of the only top ten internet markets where Google is not a dominant search engine (a)
Google has been able to compete in Russia but has not but has not managed to overtake Yandex
Russian is a complex language and Yandex has a big head start in building brand equity and search results in Russia
Only 5% of people in Russia speak English fluently especially outside of the major cities
Yandex’s lead has held in Russia despite huge advertising resources dedicated to Russia by Google as well as the
very successful introductions of Chrome and Android in Russia
Google Market Share In Top 10 Internet MarketsDominant Search Engines Around The World
(a) In Japan Yahoo has a partnership with Google to utilize Google’s search results. As such, actual Google market share is higher than stated.
98% 97% 96% 95% 95% 92%
67%
40%
22%
3.05%
0%
20%
40%
60%
80%
100%
120%
India Brazil Indonesia Germany France United
Kingdom
United
States
Japan Russia China
Sources:Bloomberg LP & Searchengineland
7. 6
CONFIDENTIAL
64%
22%
8% 3%
Yandex Google Mail.Ru Rambler
Yandex is a Clear Leader in the Russian Internet Sector
Yandex is the clear leader in Russian search and a strong
player worldwide despite only being active on the
Russian speaking internet and now in Turkey
Yandex powers the paid search feature on Mail.ru so the
site is not an actual competitor to Yandex
Yandex’s share on mobile is over 50% on Android and
40% on iOS. The iOS share is expected to surge after
Yandex’s partnership with Apple
In 2012, Yandex’s audience exceeded the viewership of
Russia’s most popular TV station
Russia Search Engine Market Share (Q2 2013)
17.7
18.7
21.6
23.5
31.3
37
39.3
42.2
50.9
50.9
0 10 20 30 40 50 60
Avito.ru
ucoz.ru
Facebook
Wikipedia
Youtube
Odnoklassniki.ru
Google
Vk.Com
Yandex.Ru
Mail.ru
Nov 2012 Unique Visitors (MM)
Sources :comScore
66.90%
18.10%
11.10%
2.60% 1.30%
Google Sites Microsoft Sites Yahoo! Sites Ask Network AOL, Inc.
U.S. Search Market Share (Oct 2013)
8. 7
CONFIDENTIAL
Yandex Firing On All Cylinders
• In Q3 2013, Yandex grew 2.2% YOY in share of search on all platforms and 25% YOY growth in number of search
result pages mostly from increased search intensity per user
• Yandex’s share of the search market in Russia stands at 62% a growth of 1.5% YOY
• Advertising clients have grown 24% YOY to 261,000 while ARPU grew 15% YOY
• Paid clicks are growing at a rate of 50% YOY as of Q3 2013
• Revenue is growing at a rate of 35% to 38% according to Yandex, with Q3 2013 showing over 40% YOY growth
Yandex is Growing
Quickly
• Yandex recently signed partnerships with very important partners like Mail.ru, Twitter, Apple, Cooliris, Rambler
and Skrill, among others; The Mail.ru partnership has great terms with Yandex only paying through TAC costs
• Mail.ru the hugely popular Russian portal recently announced that they would stop utilizing Google to power its
own search engine further hurting Google’s position in Russia by using Yandex for paid search
• These partnerships, especially with Google competitors like Apple and Twitter could be transformative for Yandex
and certainly cement Yandex’sposition while the Mail.ru partnership cements Yandex’s #1 search position
• By acquiring Yandex, Google nips these partnerships in the bud or takes them on, both of which would nullify any
negative problems from the partnerships
Yandex Partnerships
Strengthen Company
• Having launched Yandex Browser only a year ago Yandex now has about 6% total browser share in Russia
• Even in Google’s own Chrome Yandex is dominant with 54.6% market share despite Google being the default
browser in Chrome (meaning users have to consciously shift)
• Yandex is progressing well in mobile with 15% of search traffic coming from mobile and 11% of search revenues
• Yandex now has over 60% market share in Android (from 47% just a quarter ago) and 40% in iOS (from 30%)
Yandex Doing Well In
Areas Google Should
Dominate
• Yandex is trying to launch key unique products outside of search
• Yandex recently announced a new cost per action model for Yandex.Market where Yandex will charge merchants
1% from every transaction made through the market (compared to 8-10% at eBay and others). Yandex will offer
enhanced conversion of visitors into buyers through increased user experiences and enhanced credit card safety
by having users store their credit card information in Yandex (which will also have obvious benefits for Yandex too)
• Already 100 sites have already signed up and another 1,000 have expressed interest
Yandex Is Introducing
New Products
9. 8
CONFIDENTIAL
Russia is an important language market for Google
• Russia’s online ad market is growing at about 30% YOY with the contextual market growing even quicker at 38%
YOY; Many individual platforms are growing at even quicker rates
• Russia is the largest TV advertising market in EMEA and will shortly be fifth largest in the world
• Russia is one of the most dynamic markets in the world for mobile ad requests
• Compared to the US Russia’s advertising market is in its infancy. Online advertising spending per user in the US
is 15x the current amount spend in Russia
• In the key mobile segment , spending is expected to grow 50% per year and is currently at 9% less than the US
as a percent of total advertising spending
• The Russian audience is the most active in Europe for video consumption which should lead to higher video ads
Russia Is A Very
Attractive Advertising
Market
• By 2020 Europe is expected to be Europe’s largest consumer market and the world’s fourth biggest overall;
Demand for key consumer sectors is growing at 10-15% per year
• The consumer already accounts for 2/3 of GDP and 80% of economic growth since 2004
• The middle class accounts for 55% of the population higher than China (21%), Brazil (30%) or India (11%); The
number of people considered upper class (15%) is 3x that of Brazil
• Russian users place an order on eBay every three seconds and total spending on eBay alone is $400 million a
54% growth rate YOY
• Russia’s e-commerce market is highly fragmented with the top 10 retailers making up only 20% of the market.
This is a good sign for advertising platforms like Yandex
Huge Consumer
Market
• Eastern Europe is still the second lowest ad spender of any world region behind only the Middle East and Africa
• Russia media spending is growing at 15% and will continue growing at double digit rates for a couple of years
according to eMarketer; Total ad spending was up 13% YOY in 2012
• Russia is currently the 11th ranked country for advertising spending and is expected to reach 7th place by 2015
overtaking South Korea, Australia and France
• With over 75 million internet users, Russia still has almost half its population not online. This compared to just
20% in the US not online and similar numbers in Europe where Russia is already the largest internet country
• Large international online players like eBay, ASOS and Amazon have entered the Russian market recently which
should help to drive advertising as these players spend to take share from established local players
• The Russian-speaking audience includes about 85 million users today (in and out of Russia) and growing quickly
Russia Still Has Plenty
of Growth Left
10. 9
CONFIDENTIAL
Russia is An Important Country to Google
2012 Distribution of Visitors to Google.com2013 Percent of Visitors to Google Sites
31.50%
9.90%
3.30% 3.20% 2.80%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
United States India Russia Brazil Indonesia
Source: Alexa
30.1
9.0
3.3 3.2 3.1 3.0 3.0 2.8 2.7 2.4
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
United
States
India Japan Brazil Russia United
Kingdom
China Germany Iran Italy
Number of monthly active Google+ users 2Q 2012 (MM)
107
43
20 20
14 14 13 12 10 9
0
20
40
60
80
100
120
China India Brazil Indonesia Unted States Russia Mexico Vietnam Turkey Argentina
Sources: Digital Media Ramblings and Company Filings
11. 10
CONFIDENTIAL
Recent Developments Have Only Added to Yandex’s Dominance
A number of recent development could further enhance Yandex’s competitive position in the Russian Market
Apple Inc.’s iOS 7 mobile operating system is expected to include Yandex as a default search engine option
within Safari. This should be no surprise considering Apple’s rivalry with Google and that Yandex has been
supplying local data for Apple Maps since September 2012
Mail.ru the hugely popular Russian portal recently announced that they would stop utilizing Google to
power their own search engine further hurting Google’s position in Russia
Mail.ru is testing Yandex.Direct, a contextual advertising service for its web sites. The partnership could
potentially boost Yandex revenue by as much 10 percent according to Otkritie Capital
Like Google Yandex recently launched its own browser to enhance search and display revenue
Yandex recently signed a licensing deal with the browser Opera to share Yandex’s technology and
utilize Opera browser capabilities
Yandex’s browser now has around 8 million users in Russia or a 5.9% share
On July 02, 2013 Yandex announced that it will carry Twitter data in all search results in a deal that is similar
to a deal Google used to have with Twitter to carry twitter results in search feeds
The deal gives Yandex a leg up on Google up in key social networking related results
Yandex recently launched a dedicated mobile browser featuring a single box for URLs and searches as well
as voice recognition and other features.
An app store similar to Google Play called Yandex.Store was recently launched in July 2013
12. 11
CONFIDENTIAL
Factor Advantage Notes
Local
Understanding
Yandex
•Having been involved in Russian search since 1989, Yandex has a clear language and cultural understanding vs. Google
•Yandex has also developed applications specifically for local population
Non-Search
Services
Yandex
•Like Google, Yandex offers a lot of non-search services like Maps, Shopping, News, Mail and Payments
•Yandex offered Mail, News and Payments before Google did and certainly before they offered a Russian version
•In certain areas like Yandex.traffic and payments Yandex is ahead of Google in terms of quality
•Yandex's services consistently rank above Google's in Russia except in areas where Google is clearly dominant such as Video
Partnerships Yandex
•Yandex has partnered with most of the more attractive partners including Mail.ru, Apple, Opera, Cooliris, Windows Phone, Skrill, Twitter, Rambler
and many others giving Yandex control of not just Yandex but all the top players
•These partnership also testify to the Yandex’s dominance in Russia and quality of the Company’s search results
•Partners like Mail.ru and Twitter were formally Google partners
Video Google
•Google has almost twice as many video users in Russia as Yandex
•YouTube is the clear leader worldwide in the rapidly growing video market including in Russia
Mobile Google
•Andriod is the leading operating system worldwide and in Russia; With Google controlling Android it has an inherent advantage on mobile
•Google is one of the largest and most innovative mobile companies in the world and with mobile moving at a rapid pace Google will shortly be too far
ahead of Yandex for Yandex to catch up
•Yandex has been holding its own in mobile with innovative mobile applications and partnerships with Android competitors like Apple and Microsoft
Browser Yandex
•Crome is a strong competitor worldwide in both mobile and desktop
•Yandex's recent browser as the partnership with Russia browser leader Opera puts in a strong position to compete against Android in Russia
Yandex Vs. Google In Russia
13. 12
CONFIDENTIAL
Yandex Has Important Key Partnerships
Yandex’s list of partners and advertisers is a who’s who of the Russian internet market
Many of these partnerships such as Apple, Mail.ru, Twitter, Skrill and Cooliris greatly enhance the Yandex product
and in the case of Apple and Twitter hurt Google’s
Through partnerships with Mail.ru and Rambler, Yandex not only operates its own sites but assists in operating
the other popular portals in Russia
Partnerships and Advertising Partnerships
Source: Yandex
14. 13
CONFIDENTIAL
Local Knowledge Is Important, Most Popular Sites Are Local
Top E-Commerce Sites
The vast majority of the largest companies in key categories (excluding searches and portals) are all Russian
companies. This testifies to the importance of local knowledge in the Russian market
56% of consumers say that the ability to obtain information in their own language is more important than price
Top Social Networks Top News Sites
Top Offline Retailers & Daily Deal Sites
Source: Yandex
15. 14
CONFIDENTIAL
Yandex Has The Leading Advertising Network In Russia
Yandex offers advertisers a sophisticated service for placing ads on both search pages and millions of pages in its
advertising network; Yandex’s ad network shows ads to over 37 million people daily
Yandex’s advertiser count is growing quickly (24% YOY) having added 12,000 new advertisers in Q3 2013
Members of Yandex’s ad network include the top sites in Russia such as Mail.ru, Rambler, Odnoklassniki,
livejournal.ru and many others
Yandex believes there are over 1 million SME’s that could be serviced by Yandex’s advertising network
Advertising experts are said to view Yandex’s traffic monetization platform as more efficient than Google’s
platform due to the higher CPCs experienced by Yandex
Yandex Number of Advertisers (Thousands)
Sources: AKAR, Company Data & BofA Merrill Lynch
Russia Online Advertising Market Shares
37% 39%
50% 52%
45% 47% 50%
15%
14% 14% 13%
63% 61%
50%
33%
40% 39% 37%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2006 2007 2008 2009 2010 2011 2012
Yandex Mail.ru Other
144 159
174 179 193 202 213 226 239
261
41% 48% 43% 40%
34%
27%
22%
26% 24% 24%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
0
50
100
150
200
250
300
350
400
450
Q2
2011
Q3
2011
Q4
2011
Q1
2012
Q2
2012
Q3
2012
Q4
2012
Q1
2013
Q2
2013
Q3
2013
Advertisers YOY Growth, %
16. 15
CONFIDENTIAL
17,695
15,092
10,971 10,848
7,197
57%
15%
81%
20%
25%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
Yandex
Weather
Yandex News Map Makers
Sites
Mail.ru Ria.ru
Total Unique Visitors % Growth
15,284
7,439
6,404
5,314 4,90018%
2%
27%
46%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
Yandex
Market
Ozon.Ru Sites Svyaznoy Sites M.Video Wildberries.Ru
Total Unique Visitors % Growth
Top News/Weather Sites in RussiaTop Market Sites in Russia
Yandex Is A Top Destination in Russia
Source: Comscore
Top Online Banking Sites in Russia
6,686
1,353 1,103 820 691
37%
21%
29%
0%
10%
20%
30%
40%
50%
60%
70%
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
Sberbank.Ru Tscbank.ru Vtb24.ru Rsb.ru Rencredit.ru
Total Unique Visitors % Growth
Yandex is the most important site in key categories
such as banking, market sites and news/weather sites
In key News and Weather categories Yandex has the
top two places in Russia
Yandex market has almost double the visitors of the
largest competitor
Sberbank is a partner and majority owner of
Yandex.Money
17. 16
CONFIDENTIAL
Browser Share in Russia – Even In Chrome Yandex’s Share Grows
Context Market Growth Vs. Yandex Context Revenue
SERP and Paid Clicks GrowthEstimated Click-through Rate for Yandex
Display Market Growth vs. Yandex Display Revenue
Source: AKAR, Company Data and BofA Merrill Lynch
18. 17
CONFIDENTIAL
Russia is a Very Attractive Market
Russia has the world’s eighth largest economy and seventh largest internet population
Russia’s GDP per capita is estimated at $14,037 higher than Brazil ($11,339), China ($6,091) or India ($1,489)
By 2016 GDP per capita is expected to reach $18,709, a growth of about 25%
Having grown 60% YOY, Russia ranked second in Europe in terms of job creation (to the UK) in 2012 through FDI
It is largely expected that Russia joining the WTO will have a positive effect on the Russian economy and FDI
Already the largest in Europe, Russia’s internet audience is growing at one of the fastest rates of any large
country in terms of both audience metrics and advertising metrics
Contributors to Global Ad Growth 2012 – 2015 ($MM)Countries by GDP (USD $B)
15,685
8,227
5,960
3,400
2,613 2,435 2,253 2,015 2,013 1,842
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
US China Japan Germany France UK Brazil Russia Italy India
$21,191
$13,039
$4,802
$4,157
$3,284
$3,263
$2,442
$2,179
$1,923
$1,874
$0 $5,000 $10,000 $15,000 $20,000 $25,000
USA
China
Argentina
Indonesia
Russia
Japan
Brazil
South Korea
UK
India
Source: ZenithOptimediaSource: WorldBank
20. 19
CONFIDENTIAL
Already An Attractive Market Russia is Poised For Breakout Growth
Russia Mobile Internet Users
91.8 Million
& Growing At
Over About 20% a
year
Internet Market Growth
26% Per Year
Till 2015 and 15%
till 2016
Online Brand Advertising
63% Of Marketers
Project An Increase in
Amount For Online Ads
Mobile Video Audience
39X Increase
In Mobile Video In
Past 3 Years
Internet Audience
76.5 Million
Internet Users;
50% Penetration
Russia Ecommerce Market
44% CAGR
For Ecommerce
Until 2015 ($36B
4.5% of Retail)
21. 20
CONFIDENTIAL
English, 55%
Russian,
6%
German, 6%
Japanese, 5%
Spanish, 4%
Chinese,4% French,4%
English Russian German Japanese Spanish Chinese French
Russia Is An Important Language Market For Google
The Russian language is one of the most prevalent languages in the world especially on the world wide web
Next to English, with about 85 million users, Russian is the most popular language on the world wide web
and is so popular the Russian language internet was even given its own moniker of the “Runet”
It is estimated that there are as many as 30 million Russians living outside Russia
The .ru domain is the most popular country-code top level domain on the internet
Russian is used on 89.8% of .ru sites and is used on 75% of sites in the former soviet union countries
Yandex is the clear leader in Russian language searches for Russian language speakers
1,917
406
335
260 223 202 193 162 122 84
0
500
1,000
1,500
2,000
2,500
First Language Speakers by Language (MM)Internet Most Popular Languages
Source: W3Techs.com
22. 21
CONFIDENTIAL
22 26
35 38 41
61 62
68
77
86
95
103
112
121
15% 18%
25% 27% 29%
43% 43%
47%
54%
60%
67%
73%
79% 86%
-30%
-10%
10%
30%
50%
70%
-10
10
30
50
70
90
110
130
150
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Number of Internet Users (MM) Penetration
Russia’s Internet Population is Large and Growing
Percentage of Individuals Using the Internet In Select Markets (%)
27 30
14
43
30
14
2 3 4 2 1
87 84 83 81 79 72
53 50 45 42
13
10% 9%
16%
5% 8%
15%
32%
27% 23%
30% 30%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
0
50
100
150
200
United
Kingdom
Germany France United States Japan Spain Russia Brazil Turkey China India
2000 2012 CAGR
Russian Market By Number of Users 2005 - 2016(MM)
Sources: eMarketer, RIA Novosti, Bloomberg LP, ITU, comScore, J’son & Partners and Ovum
23. 22
CONFIDENTIAL
Russia Is The Top Internet Market In Europe and 6th Largest Overall
Top 10 Worldwide Internet Markets By Number of Users (MM)
2012 European Top Internet Markets By Number of Users (MM)
68 67.5
52.7
36.5 35.8
31.6
24.9
15.5 15.3
0
10
20
30
40
50
60
70
80
Russia France UnitedKingdom Turkey Italy Spain Poland Netherlands Ukraine
538
245
137
101 88
68 67 55 53 52
0
100
200
300
400
500
600
China * UnitedStates India Japan Brazil Russia Germany Indonesia UnitedKingdom France
Source: Comscore; Note internet users differ widely depending on the source due to differences in estimation
24. 23
CONFIDENTIAL
1,347
1,237
314
244 194 183 169 152 143 128 110
0.48%
1.27% 0.72% 0.66% 0.82%
2.02%
2.83%
1.27%
0.13% -0.28%
0.73%
-15.00%
-10.00%
-5.00%
0.00%
5.00%
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
China India United States
of America
Indonesia Brazil Pakistan Nigeria Bangladesh Russia Japan Mexico
Population Growth Rate
Russia’s Population Gives It Room To Grow
Top Countries By Population (MM)
Sources: Capital IQ
One of the reasons Russia is able to enter into the top markets for numerous categories while still maintaining
room to grow is the size of the population is one of the world’s largest
Few other countries have the population base of Russia to rely on and many of these such as Pakistan, Nigeria
and Bangladesh do not currently have the infrastructure or GDP per capita needed to rank highly in various
internet categories
Despite having over 75 million internet users that still leaves almost half the population not online
Many other countries such as China, India, US and Brazil also rank highly in important internet categories
25. 24
CONFIDENTIAL
Russia Is An Important Search Market
Russian users are some of the most active in the world in
terms of how often they search on computers
Smartphones have yet to catch up to this with Russia being
only moderately active in search as compared to other countries
Russia is fifth in the world in terms of the total aggregate
number of internet searches
By 2017 Russia is expected to be 8th in the world in terms of
total search advertising spending, a CAGR of 15%
Frequency of Search on Mobile In Select CountriesFrequency of Search on Computer In Select Countries
Source Google; Includes Smartphone Owners
90 83 85
69
84
92
79 76
9
15 12
27
12
7
18 20
0
20
40
60
80
100
120
Brazil China France Germany India Russia UK USA
Daily Weekly Monthly Less than monthly
58 60
51
38
73
54 54 62
27
34
28
38
20
30 32
25
10
5
13 16
5
10 8 9
0
20
40
60
80
100
120
Brazil China France Germany India Russia UK USA
Daily Weekly Monthly Less than monthly
Top 5 Activities for Mobile Browsing
30%
31%
39%
40%
56%
30%
32%
37%
42%
51%
0% 10% 20% 30% 40% 50% 60%
Entertainment News
Weather
News
Social Networking
Search
Dec-11
Dec-12
26. 25
CONFIDENTIAL
Russia Is A Leader in Search
Global Monthly Internet Searches (MM)
30,335
10,431 10,177
7,724 6,910 6,378 5,506 5,029
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
United States Brazil Japan United Kingdom Russian Federation Germany France Turkey
Source: Comscore
Russia Has a Substantial Share of Rising Google Search Terms In The Past 12 Months (MM)
500%
350%
140%
120%
90% 90%
70% 60% 60% 60%
0%
100%
200%
300%
400%
500%
600%
Source: Google
27. 26
CONFIDENTIAL
Russia Is A World Search Leader
May 2010 Monthly Internet Searches (MM)
May 2013 Monthly Internet Searches (MM)
30,335
10,177 7,724 5,506 6,378
10,431
6,910 4,358 5,029
8%
2% 4%
-2% -1%
27%
17%
5%
12%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
-5,000
5,000
15,000
25,000
35,000
45,000
55,000
65,000
75,000
United States Japan United
Kingdom
France Germany Brazil RU Canada Turkey
16% 5% 4% 3% 3% 6% 4% 2% 3%
Monthly
Internet
Searches
CAGR
% Total
24,415
9,595
6,841 5,930 6,651
5,035 4,295 3,800 3,591
-1,000
4,000
9,000
14,000
19,000
24,000
29,000
United States Japan United Kingdom France Germany Brazil RU Canada Turkey
17% 7% 5% 4% 5% 3% 3% 3% 2%% Total
Source: Comscore
28. 27
CONFIDENTIAL
Russia’s Advertising Market is Increasingly Moving Toward Online Ads
Total Russian Advertising Market ($MM)
$7,771
$5,656 $6,777 $8,165 $9,235 $10,417 $11,719 $13,148 $14,620 $16,111 $17,593 $19,036 $20,406-27%
20% 20%
13% 13% 12% 12% 11% 10% 9% 8% 7%
-90%
-70%
-50%
-30%
-10%
10%
30%
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Advertising Market (net) Growth
Russian Advertising Market Compared to Other Countries (Online % of Total Advertising Spend)
Sources: Magna Global, Zenith Optimedia,eMarketer, AKAR BofA Merrill Lynch and JP Morgan
37%
18% 20% 19% 21% 21% 19%
15%
4% 5%
45%
32%
30% 28%
25% 25% 23%
19%
9% 7%
0%
10%
20%
30%
40%
50%
UK China Russia US France Germany Spain Italy India Brazil
2012 2015
31. 30
CONFIDENTIAL
Russia Internet And Mobile Have Plenty of Room For Growth
Rank Country
Population
(MM)
GDP ($MM)
Online Ad
Spending
($MM)
Mobile Ad
Spending
($MM)
Total Ad
Spending
($MM)
Mobile
as % of
Online
Spending
Mobile
as % of
Total
Spending
Online Ad
Spending
Per
Capita
Total Ad
Spending
Per
Capita
Online Ad
Spending
% of GDP
Total Ad
Spending
% of GDP
1 United Kingdom 62 $2,418,671 $8,008 $803 $20,626 10.0% 3.9% $129 $332 0.33% 0.85%
2 Sweden 10 $535,557 $1,150 $46 $3,777 4.0% 1.2% $120 $395 0.21% 0.71%
3 Germany 82 $3,433,506 6449.607 $71 25256.45 1.1% 0.3% $79 $308 0.19% 0.74%
4 Japan 127 $5,050,523 9135.617 $2,074 51254.12 22.7% 4.0% $72 $403 0.18% 1.01%
5 United States 314 $15,984,100 $22,480 $7,290 $177,075 32.4% 4.1% $72 $563 0.14% 1.11%
6 France 64 $2,688,240 3367.414 $109 14360.57 3.2% 0.8% $53 $225 0.13% 0.53%
7 Spain 47 $1,308,640 $1,542 $61 $7,660 4.0% 0.8% $33 $162 0.12% 0.59%
8 Czech Republic 11 $177,089 $257 $3 $1,361 1.1% 0.2% $24 $130 0.14% 0.77%
9 Poland 39 $463,506 $851 $10 $3,102 1.2% 0.3% $22 $81 0.18% 0.67%
10 Hungary 10 $108,521 $205 $8 $773 4.1% 1.1% $21 $78 0.19% 0.71%
11 Brazil 194 $2,194,506 $2,819 $10 $22,644 0.4% 0.0% $15 $117 0.13% 1.03%
12 Russia 143 $1,930,883 $2,002 $34 $10,954 1.7% 0.3% $14 $77 0.10% 0.57%
14 China 1,360 $8,745,025 13611.61 $1,177 41630.52 8.6% 2.8% $10 $31 0.16% 0.48%
15 Turkey 76 $790,053 $399 $33 $3,319 8.3% 1.0% $5 $44 0.05% 0.42%
16 Ukraine 45 $188,223 $121 $6 $1,396 5.3% 0.5% $3 $31 0.06% 0.74%
Online ad spending per capita for BRIC countries is well below levels in developed economies
Mobile ad spending in Russia is below levels in more developed mobile smartphone markets like the U.S. and U.K.
Russia accounts for about 43% of total Eastern Europe media ad spending and is expected to account for half of
all spending in Eastern Europe by 2016
Yandex gets 15% of search traffic from mobile vs. 20% for Google and 30% - 40% for Baidu
Source: Informa, KPCB, Bloomberg LP, Capital IQ& Zenith Optimedia
32. 31
CONFIDENTIAL
Russia has historically been a cash economy with about 89% of payments being cash payments
Part of this is cultural and part of it has to with infrastructure with ATM/POS penetration standing at 1/5 of the
penetration achieved in the US
Utilizing mobile and online payment methods has grown in popularity in Russia and is expected to continue
growing at a very high rate in the years to come
According to a survey by J’son & Partners Consulting, 44% of smartphone users and 60% of tablet users paid for
goods or services the previous month before the survey using mobile methods
With credit card penetration at less than 20% in Russia, services like Yandex.Money and others have a greater
chance of adoption due to the higher value proposition against methods of payment (cash or bank based methods)
Most Russians do have payment cards like debit cards but 50% of cards are only used for salary withdrawal and
cash withdrawals on payday account for 85% of ATM transactions
Unlike in developed economies, many services such as mobile operator payments are pre-pay rather than post-
pay which accounts for high volumes of mobile payments, about $285 million in 2012
Mobile banking is also growing quickly, having grown 39% to 243 million. By 2017 mobile banking is expected to
grow to $870 million a CAGR of 29%
However, due to the low penetration of smartphones much of the current payment market is done through SMS
with 43.4 million people using SMS-banking for about $630 million in total payments
Russian Mobile and Online Money/Payment Market
Source:eMarketer
33. 32
CONFIDENTIAL
Russia Is One Of The Top Video Markets In The World
With nearly 60 million monthly viewers Russia is second in the world only to the US in terms of unique video
viewers. Russia is first in Europe in terms of total audience having grown at 30% CAGR over the past three years
Considering that Russia is also a huge market for illegal content the number of users is also actually underreported
Only 5% of content downloaded in Russia is from legal sources and four out of five users pirate content
New legislation to enforce IP rights should decrease these numbers and help the legal video market
The number of video viewers is growing at 18% annually while the number of videos is growing at 16% annually
Each user in Russia watches on average 156 videos per month at about eight minutes per video
Thus far, the paid model for content has not been very successful in Russia. Only a limited number of viewers are
ready to pay for content, while large amounts of content are available for free on ad-funded sites or via resources
with pirated content, something expected to change with new legislation targeted such content
Domestic content accounts for up to 45% of the available titles on average in Russia
The funding market for online video is fluid in Russia with funding sources such as founders, VC and PE funds, and
strategic investors having invested about $200 million in the Russian online video market since 2007
The online video advertising market is expected to grow at a CAGR of 34% to $143million by 2017 and some
estimates have growth occurring at over 90% CAGR through 2015
Many major players are expected to enter Russia shortly such as Amazon (which applied to register the trademark
“Amazon Instant Video”), Hulu and Netflix having recently visited Russia, a first step to possibly entering the country
35. 34
CONFIDENTIAL
Russia Is One Of The Top Video Markets In The World
Split Of Available Video Content in Russia By Origin
Russia, 45%
UK, 5%
USA, 40%
Europe,10%
Total Unique Viewers (MM)
195
59
46 40 38
28 22
0
50
100
150
200
250
USA Russia Germany France UK Italy Spain
Number of videos per user and per month
349
324
228
195 187 182
157
0
50
100
150
200
250
300
350
400
USA UK Spain France Germany Italy Russia
Source: comScore
3
20
55
98
20%
55%
73%
90%
5%
15%
25%
35%
45%
55%
65%
75%
85%
95%
0
20
40
60
80
100
120
140
160
2011 2012 2013 2014
Mobile Video Viewers (MM) % Mobile Internet Users
Mobile Video Viewers
36. 35
CONFIDENTIAL
Russian Video Market
Russian In-Stream Ad and Paid Content Market
Broadband Penetration in Russia Will Drive VideoNb of video views per year (in billions)
10.22
15.33
25.92
33.91
44.05
61.83
83.78
110.85
143.11
0
20
40
60
80
100
120
140
160
2009 2010 2011 2012 2013 2014 2015 2016 2017
Russia Online Video Ad Spend($MM)
$59
$96
$152
$233
$6
$20
$68
$112
$0
$50
$100
$150
$200
$250
$300
$350
$400
2012 2013 2014 2015
In-stream Ads Paid Content
41%
48%
54%
60%
64%
0%
10%
20%
30%
40%
50%
60%
70%
2011 2012 2013 2014 2015
106
118
144
174
209
248
292
0
50
100
150
200
250
300
350
2012 2013 2014 2015 2016 2017 2018
Source J’son partners, EWDN, comScore, Bloomberg LP & Tvigle
37. 36
CONFIDENTIAL
Still Plenty Of Room To Grow For Russian Video Market
Compared to the U.S. Russia still has plenty of room for growth in online video
At about 59 million viewers, Russia has an online penetration of about 76.6% of internet users and 41% of the total
population vs. 85% of total internet users and 59% of the population in the U.S.
At parity with the U.S., Russia would have another 6.45 million video users on a percent of internet user basis
and another 25.37 million on a percent of total population basis
Connected devices like smartphones and smart TVs are growing rapidly and already account for up to 50% of video
views for many market players
Ad spending in Russia also lags far behind the U.S. in terms of the total amount spent on online video spending.
Even adjusted for the lower investment amount spent on TV ads in general this fact could still lead to a large increase
in video ad spending
According to Maxim Melnikov CEO of Media 3, “Five billion dollars previously devoted to TV advertising has already
started to move toward online video advertising in line with increased internet video viewing”
In addition, RTB for video to monetize inventory is set to emerge in Russia which should help kickstart video
advertising in Russia
Increased broadband and 3G/LTE coverage should significantly increase viewership opportunities in coming years
38. 37
CONFIDENTIAL
Still Plenty Of Room To Grow For Russian Market
Russia Vs. U.S. Online Video (2012)Emergence of Video Ads In Russia
$205.0
$6.0
$16.0
$150.0
$32.0
$0.6 $1.1
$27.0
6x
11x
15x 15x
-10x
-5x
0x
5x
10x
15x
$0.0
$50.0
$100.0
$150.0
$200.0
$250.0
TV Ad Spending
Per Capita
Online Video Ad
Spending Per
1,000 Video
Online Video Ad
Spending Per
Viewer
Online Ad
Spending Per
Internet User
USA Russia Gap
10.0%
0.6%
20.0%
2.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
Online Video/Display Ad Market Online Video/Total Ad Market
Russia USA
Sources: EWDN, Global Insight, eMarketer, AKAR, ZenithOptimedia , J’son & Partners, AEGIS,
Google, GPMD, IMHO, Mail.ru, Tvigle
Russia Vs. U.S. Comparison (2012) (MM)Display Video Ad Spending Forecast ($MM)
$576
$718
$859
$1,001
$43 $86 $137 $190
-$300
$200
$700
$1,200
$1,700
$2,200
2012 2013 2014 2015
Display Video Ads Mobile Display Video Ads
179
73
50
20
0
20
40
60
80
100
120
140
160
180
200
Online Video Viewers Mobile Video Viewers
USA Russia
39. 38
CONFIDENTIAL
Smart TVs Expected To Drive Online Video Demand
Russia is number three in the world in terms of smart TV sales with 800,000 TVs sold in 2012 or 30% of TV sales
In 2018 this number is expected to reach 5 million devices a 40% annual growth rate for a total of 32 million total
smart TVs in Russia or 31% of the total TV ownership in Russia
This forecast is supported by the fact that compared to advanced markets Smart TV penetration is still negligible
in Russia compared to more advanced markets at about 5% vs. 20% to 40% in advanced markets
To support this growth in smart TV devices all major online video players have developed apps for smart TV
viewership. In total there are 640 applications for smart TVs in 1H 2013 a 50% growth rate from the year before
Still, only one in three owners of Smart TV devices use all the features of Smart TVs
Online Video Consumption By Channel
Web, 67%
Mobile, 15%
Smart TVs, 18%
Smart TV Penetration (% of Total TV Devices 2012)
44%
18% 17%
14%
11% 11%
8%
5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
China South
Korea
India Brazil USA UK Germany Russia
Source J’son partners, EWDN & Tvigle
40. 39
CONFIDENTIAL
Smart TVs Expected To Drive Online Video Demand
Total TV Market In Russia
91 93 96 98 100 101 102 103
63%
65%
67%
69% 70% 71% 72% 73%
40%
45%
50%
55%
60%
65%
70%
75%
0
20
40
60
80
100
120
140
160
2011 2012 2013 2014 2015 2016 2017 2018
Total nb of TV in Russia (MMs) Penetration
Smart TV Market In Russia
1.1
2.4 4.2
6.6
9.9
17.2
24.6
32.1
1% 3% 4%
7%
10%
17%
24%
31%
-20%
-10%
0%
10%
20%
30%
0
5
10
15
20
25
30
35
40
45
50
2011 2012 2013 2014 2015 2016 2017 2018
Smart TVs (MMs) Penetration
Source J’son partners, EWDN & Tvigle
41. 40
CONFIDENTIAL
Russian Video Market
Smartphone User Video Engagement
35.4
27.1
36.7
24.7
37.6
28.1
25.5 24.4
17.7 16.9
13.2
11.5 11.4
8.1 6.7
5
0
5
10
15
20
25
30
35
40
Russia India China Brazil USA UK France Germany
Watched videos on a video sharing website
Watched full episodes of TV programme online
Usage of Video Platforms on Smartphone
89
80 78
73
64
76 79
44
37 35
60
14
40
5255
0
20
40
60
80
100
Brazil France Germany India Russia UK USA
Google Sites Facebook Vkontakte.ru
Comfort with mobile and online video is on par with
the U.S. and ahead of major BRICs like Brazil and India
Unlike in other countries where Google has a huge
lead one other competitors, in Russia, Google is only
slightly ahead of social network VKontakte which also
has a significant video section, though much of it is
pirated content
Still, Russia is one of the top five traffic generating
countries to YouTube
Usage of Video Platforms on Computer
100.3
82.3 83.1 82.9 80.2 78 82.4
49.7
41.3 38.3
60.5
24.7
40.4
52.4
70.8
0
20
40
60
80
100
120
Brazil France Germany India Russia UK USA
Google Sites Facebook Vkontakte.ru
Source: Google
42. 41
CONFIDENTIAL
Mobile In Russia
The mobile internet will be used by 92 million Russians at the end of 2013 a penetration of 65%
The number of mobile visitors in Russia grew 51% in 2012
Better 3G and LTE coverage as well as the proliferation of cheaper smartphones and tablets are expected to
drive further growth
Unlike other markets where feature phones went the way of the dinosaur, in Russia 40.5 million people connect
to the internet through feature phones, significantly more than smartphones or tablets
Russia still has a lot of prepaid subs that do not have advanced services
Feature phones represent about half the market in total and 35% of web access devices
Even many smartphones in Russia are lower priced phones including lower priced Android models. These lower
priced models are not used as much for internet as higher priced Android phones or iPhones
This year more than three out of five of Russia’s web users are expected to go online via mobile this year.
Among smartphone users mobile internet services are growing at 88% a year
Russia has one of the highest percentages of mobile page views in Europe, only the UK has a higher share
By 2017, more than nine out of ten web users will access the internet on mobile in Russia
Many web users in Russia are leapfrogging PCs and going from no internet straight to mobile internet
The number of users with one or more internet access points is expected to go from 49% in 2011 to 62% by the
end of 2013 while those with only one access point are expected to decline from 49% to 38%
43. 42
CONFIDENTIAL
Russia is a Top Mobile Country
Mobile Internet Penetration 2012
23%
85% 85% 83% 81%
77% 75%
65% 64%
55%
35%
19% 16%
6%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
World Japan Spain Italy USA UK South Korea Germany France Russia Brazil Indonesia China India
Monthly Mobile Internet Users Mobile Internet Use By Device (Monthly Basis) (MM)
Smartphone,
22.5
Tablet,2.5
Feature
Phones,40.5
60.5
77.4
91.8
103.9
114.6
43%
55%
65%
73%
81%
5%
15%
25%
35%
45%
55%
65%
75%
85%
0
20
40
60
80
100
120
140
160
2011 2012 2013 2014 2015
Monthly Mobile Internet Users (MM) Penetration
Sources: Informa, ITU, & J’Son & Partners
44. 43
CONFIDENTIAL
Russia is a Top Mobile Country
Device Share of Page Views Across European Countries
68%
92% 90% 90%
75%
91%
24%
5% 6% 7%
22%
6%
7% 3% 3% 4% 3% 2%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
90.00%
100.00%
UK France Germany Italy Russia Spain
Tablet
Mobile
PC
Prepaid As % Of Total Subscribers Across Countries Mobile Internet Use By Device (Monthly Basis) (MM)
Smartphone,
22.5
Tablet,2.5
Feature
Phones,40.5
74
67 65
46
23
17
13
1
7
32
23
28
75 76 78
91
17
0
10
24
2 6 5 7
0
20
40
60
80
100
Russia India Brazil China Germany UK USA France
Prepaid: you pay in advance andtopup yourcredit whenused up
Postpaid: contractwith a monthly bill
Hybrid: a fixed monthlyfee withoptionto topup whenmonthly limit is reached
Sources: comScore, Google & J'son & Partners
45. 44
CONFIDENTIAL
Tablets In Russia
Tablet sales in Russia in the first half of 2013 increased by almost 239% to 2.6 million units for total revenue
from tablet sales of about a billion dollars
This compares to a decline in PC shipments of 37% for PCs and 45.3 for notebooks
Unlike in most markets where Apple’s iPad is extremely strong, in Russia, Android holds the largest share at 65%
vs. 49% in the worldwide market. Samsung holds largest share (25%) of the tablet market in Russia
Much of this is due to the proliferation of low cost tablets priced at $100 or less
Tablet penetration is expected to reach 12 million units by 2015
Tablets now account for 15% of total mobile internet devices in Russia
Russia Tablet Market ShareTablet Sales In Russia (MM Of Units)
IOS, 29%
Andriod,65%
Other,6%
Sources: IDC & J’son Partners
1.3
3.5
8.2
12.7
16.1
0
2
4
6
8
10
12
14
16
18
2011 2012 2013 2014 2015
46. 45
CONFIDENTIAL
Smartphone Penetration is Well Below Expected Levels
At 12% smartphone subscribers as a % of total subscribers, 36.2% total penetration and 27% of 2012 mobile
smartphone sales, Russia is well below other markets. However, these factors are expected to grow significantly
Data has been slow to catch up in Russia to other parts of the world. For instance, 4G penetration is only
estimated at .3% and LTE subscribers just passed the 1 million user mark
Wireless penetration in Russia is well above other markets leading to a reasonable expectation that smartphones
subscribers will increase significantly, in line with income growth and the dropping prices of smartphones
In 2013, 36% of all phones sold in Russia will be smartphones with an average cost of $285 vs. $350 today
By 2015 smartphones are expected to more than double to 63 million units while LTE penetration is expected to
be 10% in the same time period
Sources: Google, J’son Partners & ITU
Smartphone Penetration % Of Total Penetration Wireless Penetration
162
141 138 132
124
114 114
90
78
0
20
40
60
80
100
120
140
160
180
Russia Ukraine Germany Brazil United
Kingdom
France North
America
Turkey India
12.8
26.3
36.2
39.8
42.3
46.9
56.4
62.2
0
10
20
30
40
50
60
70
India Brazil Russia Germany France China USA UK
47. 46
CONFIDENTIAL
Smartphone Penetration is Well Below Expected Levels But Increasing
Rank Country
2013E
Smartphone
Subs
Total
Subs
Smartphone
as % of Total
Subs
Smartphone
Sub YOY
Growth
1 China 354 1,221 29 31
2 USA 219 378 58 28
3 Japan 94 124 76 15
4 Brazil 70 304 23 28
5 India 67 1,117 6 52
6 UK 43 81 53 22
7 South Korea 38 57 67 18
8 Indonesia 36 327 11 34
9 France 33 72 46 27
10 Germany 32 110 29 29
11 Russia 30 250 12 38
12 Mexico 21 111 19 43
13 Saudi Arabia 21 55 38 36
14 Italy 21 91 23 25
15 Australia 20 33 60 27
Russia Mobile Purchase Prices Russian Smartphone Vs. Mobile Subscribers
30MM
Smartphone
Subscribers
250MM Mobile
Subscribers
0
50
100
150
200
250
300
Smartphone Mobile Phone
1,493 1,532
2,107
2,879
2,568 2,507
3,483
4,337
3,498
8,599 8,786
11,442
11,934
9,431 9,262
11,778
11,697
8,639
$137
$125 $124
$136 $139 $136 $141
$164 $171
$336
$324 $321 $318 $314 $320 $317
$330 $328
$0
$50
$100
$150
$200
$250
$300
$350
$400
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013
PricePerUnit
UnitSales(000s)
Smartphone Market Mobile Handset Market Price of Mobile Phone Price of Smartphone
Russia Mobile Handset Sales By Quarter
Source: MTS
37.40%
33.00%
16.60%
12.90%
$45-$150
$150-$150
$300-$300
Above $450
48. 47
CONFIDENTIAL
Share of Smartphone Sales in Various MarketsPercent Of People Who Own Multiple Mobile Devices
Smartphone Behavior
Sources: J'son & Partners & Strategy Analytics
Source: IDC
Attitude Toward Mobile Marketing
51%
48%
36%
17% 16% 16%
11%
0%
10%
20%
30%
40%
50%
60%
Russia Brazil China US South
Korea
UK India
Mobile Purchase From Smartphone (Ever)
39.3
38.8
45.8
34
36
38
40
42
44
46
48
Russia UK USA
21
49
38 39
0
10
20
30
40
50
60
Used a mobile coupon to purchase a
product in store
Open to receiving mobile ads if
freebies included
Russia
USA
12% 9% 7% 6% 6% 5%
17%
12% 10% 9% 8% 8%
12%
15% 15% 16% 16% 17%
59% 65% 68% 69% 70% 70%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2012 2013 2014 2015 2016 2017
Desktop PC Portable PC Tablet Smartphone
49. 48
CONFIDENTIAL
Russia is a Top Mobile Country
Actions Taken after Noticing Ads By Smartphone Owners
23.9
16.7
22
4.6 5.8 7.9 6.1
13.4
4.3
18.2
6
8.9
44.5
19.3
13.2 14.3
4.6 5.5 7.3 6.5 8.3
5.3
15.5
7.3 6
62.2
0
10
20
30
40
50
60
70
Clicked on the
ad
Looked for more
information (m)
Looked for more
information on
(PC/T)
Called the
advertiser
Called the
advertiser Later
Made a
purchase in -
store
Made a
purchase online
(M)
Made a
purchase online
(PC)
Made a
purchase online
(TB)
Visited website Went to the
store
Located the
advertiser on a
map
None of these
Russia USA
Frequency of Mobile Purchase via Smartphone
4
12.1
42.2 41.6
3.6
14.8
41.9
39.7
9
10.7
40.4 39.9
0
5
10
15
20
25
30
35
40
45
Multiple times per day Once a day Few times a week Once a week
Russia UK USA
Source: Google
50. 49
CONFIDENTIAL
Russia is a Top Mobile Country
Relevance Smartphone in Comparison to other Media
Barriers to Mobile Purchase via Smartphone
52.1
16.4
84.5
69.2
50.6
78.2
35.6
24.9
82.9
69
54.8
70.2
0
10
20
30
40
50
60
70
80
90
Would rather give up TV than
smartphone.
Would rather give up desktop/
tablet PC than smartphone
Don't leave the house without
smartphone
Smartphone provides me with
relevant information
Access information on smartphone,
follow-up on other device
Websites as easy to use as on other
media
Russia USA
24.3
29.3 27.8
30.1
22.8
11.8
25.4
16.4
5.1
22.8
9.1
27.2
22.1
39.6 39.6
24.7
9.2
21
11.3
9.5 8.8
13.2
0
5
10
15
20
25
30
35
40
45
Cannot see
detailed
product/service
information
Hard to compare
prices and options
Cannot trust credit
card security on
mobile device
Screen size is too
small
Hard to type Information is not
rich enough
Takes too much
time to open the
web site page
Mobile online
access tend to be
interrupted
Battery life is short Not used to
smartphone
interface
Other
Russia USA
Source: Google
51. 50
CONFIDENTIAL
Russia is a Top Mobile Country
Usage of Smartphone in Purchase Journey
Actions taken after Local Search
45.4
20.4
8.9
4.4
8.9
32.1
29.2
22.3
6.4
3.7
12.5
42.1
0
5
10
15
20
25
30
35
40
45
50
At beginning of shopping,
looking for inspiration, ideas
In the middle of my shopping,
evaluating the products
At end of my shopping /
purchase
After shopping process, writing
reviews
Throughout whole shopping Do not use my smartphone in
these situations
Russia USA
40.5
17
14.7
20.8
23.7
40.1
48.6
14.3
51.9
0
11.8
47.6
16.8
13.4
28.5
24.4
51.1
46.8
11
46.6
0.1
16.3
0
10
20
30
40
50
60
Called the business
or service
Read or wrote a
review about a
business or service
Recommended a
business or service
to someone else
Made a purchase
from a business in-
store
Made a purchase
from a business
online
Visited a business Visited the website
of a business or
service
Marked or added a
business or service
to my favorites list
Looked up business
or service on a map
or got directions
Other Not taken any
action
Russia USA
Source: Google
52. 51
CONFIDENTIAL
Russia is a Top Mobile Country
Frequency of action after attention of advertising
Frequency of Local Search on Smartphone
30.8
34.1
16.7
11.1
7.3
24.5
32.4
24.2
13.1
5.9
0
5
10
15
20
25
30
35
40
Daily Weekly Monthly Less than monthly Never
Russia USA
13
21.2 22.1
15.1
28.7
6.3
15.2
17.7 16.3
44.6
0
5
10
15
20
25
30
35
40
45
50
Daily Weekly Monthly Less than monthly Never
Russia USA
28.3
27
21.8
13.5
9.4
18.2
21.2
27.7
22.2
10.7
0
5
10
15
20
25
30
Daily Weekly Monthly Less than monthly Never
Russia USA
12.5
17.7 18.1
16.5
35.2
9.2
14.8
20.6
15.3
40
0
5
10
15
20
25
30
35
40
45
Daily Weekly Monthly Less than monthly Never
Russia USA
Frequency of Noticing Ads on Smartphone
Frequency of action after attention of TV advertising
Source: Google
53. 52
CONFIDENTIAL
Share of Smartphone Sales in Various MarketsSmartphone Sales Forecast For Select Economies
Smartphones Gaining Ground But Still Room For Growth
66% 69%
59% 56%
6%
29%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Great Britain Germany USA China India Russia
Share of Smartphones in Total Mobile Sales
Smartphones,
12.6MM
Laptops, 7.0MM
PC, 4.8MM
Smartphones Laptops PC
Sources: J'son & Partners & Strategy Analytics
239.8
125
26.5 18.8 17.2 15.7
28.7%
14.9%
3.2% 2.3% 2.1% 1.9%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
0
50
100
150
200
250
300
350
400
450
500
China U.S. India Russia Brazil Indonesia
2013 Shipments 2013 Market Share
Sales of Various Devices in Russia 2012Russia is expected to be one of the largest markets
for smartphone purchases in 2013
Smartphone sales far outpaced PC or laptop unit
sales in 2012 and this trend is expected to continue
Many Russians are purchasing a smartphone as a first
and primary internet device
Despite the growth in smartphones, Russia still has
plenty of room to grow before it reaches the same
percentage of total mobile sales as other markets
54. 53
CONFIDENTIAL
Smartphone Shipments To RussiaRussia Mobile Operating Systems Market Share
Android has been quickly taking share from iOS phones in Russia where Apple is considered a luxury item
Android now takes over 70% of new shipments (almost double last year) in Russia mostly in lower priced phones
Unlike in the US, Nokia phones like the Windows phone are popular in Russia with Windows phone shipments
equaling those of the iPhone in 1Q 2013
Major carriers in Russia recently stopped carrying the iPhone due, in part, to the required subsidization of the
iPhone that Apple typically requests from carriers
In a recent survey, just over 50% of respondents said that they prefer Android over other mobile operating
systems. Another 25.3% voted for Windows Phone, 16.8% for iOS, and 7.4% for other options
Android Operating System Is Strong In Russia
18.90%
36.50%
22.80%
21.80%
IOS Andriod (& Linux) Nokia Other
Sources: WapStart and Openstat
55. 54
CONFIDENTIAL
Russia is the 4th country by app downloads from Google Play and 5th For Apple app downloads
Russia is the only country except the U.S. to be in the Top 5 for both iOS and Android apps
Russia is the fastest growing of the top countries having jumped 6 spots in the rankings year over year
Russia went from #9 to #4 on Android and #11 to # 5 on iOS since Q2 2012
Russia should experience even larger growth in Google Play downloads in future years due to the large increases
in market share by Android vs. iOS
Russia’s major operators have now stopped carrying the iPhone which should dent iOS app downloads
Competitor app stores like the Yandex store could take downloads away from Google Play though
Russia Is One Of The Top Countries In The World for Apps
56. 55
CONFIDENTIAL
Retail Market Estimates ($B)2012 Top Ten Luxury Goods Markets ($B)
Russia’s retail market is currently valued at about $660-$670B in total sales (depending on the source)
Russia is now Europe’s second largest retail market and is predicted to shortly become the largest
By 2020, the number of households in Russia with annual disposable income above $100K is expected to triple
Russia is 8th in the world in luxury spending and Russian tourists are fifth in spending worldwide (up 32% YOY)
Russian tourists are second in the world in “shopping expenditures” accounting for 16% of all tax receipts
submitted globally
Russia contains 101 billionaires third only the U.S. and China both of which have much larger economies
Moscow has the most billionaires in the world with a total of 79 and a collective net worth of $367B twice
that of Hong Kong, 3x that of Sao Paulo and 4x that of Mumbai
Russian Retail Market Overview
$77
$32
$21 $19 $18
$14 $12
$10
$7 $6
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
USA Japan Italy France China UK Germany Russia Spain S. Korea
$2,311
$3,390
$846 $659 $500
$4,208
$3,961
$1,877
$932 $768
$8,346
$4,470
$3,823
$1,482
$1,155
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
$9,000
China U.S. India Russia Brazil
2012 2016 2022Sources: Bloomberg LP, Economist Intelligence Unit
57. 56
CONFIDENTIAL
Ecommerce Penetration (% of Total Retail Sales)
1.90%
4.80%
5.30%
5.70%
10.10%
10.20%
0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00%
Russia
Germany
France
China
US
UK
Russia’s ecommerce sector is expected to grow at 35% per year until 2015, reaching $36B or4.5% of total retail
sales in 2015 with an additional increase to $72B by 2020 (one of the largest ecommerce markets in Europe) or 7%
of retail sales. In the long term Russia could be a $150 billion ecommerce market
In 2012 ecommerce sales were $12B or about 1.9% of Russia’s $670B total retail market
Today at 1.5% ecommerce penetration Russia is well below other countries such as the U.S. and the UK at
about 10% and even China and Brazil at about 5%. Both the U.S. and the U.K. reached 2% penetration in 2003
and 2005 respectively
The number of Russian consumers reporting recent online purchased increased 93% between 2011 and 2012
Russian Ecommerce Market Set to Explode
Ecommerce Estimates
Sources: Euromonitor & Morgan Stanley
58. 57
CONFIDENTIAL
Russian ecommerce companies have an estimated market share of about 90% in the Russian market showing the
significant barriers to entry in the Russian language market
About 22 million Russians made 80 million orders of physical goods (220,000 per day) in 2012
However, many Russians spend a significant amount abroad both in trips and online
Between 2011 and 2012 Russians received over 30 million packages from abroad, 70% from foreign e-stores
valued at total spending of $2.5 billion
Russians spent $43 billion on outbound tourism in 2012 and over $52 billion in spending while abroad
Russian Ecommerce Shoppers Prefer Local Sites
Top European Retail Sites (MM Unique Visitors)
123,524
54,057
33,068
28,293 26,939
21,634 18,951 18,899 17,922 17,572
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
1%
1%
1%
2%
2%
2%
3%
3%
3%
5%
6%
8%
25%
0% 5% 10% 15% 20% 25% 30%
Slando.ru
Wikimart.ru
E5.ru
Amazon.com
Sapato.ru
Molotok.ru
Yandexmarket.ru
KupiVIP.ru
MVideo.ru
Bigilon.ru
Avito.ru
ebay.com
Ozon.ru
Shoppers Favorite Places To Buy Online (%)
Sources: AlphaWise, comScore & Morgan Stanley Research
59. 58
CONFIDENTIAL
Russians are new to ecommerce with 48% having their first ecommerce
transaction in the last two years (vs. 10% in the U.S.) and only 16% having
bought products online for over six years (vs. 62% in the U.S.
Only 63% buy physical goods online at all vs. 85% in the U.S.
The average number of online purchases is 10 times per year for
consumers vs. 15 for the U.S.
Many factors have held back growth in ecommerce. For instance, cash on
delivery represents about 60% of online transactions because of the low
penetration of credit cards compared to other markets
Delivery is also laden with problems which is why only 19% of Russians
cite it as a benefit of online shopping
Yandex is a huge beneficiary of any growth in ecommerce with 87% of
consumers using search engines to research purchases and 81% using
search to compare prices
About 40% of commercial searches started at Yandex.Market
Russia’s ecommerce market is highly fragmented with the top 10 retailers
making up only 20% of the market. This is a good sign for advertising
platforms like Yandex
Total
Past 12 Months
(Online
Shoppers)
Regular
(1
Month)
Google 38% 38% 36%
Yandex 56% 59% 61%
Other 6% 4% 35
Yandex % of eCommerce Search
58
49
32
23
12
11
0 20 40 60 80
Cash of Delivery
Web Money
Bank Card
Bank Transfer
SMS Payment
Terminal
Online Method of Payment
Russian Ecommerce Market Set to Explode – Yandex Well Positioned
Sources: PWC, AlphaWise & Morgan Stanley Research
60. 59
CONFIDENTIAL
According, to a survey by Thinktank L2 and New York Times, most major brands in its Digital IQ index still do not
have a proper local presence online in Russia
Only 25% of companies have pages in Russian while only 21% have local Facebook pages
Only 50% of the top 10 most searched brands on Google have translated local sites
Only 5% have Russian language mobile sites for mobile customers
34% of brands do not support local in Russia with even those sites mostly lacking in local content, product,
and pricing info that is localized
In a survey, 72% of consumers said they would be more likely to buy a product with information in their own
language. As such, it is predictable that most dominant companies selling to the Russian market are local
Russians search for local brands 24% more than non-translated sites
Only about 20% of searches in Russia are in English yet less than 45% of brands fail to reach the top three
search results on Google or Yandex for Russian brand keywords due to low investment in local SEO
Global brand sites in Russia have an average load time of over 10.5 seconds almost 3x load time in the U.S. and
1.22x locally hosted sites
Only 20% of brands offer Yandex.Money or Cash On Delivery methods of payment despite the popularity of COD
in Russia and the low penetration of credit cards in Russia
Local Is Important – Foreign Brands Have A Way To Go In Russia
61. 60
CONFIDENTIAL
Local Is Important – Foreign Brands Have A Way To Go In Russia
More than a third of the brands in L2’s survey never sent a marketing email to any of the BRI country consumer
accounts. Less than 20% of welcome emails and only 10% of marketing emails received were in Russian
Only 52% of brands offer a Russian language web form for customer service while only 30% offer a Toll Free
Number with Russian language support and only one site offers live chat in Russian
With many Russians buying things from abroad due to infrastructure concerns and fear of counterfeits (estimated
to be almost 30% in major retail sectors) it is vital for international companies to provide local support features
These sites will eventually catch up and offer key local support in key markets such as Russia. Once this occurs it
will drive online commerce growth and could also give Google an edge as these international brands are already
major advertisers with Google
Russian Sites Offering Select Features
25%
69%
24%
27%
75%
35% 35%
31%
0%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Local Language Russian Language
Store Locator
Prices In Local
Currency
Local Customer
Service
Lists Location Info Links From Product
Page
Geolocation Provides Directions Live Chat in Local
Language
Source: L2 Think Tank
62. 61
CONFIDENTIAL
Local Is Important – Foreign Brands Have A Way To Go In Russia
Average Number of Searches in Brazil and Russia
% of BRI Facing Sites Offering Ecommerce
Russian Mobile Site Optimization
% of BRI Facing Sites With Translated Content
34%
66%
With Without
27%
73%
With Without
51%
27%
21%
US/Global Site Only No Mobile Site Russian Mobile Site
Source: L2 Think Tank
63. 62
CONFIDENTIAL
Site In Top 3, 56%
Site Not In Top 3,
44%
Local Is Important – Foreign Brands Have A Way To Go In Russia
Mobile App Investments By Top Brands Mobile Optimized Sites
14% 14%
38%
0%
5%
10%
15%
20%
25%
30%
35%
40%
iOS Android Symbian
43%
32%
25%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
No Mobile Site Mobile Site - Information
Only
Mobile Site with Commerce
Yandex Brands With Russian URLs SEO PerformanceGoogle Brands With Russian URLs SEO Performance
Source: L2 Think Tank & J'son & Partners
Site In Top 3, 57%
Site Not In Top 3,
43%
64. 63
CONFIDENTIAL
2014E Social Networking Users (MM)Percent of People Who Use Social Networking Sites
Russia ranks third on the top 10 list of countries where social media use is most prevalent
Other surveys have put total percent of people using social networks at as high as 73%
Perception of social networks has significantly increased in the past few years. In 2010, only 52% of Russians
responded positively to questions about their use of social networks. Today, that number is over 82%
Despite having the 7th most popular social networking site worldwide (VK.com), Russia still ranks as the 6th most
important country for Google +
Russians spend 12.8 hours a month on social networks or over twice the next country in terms of average hours
per visitor spent on social networking
52 50 50 49 49
40 40 39 38 35
33
29
9
30 30
17
9
36
24
8
15 21
42
22 21
42
51
25
38
56
0
20
40
60
80
100
120
Britain U.S. Russia Czech
Republic
Spain Poland Brazil France Italy Turkey
Yes No No Internet
525
283
184
110
75 56 39 37
0
100
200
300
400
500
600
China India United
States
Brazil Russia Japan Germany United
Kingdom
Source: Pew Research Center Source: eMarketer
Russia Is An Important Country For Social Networking
65. 64
CONFIDENTIAL
Countries Who Accessed A Social Network On Mobile
59.9 57.8
53.8
49.5
42.2 40.4
36.8 36.7
0
10
20
30
40
50
60
70
Russia USA UK China Germany France India Brazil
Source: Socialbakers Source: Google
Russia Is An Important Country For Social Networking
Facebook CPCs Across Countries
$0.73
$0.75
$0.78
$0.78
$0.81
$0.82
$1.05
$1.08
$1.25
$1.26
$0.00 $0.20 $0.40 $0.60 $0.80 $1.00 $1.20 $1.40
American Samoa
New Zealand
Nigeria
Switzerland
United Kingdom
Norway
United States
Australia
Japan
Russia
Top 5 Russian Social Networks By Unique VisitorsHours Per Month By Typical Internet User
49.218
37.78
17.67
7.768
5.259
6.9
30.2
20.5
368.4
306.7
0 20 40 60 80
Vk.com
Odn
Mail.RU - My World
Facebook.com
Twitter
Average Minutes
Per Visitor6.6
6.3
5.6
4.6
4.3
0
1
2
3
4
5
6
7
Russia Brazil Canada UK US
66. 65
CONFIDENTIAL
Russia is a huge gaming market
In 2012, Russian-speaking Internet users across the CIS (excluding Ukraine) spent a whopping 40.8 billion rubles
($1.3 billion) on online games, a growth of 22% YOY
The mobile game market in Russia will grow from $392 million in 2012 to an estimated $707 million in 201 a
CAGR of 13%
The number of mobile game players is also expected to increase from 38.6 million at the end of 2012 to 65.1
million in 2016 a CAGR of 11%
Russia is the number 2 gaming market in the world behind the U.S.
Active video game players and payersOnline game spending in Russia and Neighboring
Countries in 2012
$318MM
$195MM
$87MM
$12MM
$246MM
$366MM Social Games
PC Games
Mobile Games
Casual Games
Console Games
MMORPG
Source: Mail.ru & Newzoo
145.0
38.0 36.0 35.0 31.0
24.0
16.0 15.0
8.0 4.0
63.0
20.0 24.0
17.0 16.0
10.0 9.0 6.0 3.0 2.0
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
Active Players Active Payers
67. 66
CONFIDENTIAL
Does Acquisition Meet Google’s Criteria
Criteria Meets
Criteria?
Notes
Toothbrush Test People use Yandex multiple times a day
Solving a User Problem Yandex solves the same user problem as Google does,
arguably better, in the Russian language (at least according to
users)
Important to One of Main
Product Areas
Search is a main product area of Google. Buying Yandex will
increase search share especially in Russia. Technology and
partnerships could also be complementary to Google
Strong Management Team The employees at Yandex were first movers in search and
have successfully competed against Google despite having a
lot less resources and manpower
Management Team That Will
Stay With Google
Yandex has been a strong competitor of Google’s in Russia. It
is unknown if the team at Yandex would want to work for
Google
The Yandex acquisition meets most of Google’s acquisition criteria (as described in public documents). The big
question mark is if the team at Yandex would move over to Google. This could be addressed in a term sheet though
69. 68
CONFIDENTIAL
Combined Strengths And Values
Highly Regarded Leadership
Industry
Search
Technology
Intense User Focus
Focus and Strength In
Mobile
Innovative and
Entrepreneurial Spirit
Global Focus With Local
Knowledge
70. 69
CONFIDENTIAL
Transaction Rationale
• Transaction immediately gives Google an unassailable leadership position in a key internet,
advertising and commerce market
• In the critical mobile area, the combined company will have the ability to enhance the value
proposition of mobile through Google’s market leading developments while also having the
ability to monetize mobile, something few companies do as well as Google
• There are significant cross selling opportunities for Google in Russia. For instance, Russia is one of
the few places where Facebook is not dominant which presents an opportunity for Google+
especially considering what a strong social country Russia is
Strategic
• Highly complementary integration of assets between the two firms including customers, products
and technologies
• Significant distribution and cost synergies between the two firms
Operational
• Compelling PF financial profile that is immediately accretive to Google with few synergies
required
• Including synergies and the growth potential of Russia, Google could be getting Yandex for a
decent price while also acquiring the future possible successes (free options) that go above and
beyond forecasted financial results
Financial
• Customers benefit from the combination of Yandex’s local market expertise and Google’s industry
leading and quickly advancing products
• Yandex has the largest advertising network in Russia, a significant asset for Google in Russia and
beyond
Customers
• Yandex’s team rivals Google in terms of time within the search industry
• Google acquires a significant stable of technology talent and IP that will be useful in worldwide
while also increasing the attraction to future talent in Eastern Europe
Talent and IP
• Yandex has partnership deals with the most important companies in Russia, as well as major
competitors to Google such as Apple. Taking advantage of these partnerships or neutralizing them
is important for Google
Partnerships
71. 70
CONFIDENTIAL
Pro Forma Financials
Revenues $47,353 $1,242 $48,595
LTM 2013 Google Yandex Combined
2.56%
% Combined
Gross Profit $34,439 $923 $35,362 2.61%
EBITDA $21,145 $561 $21,706 2.58%
EBIT $17,092 $433 $17,525 2.47%
Net Income $14,857 $378 $15,235 2.48%
Cash Flow $10,743 $289 $11,032 2.62%
Total Assets $105,068 $1,487 $106,555 1.40%
72. 71
CONFIDENTIAL
Transaction
Transaction Structure
Expected Sources Of
Funding
Google acquires 100% Of Yandex for equity consideration of $17 billion
Premium of 35% to prior day closing price of $37.79
Purchase price of $17.044 billion, subject to working capital and other adjustments
Consideration of 75% Cash and 25% Equity
Theoretical Exchange ratio of .049x with 4.261 million Google shares issued
Transaction expected to be financed with cash on hand from GOOG and YNDX as well as
common shares of GOOG
PF Financials
With synergies Google can expect cash ongoing EBITDA of $22,018 million and revenue of
$48.781 million
Expected Timing Expected to close by the end of the fourth quarter of 2013
Transaction Structure
Synergies Numerous opportunities for pre-tax synergies of about $311 million
Conditions to Closing Subject to due diligence, shareholder approval and regulatory approvals in the US and Russia
Management &
Employee Teams
Google will attempt to retain key members of Yandex management and key employee teams
73. 72
CONFIDENTIAL
Expected run-
rate benefitsLevers Drivers of efficiencies
• With the combination Yandex and Google will offer an even more
compelling platform for advertisers and partners in Russia and
beyond
• There will be numerous cross selling opportunities as well as the
ability for Yandex advertisers to utilize other Google services or
enter into other markets with Google
Revenue
Enhancements
$186.3 million
or 15% of
Yandex
Revenue
Product
Development
Total Pre-Tax Synergies
Synergies expected to be accretive to both margins and Adjusted EPS
$310.9
million
Synergies Summary
General and
Administrative Costs
& COGS
• While Google will clearly need to keep the core development
capabilities at Yandex to support local products there will be
numerous areas of overlap and inefficiencies which can be
eliminated through a merger
• Efficiencies from pooling of resources and infrastructure
(production, support, general support, middle management,
facilities, IT, etc.)
• COGS will see lower synergy levels due to increased efficiencies
from scale
$53.8 million
or 30% of
Yandex R&D
Spending
$70.8 million
or 30% of
Yandex G&A
and 15% of
COGS
74. 73
CONFIDENTIAL
Merger Summary (1)
(1) Does not include foregone interest income
Transaction Assumptions Sources Amount
Current share price $37.79 Cash For Expenses $25.6
Offer price premium 35.0% Cash Purchase Price 75.0% $12,783.0
Offer price per share $51.02 Stock issued 25.0% $4,261.0
YNDX diluted shares outstanding $334.1 Total Sources $17,069.5
Offer Value $17,044.0
+ Debt $0.0 Uses‡
Amount
+ Preferred $0.0 Purchase of equity $17,044.0
+ Noncontrolling interest $0.0 Transaction expenses 0.1% 5 $25.6
- Cash & equivalents ($368.4) Total Uses $17,069.5
Transaction Value† $16,675.6 ‡
Assuming no financing fees. Simplifying training assumption.
Purchase Price Allocation Transaction Multiples LTM
Offer Value $17,044.0 Transaction Value / PF 2013 Sales 11.68x
Less: Net identifiable assets of target ($1,105.9) Transaction Value / PF 2013 EBITDA 19.1x
Excess purchase price for allocation $15,938.1 Offer Value PEG 0.8x
Less: Fixed asset write-up ($1,593.8)
Less: Indefinite life intangibles write-up ($2,390.7) Exchange Ratio Calculation
Less: Definite life intangibles write-up ($1,912.6) Offer price per share $51.02
Plus: Deferred tax liability $1,179.4 Google Inc. share price $1,036.24
Goodwill Created $11,220.4 Exchange ratio§
0.049x
§
Theoretical assuming 100% stock
† Balance sheet data converted to USD at a rate of 0.0309 USD / RUB as of the filing date 30-Sep-13.
75. 74
CONFIDENTIAL
2013E Pro-Forma GAAP Income Statement (1)
Pro Forma
Google Yandex Increase Decrease Combined
Net Revenues $47,352.6 $1,242.0 $186.3 $48,780.9
Cost Of Goods Sold 12,914.1 319.0 (16.0) 13,217.2
Gross Profit 34,438.5 923.0 186.3 16.0 35,563.8
Selling General & Admin Exp. 10,175.3 191.8 (57.5) 10,309.5
R & D Exp. 6,365.9 179.3 (53.8) 6,491.4
Total Operating Expenses 16,541.2 371.0 (111.3) 16,800.9
Ongoing EBITDA $17,897.3 $552.0 $18,762.9
D&A 4,053.5 149.0 286.9 0.0 4,489.4
EBIT 13,843.8 403.0 14,273.5
Other Income (Expense) 657.6 85.0 742.6
Pre-Tax Income 14,501.4 488.0 15,016.1
Income Tax Expense 2,386.0 113.0 62.7 (57.4) 2,504.3
Discontinued Operations 711.0 711.0
Net Income $12,826.4 $375.0 $13,222.7
Diluted EPS $37.85 $1.11 $38.55
Weighted Avg. Diluted Shares Out. 338.9 339.0 4.1 343.0
2013E Adjustments
(1) Does not include foregone interest income
76. 75
CONFIDENTIAL
2013E Pro-Forma Cash Income Statement (1)
Pro Forma
Google Yandex Increase Decrease Combined
Net Revenues $47,352.6 $1,242.0 $186.3 $48,780.9
Cost Of Goods Sold 12,914.1 319.0 (16.0) 13,217.2
Gross Profit 34,438.5 923.0 186.3 16.0 35,563.8
Selling General & Admin Exp. 6,926.7 182.8 (54.8) 7,054.6
R & D Exp. 6,365.9 179.3 (53.8) 6,491.4
Total Operating Expenses 13,292.6 362.0 (108.6) 13,546.0
Ongoing EBITDA $21,145.9 $561.0 $22,017.8
D&A 4,053.5 128.0 4,181.5
EBIT 17,092.4 433.0 17,836.3
Other Income (Expense) 740.6 49.0 789.6
Pre-Tax Income 17,833.0 482.0 18,625.9
Income Tax Expense 2,976.5 104.0 62.2 3,142.7
Net Income $14,856.5 $378.0 $15,483.2
Diluted EPS $43.84 $1.12 $45.14
Weighted Avg. Diluted Shares Out. 338.9 339.0 4.1 343.0
2013E Adjustments
(1) Does not include foregone interest income
77. 76
CONFIDENTIAL
2013E Pro-Forma GAAP Balance Statement
Acquirer Target Adjustment Pro Forma
GOOG YNDX (Decrease) Increase Combined
Cash $54,432 $370 ($12,809) $41,993
Other current assets $12,429 $185 $12,614
PP&E $12,912 $247 $1,594 $14,752
Goodwill $11,396 $23 ($23) $11,220 $22,616
Other intangibles $6,558 $10 $4,303 $10,871
Other long-term assets $3,455 $516 $3,971
Total Assets $101,182 $1,349 $106,817
Current liabilities $9,118 $204 $9,322
Debt $8,200 $0 $0 $8,200
Other liabilities $5,012 $17 $1,179 $6,208
Preferred stock $0 $0 $0
Noncontrolling interest $0 $0 $0
Common equity to parent $78,852 $1,129 ($1,154) $4,261 $83,087
Total Liabilities & Equity $101,182 $1,349 $106,817
78. 77
CONFIDENTIAL
Net Income Merger Build Up (1)
Cash Net Income Build Up
GAAP Net Income Build Up
$378
$627
$186
$16
$109 $62
$0
$100
$200
$300
$400
$500
$600
$700
$800
Standalone 2013E Revenue Synergies COGS Synergies Expense Synergies Tax PF 2013E
(1) Does not include foregone interest income
$375 $396
$186
$16
$111
$5
$287
$0
$100
$200
$300
$400
$500
$600
$700
$800
Standalone 2013E Revenue Synergies COGS Synergies Expense Synergies Tax Amortization PF 2013E
80. 79
CONFIDENTIAL
Market Cap ($MM) Revenue ($MM) EBITDA($MM)
97%
3%
Google
Yandex
97%
3%
Google
Yandex
Free Cash Flow($MM) Net Income ($MM) Total Assets ($MM)
95%
5%
Google
Yandex
Contribution Analysis
97%
3%
Google
Yandex
98%
2%
Google
Yandex
99%
1%
Google
Yandex
85. 84
CONFIDENTIAL
Yandex Ownership
Concentration
Name % O/S Position Position Chg Position Chg %
Volozh, Arkady 9.97 32,546,735 (25,655,386) (44.08)%
OppenheimerFunds, Inc. 6.50 21,223,122 2,131,762 11.17 %
Thornburg Investment Management, Inc. 5.90 19,250,139 765,014 4.14 %
Morgan Stanley Investment Management Inc. 5.26 17,173,867 95,450 0.56 %
Ivanov, Vladimir 3.44 11,218,884 (13,318,884) (54.28)%
Comgest S.A. 2.58 8,433,126 (619,000) (6.84)%
Capital Research and Management Company 2.50 8,165,000 248,567 3.14 %
BlackRock, Inc. 2.19 7,138,412 4,483,797 168.91 %
Fidelity Investments 2.12 6,918,167 (2,756,875) (28.49)%
Capital Group International Inc. 1.58 5,168,600 (4,060,920) (44.00)%
Eton Park Capital Management, L.P. 1.38 4,500,000 2,500,000 125.00 %
Lazard Asset Management LLC 1.38 4,491,985 (305,202) (6.36)%
Wellington Management Company, LLP 1.38 4,489,488 (1,988,562) (30.70)%
UFG Private Equity 1.08 3,515,186 (2,000,000) (36.26)%
William Blair Investment Management 0.97 3,181,481 1,563,343 96.61 %
Institutional Ownership By Style
62%
33%
4% 1%
GARP Growth Blend Value
52.52
65.55
71.16
73.99
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
Top 20 Top 50 Top 100 All
Source: Capital IQ
86. 85
CONFIDENTIAL
Yandex Stock Chart
Source: Factset Research Services Inc.
Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct
$15.00
$20.00
$25.00
$30.00
$35.00
$40.00
$45.00
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
Source: FactSet Prices
Yandex NV Class A (YNDX)
Price (USD) Volume (Thousands)
Volume Yandex NV Class A
87. 86
CONFIDENTIAL
Yandex and Peer Stock Chart
Source: Factset Research Services Inc.
Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov
80
100
120
140
160
180
200
220
240
Source: FactSet Prices
Yandex NV Class A vs. Peers
Indexed Price Performance Price (Indexed to 100)
Yandex NV Class A Google Inc. Class A Yahoo! Inc. Mail.ru Group Ltd. Sponsored GDR RegS Baidu, Inc. Sponsored ADR Class A NAVER Corp.
89. 88
CONFIDENTIAL
As Much As Google Needs Yandex, Yandex Needs Google More
I think it’s always a mistake to assume that technology will be static. So, I think certainly over the long term, we’re going to
have new kinds of devices and ways of interacting with computing and the Internet. We’re obviously excited about Google
Glass and new ways of interacting with hardware and new types of hardware. With any technological change you probably
overestimate the short-term and underestimate the long-term. We’re really excited about making those investments and
making sure we’re positioned to the future. – Larry Page CEO of Google
While Yandex is innovating in core search areas, they are not innovating at nearly the pace that Google is
In key difficult areas like mobile (both hardware and android), wearables and big data Google is
innovating at a much faster pace than rivals and gobbling up share as a result
The pace of innovation has accelerated at a blistering pace in the past few years and shows no sign of
slowing in the coming years
Yandex is not even in areas of possible huge innovations such as wearables and phone hardware
Google is creating an unstoppable ecosystem with key incentives in wearables, hardware, driverless cars and
big data, among other initiatives that will be extremely difficult to replicate if Google obtains a large lead (like
Apple with the iPhone)
With Google spending almost $9 billion per year on R&D and acquisitions, it is hard to see how Yandex will be
able to compete in 10 or 20 years if Google is successful with any of its world changing products (like Glass) or
incrementally improves core products in a way that others would have a lot of trouble replicating
90. 89
CONFIDENTIAL
Things Are Changing At An Accelerating Pace
On August 5, 2013 Jeff Bezos announced the acquisition of the
Washington Post for $250 million
The Washington Post is one of the most iconic publications of
the past 100 years
Yet due to the digital innovation related to news consumption
the company that broke the Watergate scandal went for only
$250 million
For reference two other companies, Tumblr and Instagram were sold
for over $1 billion despite being in existence for only a short term
before being acquired
This shows the increasing pace at which new technologies are
displacing existing market leaders
91. 90
CONFIDENTIAL
Companies Not Around In 2000 Have Created Major Industry Disruptions
The below companies are disrupting business models at a blistering never before seen pace:
The below one-time dominant companies failed to get in front of future trends and paid the price:
92. 91
CONFIDENTIAL
Yandex Is Hoping The Future Will Be Like The Past: Not Likely
With this information would you stake your companies future on tomorrow being like today? Yandex Is
Compared to Google, Yandex has not been innovating at nearly the same pace as its search competitor. Yandex is
assuming that the world in which it came of age in will continue
By staying a smaller company while not pursuing innovation at nearly the same pace as Google Yandex is making
the implicit bet that the future will be much like the past a bet that may seem unwise in hindsight
If any of Google’s major innovations, for which it spends over $9 billion a year (in R&D and acquisitions), are a
major success it will greatly enhance Google’s position at the expense of major competitors like Yandex
Already, major successes like Android, YouTube, Google+ and Chrome have greatly enhanced Google’s
competitive position, especially in key mobile markets
Products like Glass, Google Now, self driving cars, Moto X, Google’s version of cookies and others have the
potential to create major disruptions in Google’s favor. This would put Google far enough ahead of
competitors to present a major problem to those competitors
By not taking on major but riskier innovations Yandex is implicitly betting that the landscape will not
change too much a tricky assumption for anyone who watched once dominant companies fall to innovative
forces
93. 92
CONFIDENTIAL
Why Yandex Needs Google
Ecosystem
Online &
Mobile
Video
Glass
Mobile
Phone
Hardware
Social
Network
(Google+)
Smart
watch
Driverless
Cars
Chrome
Hardware
AdID
Google
Cloud
94. 93
CONFIDENTIAL
2 20 80
200 250
350
600
700
18
160
250
400 425
500
650
800
0
200
400
600
800
1000
March
2009
December
2009
August
2010
May 2011 July2011 October
2011
June 2012 January
2013
Android iOS
Mobile is Exploding
Sources: StatCounter Global Stats, Apple, Google, Flurry, Cisco, News Reports and
Kleiner Perkins Caufield & Byers
Global Mobile Traffic As % of Total Internet Traffic Installed Base of Computing Products
Source: Credit Suisse and Company Data
Available Apps (000s)Mobile Consumer Internet Traffic (PB Per Month)
684
1,239
2,223
3,774
6,026
9,131
0
2,000
4,000
6,000
8,000
10,000
2012 2013 2014 2015 2016 2017
96. 95
CONFIDENTIAL
Mobile Is Growing Rapidly
Mobile A Larger Part of World Traffic
1/7 Of Global
Internet Traffic &
Growing Quickly
Mobile A Larger Part of World Traffic
217 New Users
Every Minute
Smartphones Are Now Indispensable
67% of Users
Access The Internet
Every Day From a
Smartphone
App Revenue Is Exploding
$25 Billion
In Revenue From
Mobile Apps
Larger Share of Digital Consumption
1 of Every 3
Minutes Spent on
Digital Media
Mobile Visits Trouncing Desktop
10x Growth
In Visits For Mobile
Vs. Desktop From
2012 to 2013
97. 96
CONFIDENTIAL
Increasingly e-Commerce is Mobile
U.S. Retail Mcommerce Sales By Device 2011 - 2016
Sources: eMarketer & Baymard
$5 $14
$24
$34
$46
$61
$8
$10
$13
$17
$20
$24
$14
$25
$38
$52
$68
$87
$0
$20
$40
$60
$80
$100
2011 2012 2013 2014 2015 2016
Tablet Smartphone Other
Total Mobile Spending Amount Distribution
$1-20, 38%
$21-100, 30%
$101-$250, 15%
$250+, 17%
mCommerce Spending Per Smartphone/Tablet
$43
$70
$106
$135
$157
$176
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
$200
2010 2011 2012 2013 2014 2015
mCommerce Per Smartphone/Tablet
100. 99
CONFIDENTIAL
Share Of Time Spent Per DayUS Internet Minutes by Device
Since the first iPhone was introduced in 2007, mobile smartphones and tablets have rapidly become a hugely
important medium for users and advertisers. As Google itself says:
Smartphones are the backbone of our daily media use. They are the devices used most throughout the
day and serve as the most common starting point for activities across multiple screens.
Smartphone penetration has risen to 56%. About 67% of those with smartphones access the internet every day
on it, usually never leaving home without it
By the end of 2013, tablet sales are expected to surpass PC sales for the first time
According to Cisco, total global data carried over smartphones will surpass laptops and netbooks in 2013
Mobile accounts for 27% - 32% of retailer traffic and 60% of millennial shoppers shop on mobile
Mobile Is Rapidly Overtaking Desktop
4% 7% 13% 19%
22%
23%
21%
19%4%
4%
4%
5%
41%
40%
39%
37%
15% 14% 13% 12%8% 7% 5% 5%7% 6% 4% 3%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2010 2011 2012 2013
Other
Offline Print
Radio
TV
Other Digital
Desktop/Laptop
Mobile (Non-Voice)
47%
12%
41%
Desktop Tablet Smartphone
Source:Comscore excluding online video viewing minutes, & eMarketer